Aerospace, Defense & Government Q2 2025

Executive Summary

Valuation appetite rebounded in Q2 2025 as TEV/EBITDA expanded to 16.4× and TEV/Revenue to 3.25×, even though deal flow slipped to 119 LTM transactions. Buyers continued to chase mission-critical ISR, C5ISR, and space-focused suppliers, highlighted by AeroVironment’s $4.1 billion acquisition of BlueHalo. Commercial air-travel demand and OEM production ramps sustained the civil side, while long-cycle defense programs provided ballast against Federal-budget uncertainty.

Critically, the “Big Beautiful Bill” marked a historic fiscal inflection point—authorizing an additional $150–$157 billion in funding and pushing the U.S. defense budget above $1 trillion for the first time. Major allocations included $29 billion for shipbuilding, $25 billion for munitions, and $25 billion for the “Golden Dome” missile defense system. This legislative tailwind fueled optimism around next-gen aerospace platforms, nuclear modernization, hypersonic R&D, and classified space programs.

Still, DOGE procurement reforms and the specter of Chinese rare-earth export limits elevated execution risk and input-cost volatility, pressuring mid-tier contractors reliant on niche components and tightening liquidity timelines.^{1 2 3}

Market Dynamics

The ADG sector recorded 119 closed transactions LTM (27 in Q2 alone), compared to 124 in Q1. Median TEV/EBITDA rose to 16.4× and TEV/Revenue to 3.25×, reflecting heightened competition for scarce, IP-rich assets. Strategic acquirers prioritized vertical integration and AI-enabled platforms, while PE sponsors gravitated toward bolt-ons with entrenched DoD contracts. DOGE-driven compliance burdens and rare-earth supply fears reshaped diligence checklists, but robust backlogs and AAM momentum kept pricing firm^{2 4 1}

Buyer Landscape

Strategic Acquirers: Strategics dominated 100 of 119 deals (84.0%), and 3 backed by private-equity owners (~2.5%). Activity centered on EW, autonomy, and space-hardware specialists offering sticky, program-of-record revenue.

Financial Buyers: Pure-play PE and family-office buyers closed 16 deals (13.5%) and financed an additional three “strategic-backed” platform add-ons, targeting precision machining, avionics MRO, and cyber-mission engineering businesses that can scale via follow-on acquisitions.²

Industry Comparison

Despite a 4% YoY drop in transaction count, ADG valuations outpaced the broader industrials complex, buoyed by scarce defense-electronics assets and commercial aero recovery. The sector’s median 16× EBITDA multiple eclipsed the S&P 500 industrials average (~12×) and reflected investors’ confidence in decades-long defense funding and aftermarket revenue streams. Budget ambiguity and supply-chain tension temper enthusiasm but have not yet depressed pricing.^{3 4 1}

Geographic Expansion

Top U.S. States: California (20), Florida (13), and Virginia (8) again led deal counts, benefiting from dense aerospace clusters, DoD bases, and venture-backed innovation corridors.

Cross-Border Trends: International acquirers accounted for ~25% of Q2 volume, with Indian, Israeli, and UK buyers pursuing U.S. ISR and propulsion assets to secure NATO-compliant technologies.²

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. Record Defense Spending Increase
   The Big Beautiful Bill authorizes an additional $150–$157 billion in defense funding for FY2025, pushing the annual defense budget above $1 trillion for the first time.^{11 12 14}
2. Major Allocations Include:
   $29 billion for shipbuilding, $25 billion for munitions, $25 billion for the "Golden Dome" missile defense system. Substantial increases for research, development, and procurement of next-generation aircraft, hypersonic weapons, and military space assets.^{11 12 13 14}
3. Aerospace Sector
   The "Big Beautiful Bill" provides a massive boost to aerospace operations: The Air Force receives $4.5 billion for B-21 bomber production and $2.5 billion for Sentinel ICBM development, supporting nuclear modernization and next-gen long-range strike. The Space Force gets a 40% budget increase, including $11+ billion for satellite defense, space-based sensors, and the Golden Dome missile shield. Additional funding enhances classified space superiority programs and expands missions for the X-37B spaceplane.^{13 14}
4. Space-Enabled ISR & SDA
   LEO constellation build-outs and Space Force priorities are accelerating interest in software-defined payloads and resilient comms links.^{1 5}
5. Advanced Air Mobility (AAM)
   eVTOL OEMs secured >$600 million in Q2 financing, driving M&A for battery-management IP and light-weight composites.^{4 3}
6. Supply-Chain Sovereignty
   OEM backlogs and Chinese rare-earth threats pushed primes to on-shore magnetics, titanium, and PCB lines, spurring acquisitions of domestic specialty manufacturers.^{2 6}
7. AI-Enabled Sustainment
   Predictive-maintenance algorithms and digital twins became priority tuck-ins as 83% of executives budgeted for AI/ML deployments in 2025.¹
8. Portfolio Realignment
   Primes carved out non-core units (e.g., Honeywell/Cobham deal) to fund R&D in hypersonics and counter-UAS tech, boosting carve-out deal flow.
9. DOGE Compliance Drag
   New audit clauses added 3-to-6-month delays on certain service-contract awards, pressuring liquidity at mid-tier GovCon vendors.^{8 9}

Outlook for Next Quarter

Opportunities: FAA certification milestones for eVTOL prototypes and record-high airline traffic should lift commercial aero M&A, while DoD’s FY-25 budget requests signal continued demand for AI-powered C5ISR and hypersonic interceptors.^{1 7}

Risks: Labor shortages, titanium-sponge scarcity, and prolonged DOGE rule-making could extend integration timelines and squeeze margins; any escalation in U.S.–China trade frictions would amplify cost inflation for avionics and EW subsystems.^{3 6}

Predicted Activity: Expect cross-border bolt-ons in precision tooling, ISR payloads, and space electronics, with NATO-aligned buyers paying premiums for ITAR-cleared IP; sponsor-backed strategics will accelerate roll-ups to capture synergies ahead of 2026 rate-cycle uncertainty.^{2 4}

PCE Transactions

 

Served as advisor to Grant Aviation on their sale to Westward Partners

Served as advisor to Hop-A-Jet Worldwide Jet Charter as they became 100% ESOP owned

Served as advisor to Unique Electronics for senior debt refinancing

Served as advisor to Williams Electric Co., Inc. on their sale to Parsons

Served as advisor to Milcom Technologies for a fairness opinion

Served as advisor to Schwartz Electro-Optics, Inc. on their sale of Auto Sense to Osi Laserscan

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