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Insights into Aerospace and Defense M&A Trends

Overview of the Report

Capstone Partners has recently released its annual report on the Aerospace, Defense, Government, and Security (ADGS) sectors, focusing on mergers and acquisitions (M&A) within these vital industries. The report assesses public market valuations, macroeconomic factors, and deal activities affecting the various sectors encompassing ADGS. As a seasoned investment banking team, Capstone Partners aims to provide valuable insights to businesses operating within the middle market in these dynamic areas.

Strong Demand for M&A despite Economic Uncertainty

Entering 2025, the Aerospace and Defense sectors have shown remarkable resilience. Following a period marked by substantial increases in deal count and valuation, the first quarter of 2026 further affirmed the vigor of the M&A landscape with a notable 37% annual rise in transaction volume. This translates to a staggering $47.1 billion in disclosed enterprise value (EV) during this timeframe. Interestingly, even though EBITDA multiples exhibited a contraction, the revenue multiples surged to 4.8x, indicating a robust demand for solutions tailored to government and security needs.

Key Trends and Statistics

Aerospace M&A activity was characterized by lower aircraft production rates yet emerged strong due to unique opportunities in manufacturing, maintenance, and leasing segments. The volatility in fuel prices has compelled low-cost carriers to pursue consolidation in the industry, presenting various opportunities for buyers. Simultaneously, the defense sector has continued to thrive in 2025, bolstered by escalating military expenditure, which is projected to reach $1.5 trillion under the upcoming National Defense Authorization Act (NDAA).

Moreover, the Department of War's reforms to the procurement process have stimulated investments in strategic growth sectors while supporting small, innovative defense technology developers with much-needed financing and opportunities. Concurrently, the M&A landscape in government contracting faced challenges due to political uncertainties; however, the first quarter of 2026 signified a resurgence of confidence among acquirers, which is essential for long-term sustainability.

Security Sector Observations

The report highlighted ongoing concerns regarding security in both physical and digital realms, which have fueled M&A activities within these segments. An emphasis on law enforcement and staffing shortages has led to increased transactions in physical security solutions, while the burgeoning role of artificial intelligence in cybersecurity presents unique challenges and opportunities for tech developers in this sector.

Looking Forward: Expectations for the ADGS Sector

Capstone anticipates that M&A activity within the ADGS industry will persist as a core strategy for adapting to evolving market conditions, embracing innovation, and leveraging potential market advantages. The industry's unique positioning amidst geopolitical instability presents significant growth potential as key players actively seek to address global issues while optimizing their operations.

Conclusion

The full report provides an in-depth examination of 14 crucial sectors within ADGS, from aircraft leasing to cybersecurity solutions. Corporate leaders, investors, and key stakeholders in the medium-sized market can download the complete report for a comprehensive analysis and insights into strategies driving success across these industries.