The Epic Chronology of Spaceflight M&A

I've been meaning to put this together for a long time now, and I finally got around to doing it this weekend. It looks even better than I envisioned - check it out!! I'm so proud, the diagram alone took me four and a half hours on PowerPoint!

Click on this image on desktop to expand it - there's a ton of great detail!

If you're a space nerd like me, you've spent lots of time reading the Wikipedia pages of American rockets and spacecraft. Most of the companies that built these great machines no longer exist - in one way or another, they've merged with each other to form new corporate entities. For example, Douglas Aircraft built the 3rd stage of the Saturn V, but since then they merged with McDonnell to form McDonnell Douglas, before that combined entity ultimately got acquired by Boeing. Or Grumman, the company that built the Lunar Module, now makes up one half of Northrop Grumman.

As you can see, mergers & acquisitions are quite common in the aerospace sector. My diagram is already jam packed, and that's just orbital spaceflight; keep in mind these aerospace giants manufacture everything from passenger jets to attack helicopters, with tons of M&A in those sectors too. We investment bankers like constant and complicated M&A - it's good for job security! But why do companies merge in the first place? There are various reasons (some legitimate, some more questionable), but here are the most common justifications:

  1. Eliminate overlapping costs (or in investment banking lingo, "cost synergies")
  2. Increased bargaining power against customers and suppliers
  3. Leverage complementary expertise
  4. Eliminate competition

Before reading further, really take a moment to go through my diagram, it's one of the most fascinating outlines I've ever put together. I'll go through a few case studies of the more recent and important transactions below:

Northrop acquires Grumman (1994)

Northrop bought Grumman for \$2.1 billion, primarily to acquire Grumman's lucrative contracts in military electronics and commercial aircraft components. Grumman had long been seeking an acquirer as it faced diminishing prospects and declining military spending since the end of the Cold War. Interestingly, Grumman had originally agreed to be acquired by Martin Marietta for \$55/share, but Northrop raised the ante with a hostile bid of \$62/share, a price Martin Marietta was unwilling to beat - NYT article here

Lockheed and Martin Marietta merger of equals (1995)

Lockheed and Martin Marietta were individually the second and third largest weapons manufacturers at the time (behind McDonnell Douglas) but their $10 billion merger catapulted them to the lead and clearly signaled to both the industry and the government that more consolidation was on the way. Before considering the megamerger, apparently Lockheed and Martin Marietta looked into a joint acquisition of General Dynamics and running it as a joint venture, especially given Martin Marietta had just acquired GD's space systems business. But they ultimately decided creating Lockheed Martin made more financial sense - WSJ article here

Boeing acquires McDonnell Douglas (1997)

The colossal \$13.3 billion acquisition combined the world's largest commercial jet manufacturer with one of the stalwarts of military aircraft production, generating a combined 60% market share of large commercial jetliners. Boeing had eagerly been looking to expand more into defense as a means to counterbalance its cyclical commercial jetliner business; they'd already bought the defense business of Rockwell International for \$3.2 billion - WSJ article here

Boeing and Lockheed Martin form the United Launch Alliance (2006)

For years, the two companies had fought tooth and nail for billion dollar government contracts (with multiple accusations of corporate espionage), and all the while the Russians and Europeans steadily gained ground in commercial satellite launch. Boeing and Lockheed Martin ultimately convinced the government that a joint venture would better serve national security interests, and while it's true that Boeing's Delta and Lockheed Martin's Atlas rockets have had an unparalleled launch success rate since the ULA's formation, their monopoly on government launches led to skyrocketing costs. However, SpaceX has since broken this monopoly, forcing the ULA to drastically cut costs and innovate on their rocket designs - Popular Mechanics article here

The ULA's Delta IV (Left: contributed by Boeing) and Atlas V (Right: contributed by Lockheed Martin)

Northrop Grumman acquires Orbital ATK (2018)

Northrop Grumman bought Orbital ATK to bolster its space systems and missile defense businesses, as Orbital ATK is one of the leaders in solid rocket propulsion systems. Also, Orbital ATK was already supplying key components to Northrop Grumman, the deal helps vertically integrate its supply chain which should in theory reduce costs - WSJ article here

Northrop Grumman picked up the Omega rocket in the acquisition, which Orbital ATK was developing to compete for national security launches

Pretty interesting stuff if you ask me! I always enjoy applying finance to the space industry - why else would you read an investment banker's space blog? 

Did I miss any key M&A deals? Or do you have a prediction for what the next aerospace megadeal will be (pitch me SpaceX / Blue Origin, I dare you!) Let me know!