LONDON – IHS Jane’s warned the spike in mergers and acquisitions (A&M) activity in the defence industrial markets witnessed during the second quarter of the year may have been a false dawn as activity slid back sharply during the three months to 30th September.

Guy Anderson, Lead analyst of Jane’s Defence Industry, explained, “Activity in the defence domain remained heavily subdued in the third quarter of 2009, suggesting that hopes of an upturn prompted by the spike in the number of higher value deals during the preceding three months may have been premature.”

IHS Jane's tracked 24 publicly disclosed M&A transactions in the sector for the three months to the end of September: down from 27 in the second quarter and close to the 23 recorded during the first quarter. This marks a continued decline from the relatively low performance of 2008, when activity stood at 28, 24 and 30 deals in the year's third, second and first quarters respectively.

The total value of deals reported during the third quarter of 2009 was particularly notable, however: the total of USD 502.1 million is lower than any quarterly result from the past three years.

Such headline figures reflect the nature of activity during the three months. The deal landscape was characterised by the pursuit of small, in-fill targets – some way below the USD 500 million mark – which typically added niche capabilities to buyers' portfolios. Buyers crossed the spectrum of bidders, however, with upper-tier, lower-tier and private equity participants leading activity.