Defense supply is one of the biggest industries in the world and it is perhaps the only industry that is recession-proof. It doesn’t matter whether a nation is going through an economic downturn, but it is going to continue to spend on its defense. As a matter of fact, defense expenditure at a global level usually goes up year after year and hence, acquisition of a company engaged in this industry is a significant event for an investor. In a new development, British aerospace and defense supply firm Cobham has been acquired by American private equity firm Advent International in a deal worth £4 billion.
More importantly, the entire deal is going to be conducted in cash. Shareholders are going to be paid 165 p for each of their shares and that reflects a premium of 34% on the Cobham shares as of Wednesday’s close. Once the deal was announced, Cobham shares rose to 166 p, which reflects a rise of 35%. Cobham is one of the biggest companies in the UK and employs 10,000 people. The company is engaged in supplying radars as well as other similar items to a range of industries including aviation. For instance, equipment made by Cobham is widely used in the Airbus passenger jets.
That being said, the company has had its fair share of trouble over the past few years and had issued profit warnings as many as five times in the 2015-2017 period. However, after raising a mammoth £500 million from shareholders two years ago, it managed to stabilize its finance. The chief executive of Cobham, David Lockwood harped on the improvement in a statement. He said,
We have worked intensively over the last two and a half years to focus on our customers and our financial and operating performance. This offer reflects the potential for future growth and improving performance, and is an endorsement of our turnaround strategy and our hard-working people.”
However, the sale of such a company to a foreign company might raise resistance from politicians who might not be entirely comfortable with the takeover.