‘War Effect’ Complicating Defense Deal Valuations, Says Houlihan Lokey; EQT’s Third Offer for Intertek Rejected

Why It Matters

The failed deal highlights how war-driven market volatility can depress valuations and stall consolidation in the defense testing industry, affecting investors and corporate strategies.

Key Takeaways

• EQT's third bid for Intertek, valued at $5.5 billion, rejected.
• Houlihan Lokey says wars inflate defense deal valuation uncertainty.
• Intertek's defense revenue growth slowed to 3% YoY in 2023.
• Potential buyers may need to discount offers to reflect geopolitical risk.
• Analysts predict tighter M&A activity in defense testing sector.

Pulse Analysis

Intertek plc, a London‑listed leader in assurance, testing, inspection and certification, has become a hot target for private‑equity investors seeking exposure to the defense and aerospace supply chain. 5 billion, only to see its board reject the proposal. The board cited concerns over valuation, strategic fit, and the need to preserve shareholder value amid a volatile market. EQT’s persistence reflects confidence in Intertek’s diversified revenue base, yet the refusal signals that price and risk considerations remain paramount.

Meanwhile, investment bank Houlihan Lokey warned that ongoing conflicts—most notably the war in Ukraine—are distorting the pricing of defense‑related deals. According to the firm, heightened geopolitical risk introduces uncertainty around future contract pipelines, forcing buyers to apply larger discount rates and compressing EBITDA multiples. This ‘war effect’ is already evident in recent transactions, where premium offers have been trimmed to accommodate potential supply‑chain disruptions and regulatory scrutiny. Analysts now expect a more cautious approach to M&A in the defense testing niche, with valuations increasingly tied to risk‑adjusted cash‑flow projections.

The rejection of EQT’s bid and the broader war‑driven valuation pressure suggest a turning point for consolidation in the testing sector. Companies with strong defense contracts may still attract interest, but acquirers will need to embed geopolitical risk buffers into deal structures, possibly through earn‑outs or contingent payments. For investors, the environment underscores the importance of scrutinizing exposure to conflict‑prone regions and monitoring how firms hedge against supply‑chain shocks. As the market steadies, firms that can demonstrate resilient, diversified client portfolios are likely to command more favorable terms.