Analysis of defense industry consolidation effects on program acquisition costs
Hoff, Russell V.
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Massive consolidation within the defense industry began after the end of the Cold War. The defense industry felt economic pressures and responded by consolidating at various levels. Merging companies should create a positive synergy by combining the best attributes from each company. This synergy, in theory, should manifest itself in, among other things, a cost savings in defense programs. This thesis examines if cost changes are evident due to consolidation within the defense industry by conducting a regression analysis of Major Defense Acquisition Programs across thirteen broad defense market sectors. The findings suggest that while consolidation may yield savings as a result of synergy, this does not seem to be true for all mergers; they do not always save costs. Furthermore, not every merger experiences a statically significant cost estimate change. Comparison of regression results across all the examined programs suggests that when there is a statistically significant cost change following a merger, that change shows a greater likelihood a cost estimate decrease than an increase. A categorical comparison across defense market sectors, branch of services, prime contractors, and by the company's role during the consolidation experience (i.e., Target or Acquirer) suggest potential trends in cost estimate changes within each category.
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