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

Executive Summary

Valuation appetite strengthened into Q1 2026, with 137 LTM transactions (50 in Q1) at median multiples of 18.87× TEV/EBITDA and 3.74× 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.¹ ³ ⁶

Commercial aerospace demand remained durable, driven by resilient passenger traffic, persistent OEM delivery backlogs, and aftermarket demand from extended fleet life. Key Q1 deals included CACI/ARKA Group, Blackstone/TriMas Aerospace, Intuitive Machines/Lanteris Space, and AeroVironment/Empirical Systems Aerospace.¹ ³ ¹³

Defense procurement urgency accelerated on FY2026 budget priorities — missiles, munitions, missile defense, shipbuilding, and nuclear modernization — while government contracting activity concentrated in larger prime vehicles. NDAA changes, CMMC requirements, and geopolitical tensions further reinforced elevated procurement demand across defense platforms.⁵ ⁶ ⁷ ⁸ ⁹ ¹⁰

“Budget uncertainty and continuing resolutions have introduced timing friction, but they have not diminished buyer conviction,” said David Jasmund, Managing Director. “Strategic buyers remain highly focused on aerospace and defense platforms that enhance execution certainty under constrained funding environments”

Market Dynamics

Deals: 50 in Q1 2026; LTM 137 (vs. 135 a year ago).

Valuations: LTM medians of 18.87× EBITDA / 3.74× revenue, expanding meaningfully versus Q1 2025 and representing the highest revenue multiple in the trailing four-year lookback.

Defense procurement urgency and commercial aerospace aftermarket demand drove sentiment in Q1. The administration’s FY2026 budget and direct pressure on defense firms to scale weapons production reinforced confidence for defense-exposed assets, while fuel-price volatility and persistent OEM delivery backlogs sustained aftermarket and MRO deal flow. Space emerged as a distinct strategic priority, with both commercial and government-backed buyers active.

Strategics continued to prioritize vertical integration (defense electronics, autonomous systems, propulsion, space payloads) and manufacturability; financial sponsors favored O&M-weighted and task-order-visible platforms with recompete certainty, underwriting cyber compliance and CMMC readiness as baseline diligence items.¹ ² ³ ⁶

Buyer Landscape

Strategic Acquirers: 115 of 137 LTM deals (83.9%), plus 4 other/undisclosed (2.9%) — activity concentrated in defense electronics, space systems, autonomous/UAS platforms, MRO, and mission-critical manufacturing.

Financial Buyers: 18 of 137 LTM deals (13.1%) — focus on platform carve-outs, precision aerospace components, avionics/MRO, and defense services with durable cash flow and task-order recompete visibility.

Industry Comparison

Aerospace, Defense & Government Contracting dealmaking in Q1 2026 remained resilient following a 2025 that saw the sector sustain deal activity across 135 LTM transactions, even as broader U.S. M&A volume faced headwinds from elevated financing costs and macro uncertainty. Buyer conviction has intensified into 2026, with strategics and financial sponsors competing for mission-critical platforms as defense budget tailwinds, NDAA-driven procurement, and space sector expansion define the current deal environment.^{1 3 6} 

Geographic Expansion

Top U.S. states by seller count (Q1 2026 LTM): California (22), Florida (15), New York (9), Texas (8), Maryland (7), Virginia (6), Oregon (6), Washington (5), Colorado (4), Connecticut (4).

Seller activity remained concentrated in states with dense aerospace manufacturing footprints, DoD installations, and cleared-labor ecosystems, consistent with buyer preference for established defense corridors. Notable Q1 activity in Maryland and New York reflected government services and defense electronics consolidation.

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. Space as a Distinct Strategic Priority
   Commercial and government-backed buyers are competing for space launch, payload, and satellite capabilities. NASA’s Artemis II and the rise of commercial entrants (SpaceX, Blue Origin) are reshaping the old-guard competitive landscape.¹⁴
2. Cyber / CMMC as Market-Access Requirement
   GAO’s March 2026 CMMC report confirms DoD still has implementation work ahead, but cyber readiness is an increasingly gating item for defense suppliers—especially smaller contractors. Buyers are underwriting compliance posture as part of deal diligence.
3. GovCon Opportunity Concentration
   Deltek’s FY2026 outlook notes growing federal spend but fewer prime vehicles—creating high-stakes competition for large awards and increasing the value of established capture infrastructure and teaming networks.¹²

Outlook for Next Quarter

Opportunities: Defense procurement momentum is accelerating, with missiles, munitions, missile defense, shipbuilding, and nuclear modernization as the highest-priority spending pockets. Commercial aerospace aftermarket and MRO remain structurally well-positioned as OEM delivery delays persist and airlines extend aircraft utilization. Space represents an increasingly active deal segment, with commercial entrants competing alongside legacy primes.^{1 3 5 6}

Risks: Fuel-price volatility and macro uncertainty (tariffs, interest rates) may pressure aviation profitability and acquisition financing. CMMC compliance timelines create execution risk for smaller contractors. Procurement pattern unpredictability—faster, more commercial-first, but also choppier—may extend diligence and closing timelines.^{13 14 15}

Expected Activity: Buyer interest remains concentrated in defense electronics, UAS/autonomy, space payloads, cleared-talent platforms, and mission-critical software with recurring sustainment exposure, further supported by heightened geopolitical tensions in the Middle East driving demand for missile defense, ISR, and munitions. Sponsors are targeting carve-outs and O&M-heavy assets with clear recompete visibility, while strategics continue to vertically integrate into proprietary components and capacity-constrained manufacturing.^{1 3 6}

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