Aerospace & Government | M&A Update | PCE Investment Bankers

Executive Summary

Valuation appetite strengthened into Q2 2026, with 143 LTM transactions (36 in Q2) at median multiples of 18.96× TEV/EBITDA and 4.09× TEV/Revenue — the highest revenue multiple in the trailing four-year lookback. Buyers competed intensely for defense electronics, mission-critical manufacturing, space systems, and sustainment assets. Commercial aerospace aftermarket demand remained durable amid persistent OEM delivery backlogs, while defense procurement urgency accelerated around FY2026 budget priorities including missiles, munitions, and missile defense. Key transactions included TransDigm/Victor Sierra Aviation, VSE/Precision Aviation Group, and Howmet/Consolidated Aerospace Manufacturing.¹ ³

“The Aerospace, Defense & Government Contracting sector continues to reward companies with differentiated, mission-aligned capabilities,” said David Jasmund, Managing Director at PCE. “Buyers are not just acquiring revenue — they are acquiring access: to cleared workforces, established contract vehicles, and proprietary technology that is difficult to replicate. Owners who understand that distinction enter the market with a significant advantage.”

Market Dynamics

Q2 2026 posted 36 deals; LTM volume reached 143 (vs. 127 a year prior) at median multiples of 18.96× EBITDA and 4.09× revenue — the highest revenue multiple in the trailing four-year lookback. Defense procurement urgency, commercial aerospace aftermarket demand, and emerging space sector activity drove buyer sentiment. Strategics pursued vertical integration while financial sponsors prioritized O&M-weighted platforms with recompete certainty and CMMC readiness.¹ ² ³ ⁶

Buyer Landscape

Strategic Acquirers: 122 of 143 LTM deals (85.3%) — activity concentrated in aerospace MRO, defense electronics, space systems, autonomous/UAS platforms, and mission-critical manufacturing. Strategics competed intensely for proprietary technology, cleared workforces, and vertical integration targets across defense and commercial aerospace.^{1 3} 

Financial Buyers: 19 of 143 LTM deals (13.3%) — sponsors focused on platform carve-outs, precision aerospace components, avionics/MRO, and defense services. Deal selection emphasized durable cash flow, task-order recompete visibility, and CMMC compliance as baseline underwriting criteria.^{1 3}

Industry Comparison

Aerospace, Defense & Government Contracting posted 143 LTM transactions (36 in Q2) against 14,857 total U.S. M&A deals, representing approximately 1.0% of overall volume and 1.1% of Q2 activity. The sector’s relative share reflects structural insulation from broader market cyclicality, underpinned by defense budget tailwinds, NDAA-driven procurement, and growing space sector deal flow. Buyer conviction strengthened further into mid-2026 as strategics and financial sponsors competed for mission-critical platforms.^{1 3 6} 

Geographic Expansion

Seller activity led by California (24), Florida (17), Texas (11), Maryland (7), and New York (7), reflecting dense aerospace manufacturing footprints, DoD installations, and cleared-labor ecosystems that align with buyer preference for established defense corridors.

Notable Q2 activity in California and Florida was driven by aerospace MRO and manufacturing consolidation, while Texas and Maryland continued to anchor defense electronics and government services deal flow.

Notable Transactions

Largest Transactions Closed

Other Financial Buyer Transactions Closed

Other Strategic Buyer Transactions Closed

Emerging Trends

Key trends shaping Aerospace, Defense & Government M&A:

1. Defense Modernization & Autonomous Systems
   The FY2027 budget request allocates ~$13.4B for autonomy initiatives ($9.4B UAS, $3.1B counter-UAS) and a major Golden Dome missile defense investment, reinforcing buyer demand for AI-enabled, differentiated technology platforms over labor-based contracting models.^{14 15}
2. Space & Commercial Capital Formation
   Commercial entrants — SpaceX, Blue Origin, Firefly Aerospace — are reshaping the competitive landscape, with SpaceX’s anticipated IPO reinforcing commercial space as a standalone institutional asset class and benchmarking valuations for satellite, launch, and ISR platforms.^{13 14}
3. Cybersecurity, GovCon & AI Adoption
   CMMC 2.0 compliance is increasingly a gating factor for DoD contract eligibility, accelerating consolidation among smaller contractors as federal spend concentrates in fewer, larger prime vehicles rewarding incumbents with AI capabilities and digital transformation credentials.⁹
4. Subsector Spotlight: Defense Technology, Autonomy & Space
   The FY2026 budget allocates ~$13.4B for autonomy initiatives, including $9.4B for UAS and $3.1B for counter-UAS. Ondas’ dual acquisition of Mistral and World View Enterprises illustrates buyer demand for integrated autonomous and near-space ISR platforms. In parallel, commercial space is emerging as a distinct M&A segment — Firefly’s acquisition of Space-ng and SpaceX’s anticipated IPO are building out a new class of investable space infrastructure assets.^{13 14 15}
5. Subsector Spotlight: Aerospace Manufacturing & MRO
   Global aircraft backlogs exceed 17,000 units and may take a decade or more to clear at current production rates, sustaining strong aftermarket demand and extending fleet life. This structural dynamic is driving consolidation among scaled MRO providers — VSE Corporation’s $2.15B acquisition of Precision Aviation Group and TransDigm’s $2.2B acquisition of Victor Sierra Aviation both reflect buyer appetite for certified, capacity-rich manufacturing and sustainment platforms.^{1 3}
6. Subsector Spotlight: Cybersecurity, Federal IT & Government Services
   CMMC 2.0 compliance is increasingly a prerequisite for DoD contract eligibility, accelerating consolidation among smaller contractors. Federal agencies continue shifting spend toward AI-enabled mission delivery, cloud modernization, and zero-trust security — with prime vehicle concentration rewarding incumbents with established agency relationships, strong past performance, and proven digital transformation credentials.^{9 12}

Outlook for Next Quarter

Defense procurement momentum is expected to remain elevated into Q3, supported by Golden Dome missile defense, shipbuilding, autonomous systems, and space sector expansion, while commercial aerospace aftermarket and MRO remain structurally well-positioned as OEM delivery delays persist. Key risks include government budgeting uncertainty, continuing resolution delays, cleared-workforce constraints, and CMMC compliance timelines that may compress valuations for non-certified suppliers.^{1 3 5 6}

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