(Reuters) - U.S. defense contractor Northrop Grumman Corp NOC.N said on Monday it would buy Orbital ATK Inc OA.N for about $7.8 billion in a deal that gives it greater access to lucrative government contracts and expands its arsenal of missile defense systems and space rockets.

The all-cash transaction is the biggest in the defense sector in two years and comes as North Korea’s missile and nuclear weapons threats grow, heightening tensions with the United States and its allies.

“Clearly, as we watch what’s happening around our globe, the rather rapid advance of some of our potential adversaries is quite concerning,” Northrop Chief Executive Wes Bush said on a call with analysts.

Although Northrop already has a significant presence in payloads, it has not had launcher capability, an area that Orbital brings for both space and missile defense, Vertical Research Partners analyst Robert Stallard said on Monday.

Orbital has contracts with NASA and the U.S. Army. The Dulles, Virginia-based company is one of the two firms hired by NASA to fly cargo to the International Space Station under an initial contract worth up to $3.1 billion.

Northrop’s purchase of Orbital would help sharpen its focus on small space systems, launch vehicles, missiles and munitions.

The deal also comes ahead of planned upgrades of U.S. ballistic systems, which are expected to drive demand for missiles, potentially benefiting companies such as Northrop.

FILE PHOTO: UAV helicopter build by Northrop Gruman is on deck aboard the soon to be commissioned littoral combat ship USS Coronado during a media tour in Coronado, California April 3, 2014. REUTERS/Mike Blake/File Photo

Shares of Aerojet Rocketdyne AJRD.N, a direct competitor with Orbital ATK in several space and missile businesses, rose 6.7 percent to $30.24, as the higher valuation for Orbital boosted Aerojet shares.

The U.S. Air Force has called for proposals to replace its aging nuclear missiles and intercontinental ballistic missile system as the military moves ahead with a costly modernization of its atomic weapons.

Falls Church, Virginia-based Northrop’s other businesses, such as aerospace and mission systems and technology services, provide aircraft, electronic warfare systems and network defense services.

“Given that Northrop already operates in the space field, it is possible that there could be some overlapping activity or increased vertical integration that could prompt regulatory scrutiny,” Stallard said.

Northrop’s offer price of $134.50 per Orbital share represents a premium of 22 percent over the stock’s Friday close. Orbital’s shares gained 20 percent to $132.25 on Monday, while Northrop’s stock rose 3.3 percent.

Northrop will assume $1.4 billion of Orbital’s net debt and expects to close the deal in the first half of 2018.

Northrop’s last acquisition spree more than a decade ago included its 2002 purchase of TRW Inc for about $7.8 billion.

Mergers of U.S. aerospace and defense firms has totaled $40.5 billion so far in 2017, the strongest year-to-date performance of all time for dealmaking in the industry, according to Thomson Reuters data.

Perella Weinberg is the financial adviser to Northrop, while Citigroup is advising Orbital.

Earlier this month, United Technologies UTX.N agreed to buy avionics and interiors maker Rockwell Collins COL.N in a $30-billion deal.