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As defense mergers fall, banks readjust

WASHINGTON — The aerospace and defense industry saw a decline in mergers and acquisitions during the first part of the year as federal budget cuts set in, forcing banks and financial advisers that facilitate those deals to reconsider their stomach for the sector.

The result has been several months of staffing changes at finance firms as some decide to close their Washington offices or trim their workforce here, and others hire or open their doors in anticipation of the market’s eventual return.

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The number of mergers and acquisitions in the aerospace and defense industry dropped 40 percent, to 25, in the first quarter of the year, compared with the fourth quarter of 2012, according to Deloitte Corporate Finance, an advisory firm.

The average disclosed value of those deals fell 77 percent, to $88 million, in the first quarter compared with the previous quarter, according to the report, making them less palatable for larger banks that thrive on big-ticket transactions.

Greg Woodford and Greg Nossaman were among the bankers let go by BB&T Capital Markets this year as the company reduces the head count of its aerospace, defense, and government services business.

BB&T Capital did not respond to requests for comment.

Nossaman said many financial advisory firms saw opportunity in the defense and government services sector as federal spending began ramping up after the Sept. 11, 2001, terrorist attacks. Now, the market has begun to cool.

‘‘The volume of M&A was at an unprecedented level for a five-year period. . . . [We] saw a surge of bankers coming into the sector,’’ he said. ‘‘What we’re seeing now is a surge of bankers exiting the sector that didn’t have both feet fully in.’’

Nossaman and Woodford landed at the Virginia investment bank McLean Group. Partner Mitchell Martin said the firm is mindful of federal budget uncertainty and the drop-off in deals but sees an opportunity to hire bankers with deep experience in the market.

Those who have spent decades in defense and government services say the industry is cyclical, meaning the current slow period should eventually give way to more activity.

Bill Farmer says activity could pick up as soon as the end of this year. The longtime investment banker started Maryland-based Twelve Rolling Capital this year after Lazard, where he was managing director, closed its Washington office. ‘‘If you’re at a larger bank, it’s probably very difficult to make hay because of the restrictions and the overhead placed on you,’’ he said. ‘‘I think some of the smaller firms that have the knowledge and expertise in the space will do just fine.”

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