DoD examining L3 & Harris merger’s impact on competitive landscape
John Song, managing director at Baird, details the $33 billion merger of two defense contractors and why we should expect more mergers and acquisitions in the near future.
Under Secretary of Defense for Acquisition and Sustainment Ellen Lord said recently that the Pentagon is working to see if the proposed merger between L3 Technologies and Harris Corporation would make the defense landscape “problematic.” John Song, managing director at Baird, says that while this merger is huge, he doesn’t see many complications arising.
“I think it’ll be fine at the end of the day. There is a good case study. If there is some anti‑competitive nature of the two businesses, they will likely carve out those portions of the business,” Song said. “A recent transaction was UTC’s acquisition of Rockwell Collins, that’s a $30 billion transaction. They identified two businesses that they needed to ensure there’s a healthy, competitive landscape for. They’re forcing Rockwell Collins to divest those two businesses as a precursor before the acquisition goes through.
Song told Government Matters that there’s been a backlog of potential mergers over the last five years, and now that the defense industry has stabilized, the floodgates are opening.
“It is sort of supply and demand. On the supply side, there were people who felt the timing was right for them to go to market. But they were subject to sequestration, so there was no predictability in their revenue or financial performance, so they had to put it on hold,” said Song. “We think from 2013 to 2018, they have just been waiting. Now they have clarity. They can actually provide a forecast that is reliable.”