Leading Investor Evaluates Major A&D Hardware Company

The aerospace and defense sector is attracting substantial capital due to strong end-market growth tailwinds and business models typified by long-term contracts and strong cash flow generation

The complexities of evaluating A&D businesses include high degrees of customer and program concentration, building an understanding of contracting, evaluation of competitive positioning considerations that include performance, customer relationships and technology, and for hardware businesses, having clear views on manufacturing and operations.   

Private equity firms must build conviction around these complexities at their investment committees, for their co-investors and lenders, and over a 10-year time horizon since a typical strategy is to generate investor returns in 5-7 years by realizing a sale to next buyer who themselves will form a multi-year outlook in its evaluation.  These complex analyses and underwritings are oftentimes paced by accelerated auction processes and with the pressure of competition from other buyers.  

Clarity and Confidence in Diligence and Investment Strategy 

Renaissance has developed a sector-focused, multi-disciplinary approach to advising financial investors on the sector.  Our team is first and foremost deep in the aerospace and defense sector.  Through an extensive strategy and diligence track record across hardware, services and technology businesses over decades, our team has formed expertise, intellectual property, networks of senior advisors, and histories with hundreds of assets and owners of businesses.  The multi-disciplinary expertise of our full-time team, and ability to tap a network of over 100 senior advisors with either customer, operations, or business leadership backgrounds provides the scope to evaluate markets, business plans, and operations, while providing significant insight into both key diligence topics and investment strategy formation above and beyond what is presented by the seller. 

Turnkey Buy-side Evaluation Solution

‘LeadingPEInvestor’ had entered diligence of the A&D Hardware target.  The business had a substantial multi-year order backlog underpinning its revenue outlook based on recent wins in a large and competitive segment of the sector.  However, operations were going through a transition to new manufacturing and product technologies.  While understanding the sector and the business’s top line prospects were important, determinative for investment decision making was evaluating recent contract wins pricing and cost-builds, the new product, supply chain and ability to scale operations. 

Making the Right Investment Decision

Renaissance compiled an experienced internal team supplemented by external subject matter experts (“SME’s”) from Renaissance’s extensive industry network.  Renaissance’s SMEs had deep experience with costing and pricing programs, scaling operations and engineering new products. The team worked closely with the client and SME advisors to build a clear, objective view of the business across many facets, directly inputting findings across a range of insights into a detailed financial forecast and assessment of risks and upsides.  Renaissance also worked from a strategy perspective to assess areas the target could grow with incremental investment above the seller case. 

Based on this analysis, the client formed clear conviction that the seller’s outlook and value expectations were disconnected from fundamentals.  Subsequently, the business performed more closely to the diligence case than the seller’s expectations due to issues and considerations identified in operations diligence.  "LeadingPEInvestor" had preserved substantial capital by not proceeding with the acquisition - a favorable outcome given the circumstances.

As a trusted advisor, Renaissance has continued to work with this client across a range of new investments and portfolio companies, many of which have closed and performed successfully.