Raytheon and United Technologies to merge their businesses to address challenges in the fast-growing Aerospace & Defense market

Raytheon and United Technologies are joining hands to further expand their aerospace & defense segment, making it the second-largest company in the US in the aerospace & defense segment, after Boeing in terms of revenue.

The all-stock merger of equals, which includes the aerospace & defense segments of both companies, is expected to create a good mix of premier systems and advanced technologies to cater to the fast-growing aerospace & defense market. Raytheon is one of the leading players in the defense segment, and its merger with United Technologies, a leading player in the aerospace segment, is expected to help create a more comprehensive portfolio of platforms for the aerospace & defense market.

The merger will help both companies gain an advantage over their competitors. In addition, their combined R&D capabilities are expected to help provide more cost-efficient and improved technologies to customers. The merger excludes the Otis and Carrier divisions of United Technologies, which are expected to be separated in the first half of 2020. After the merger, the new entity will encompass a comprehensive product portfolio in both commercial aerospace as well as the defense sector. United technologies manufacture products ranging from jet engines to cabin interiors, among other products. Raytheon is more rooted in defense and manufactures missiles defense systems and provides solutions for cybersecurity. This merger will help leverage the expertise of Raytheon’s defense solutions with United Technologies’ commercial aerospace portfolio, providing better products to customers in both the commercial and defense sectors.

The terms of the merger, which were approved by the board of directors of both companies, include Raytheon shareholders receiving 2.3348 shares in the new company for each Raytheon share held. Post completion of the merger, United Technologies will have a 57% share while Raytheon will have a 43% share in the new company.


Nilopal Ojha, Senior Research Analyst – Aerospace & Defense at MarketsandMarkets™ quotes “Both companies are iconic in their respective industries, and the merger is expected to bring a huge change to the competitive landscape of the aerospace & defense industry”

The aerospace & defense industry is a complex industry, and revenue pockets for tier 1 companies are having a slow growth in their traditional markets. Hence, to generate new revenue sources, companies in this space are undergoing mergers & acquisitions to sustain in the market. For instance, in 2018, Orbital ATK was acquired by Northrop Grumman for USD 9.2 billion and became the fourth business sector for Northrop. The other three segments of Northrop are Aerospace Systems, Mission Systems, and Technology Services. The major focus of Northrop’s acquisition was on expanding its market reach in the space division and generating new revenue sources. Other companies also followed the same path in this market; in early 2019, Harris Corporation and L3 Technologies merged to strengthen their position in the global aerospace & defense market. The new entity, L3 Harris Technologies, became the 10th largest defense company globally and the 6th largest in the US.

In case of Raytheon and UTC, revenue generation for Raytheon is mostly from the US government, while United Technologies generates revenue from the commercial sector. The combined entity, i.e., Raytheon Technologies, will primarily focus on 6 strategic areas viz., Cyber Protection for Connected Aircraft, Next Generation Connected Airspace, Advanced Analytics & AI for Aviation, Hypersonics/Future Missile Systems, Directed Energy Weapons, and ISR in Contested Environments. We believe that the next revenue growth for Raytheon Technologies will primarily come from segments Cyber Protection for Connected Aircraft, Next Generation Connected Airspace, and Advanced Analytics & AI for Aviation. This revenue shift will be mainly driven by trends such as air taxi, urban air mobility, and smart airports, among others, that are likely to disrupt Raytheon Technologies’ clients such as Airbus, Boeing, and Gulf Air, among others, as shown below in the infographic.

The merger is also expected to provide the new entity the financial flexibility to undertake R&D activities and generate new revenue sources in the aerospace & defense market.


Raytheon and United Technologies Merger
Source: MarketsandMarkets™ Analysis

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