Deal Notes

Strategic Competitive Advantage

I was part of Boeing management in the 1990s when it dawned on the executives that Airbus might not be just a flash-in-the-pan startup that would be going away anytime soon. Fast forward to last week as COMAC delivered its first C919 while industry critics continue to scoff at the notion that it will ever be a serious international seller of commercial aircraft.

While there are myriad opinions on what factors have been the primary drivers in the airliner industry over the past 50 years, the bottom-line lesson to be learned for all companies in aerospace is “Understand your strategic competitive advantage and take deliberate steps to protect it.” Competitive advantage can take many forms such as superior technology, brand recognition, sales and distribution network, manufacturing efficiency (allowing lower pricing), customer relationships, and nimbleness in rapidly changing markets. In the world of mergers and acquisitions, the critical question is whether a company’s advantage will be defendable in the future. In other words, can the seller articulate a convincing strategy for the firm’s continued success such that its revenue and profit projections are credible?

In aviation, patent protection and Supplemental Type Certificates (STCs) are two of the most common means of defending a product technology advantage. Also cited are the prohibitive time and cost of (i) building a competing sales and distribution channel, and (ii) establishing a well-known brand. Less persuasive arguments include customer relationships where one extremely strong salesperson can represent a single point of failure. Similarly, technology leadership without legal protection may be easily overcome by competitors that have access to product development capital and make a few good hiring decisions.

In our 22 years of selling middle market aerospace and defense companies, we’ve observed the highest prices are achieved by firms with convincing projections that clearly identify the seller’s strategic competitive advantage and articulate why that advantage will continue to be effective in the future.

Have a great day everyone.

Kevin Gould
Managing Director, Aerospace
M: 425.218.3723
E: kg@aldermanco.com
www.aldermanco.com