Farnborough Air Show

Boeing boom may trigger takeovers

 - November 27, 2006, 12:53 PM

Boeing’s booming airliner programs are boosting the stock values of its suppliers and making them much more visible. As a consequence, first and second tier suppliers are increasingly likely to find themselves takeover targets, according to mergers and acquisitions expert Michael Richter.

“These firms are trading at record high multiples,” he told Aviation International News, pointing to the example of Boeing 787 supplier Primus International, which was recently sold for top dollar. Richter is here at Farnborough International in his capacity of co-president of Jeffries Quarterdeck, which closed a record number of 25 M&A (mergers and acquisition) transactions so far this year.

One deal that won’t happen, according to Richter, is a buy-out of defense electronics group L-3 Communications. The sudden death last month of its founder and CEO Frank Lanza, has fueled speculation that the New York-based company could be acquired by a much larger defense concern, such as the UK’s BAE Systems. But Richter predicted that L-3’s board will opt to remain independent and will likely name acting CEO Mike Strianese as Lanza’s permanent successor.

According to the M&A guru, BAE Systems will now take a wait and see approach to buy further into the U.S. defense market. The collapse of its share price in the wake of the serious problems at Airbus (in which BAE has a 20 percent stake) has weakened its hand, according to Richter, since it would have to resort to a major debt and equity restructuring to buy a firm of L-3’s stature and value.