Training & Simulation Sector Update – June 2026

Modern Defense Readiness Priorities Fuel Training & Simulation Sector Momentum

Training & Simulation sector dealmaking accelerated materially in 2025, with positive momentum carrying into 2026 amid robust defense spending and evolving military preparedness strategies. Heightened geopolitical tensions have reinforced the importance of operational readiness and forced modernization, driving outsized investments in digitally-enabled, simulation-based training as a scalable alternative to live exercises. Additionally, the adoption of artificial intelligence (AI)-enabled immersive training tools is expanding the scope, realism, and affordability of simulation tools to support warfighter readiness. Together, these dynamics have enhanced demand visibility for sector participants, positioning them to benefit from elevated investor and acquirer interest and reinforcing expectations for continued growth in sector deal activity throughout 2026.

The availability of realistic immersive training resources to our warfighters is a true competitive advantage for the U.S. and its allies. No doubt, we just witnessed its effectiveness in Operation Epic Fury.

Ted PolkManaging Director, Capstone Partners

Expanding Federal Budgets and Global Security Pressures Accelerate Digital Training Adoption

Large-scale conflicts, regional disputes, and heightened geopolitical tensions have pressured governments to bolster military readiness efforts, driving demand for training and simulation solutions. The Pentagon increased training investments by 7.8% year-over-year (YOY) for fiscal year (FY) 2026, allocating $159.7 billion (16.6% of the total budget) towards warfighter readiness in support of increased operational tempo and threat deterrence, according to the U.S. Department of War (DOW) FY 2026 Budget Request.¹ This funding has been allotted to bolster preparedness programs across military branches, with the U.S. Navy receiving $51.7 billion, the U.S. Air Force $45.7 billion, the U.S. Army $29.5 billion, the U.S. Marines Corps $5.1 billion, and the U.S. Space Force $3.9 billion. Looking ahead, the FY 2027 defense budget request totaled ~$1.5 trillion, representing a 44% increase YOY, according to the FY 2027 U.S. Government Budget.² The scale of the proposed budget underscores the immediate demands of the unstable geopolitical landscape and the requirement of investment for future risk mitigation preparedness. These budgetary commitments will likely continue to bolster demand for innovative, mission-critical software products and support revenue gains for Training & Simulation sector participants.

Traditional warfare strategies and methodologies have remained foundational to military training but the pace and complexity of modern conflicts have challenged the scalability and efficiency of conventional models. In response, militaries have increasingly turned to virtually-enabled readiness solutions to supplement live training exercises. Increased prioritization of digital applications has allowed teams to rehearse complex, multi-domain scenarios with greater frequency, flexibility, and realism while reducing reliance on physical infrastructure, personnel deployment, and resource-intensive exercises. This shift has created a favorable demand environment for Training & Simulation sector participants as defense organizations seek scalable, software-driven solutions with agile modification capabilities to reflect evolving threat conditions. The impact of these dynamics has become evident in the financial performance of scaled providers. Notably, CAE’s (TSX:CAE) Defense & Security segment—which offers training and simulation solutions, multi-domain operational support, and public security services—saw fiscal Q3 2026 (ending December 31, 2025) revenue increase 13.6% YOY to $534.9 million, supported by an adjusted segment backlog of ~$11 billion, according to a company press release.³ The combination of the company’s accelerating top-line performance and sizable, contracted queue underscores critical end market demand for advanced technology solutions and supports the sector’s role as a beneficiary of robust government investment growth. Training & Simulation sector operators offering immersive, modular solutions at scale have increasingly attracted buyer interest as acquirers seek to consolidate capabilities and access differentiated digital training platforms.

Defense Readiness Priorities Propel Outsized Training & Simulation Sector Dealmaking

Training modernization efforts across U.S. military applications and growing demand for technology-enabled solutions spurred a 47.5% YOY increase in Training & Simulation sector dealmaking in 2025. These tailwinds have continued to drive M&A momentum, with year-to-date (YTD) 2026 volume rising 133.3% (eight deals) YOY to 14 transactions announced or completed.

In 2025, strategic buyers accounted for the majority (72.9%) of Training & Simulation sector M&A activity, with deal volume increasing to 43 transactions (+79.2% YOY). Fervent strategic appetite has persisted through YTD 2026, with both public and private strategics adding two additional deals compared to the prior year period. These acquirers have increasingly leaned into sector consolidation efforts, pursuing targets that enhance scalability, expand core technology capabilities, and support greater vertical integration across the training and simulation value chain. Of note, Anduril Industries announced its acquisition of ExoAnalytic Solutions—a provider of U.S. military modeling and simulation solutions—in March 2026 for an undisclosed amount. The transaction will integrate ExoAnalytic’s wide breadth of technology solutions into Anduril’s existing product suite to accelerate its support of national security space programs and provide the U.S. military with comprehensive spaceborne situational awareness systems. Training and simulation providers with differentiated software capabilities and mission-critical end market exposure are anticipated to attract heightened acquirer interest from buyers seeking to capitalize on durable defense modernization tailwinds. Financial sponsors have shown renewed engagement following two years of stagnation in 2024 and 2025, with private equity (PE) dealmaking increasing by four deals YOY to six YTD. PE add-ons have accounted for five of the six transactions to date, reflecting an emphasis on disciplined portfolio expansion to gain exposure to mission-critical end markets. Capstone expects outsized Training & Simulation sector M&A activity to persist through 2026 as military modernization and differentiated training will likely propel buyer interest in businesses with innovative and critical applications.

Access to Federally Funded Programs Supports Rise in Training & Simulation Sector M&A

Exposure to military and government contracts has served as a key catalyst for dealmaking within the Training & Simulation sector as warfighter readiness strategies have continued to turn digital. Given the long-duration and mission-critical nature of government-sponsored programs, these initiatives have consistently delivered stable, highly visible revenue streams and meaningful backlogs for awarded providers. Strong customer stickiness rooting in federal funding, security requirements, and operational integration have incentivized a greater use of inorganic growth playbooks in the Training & Simulation market. A few notable training and simulation transactions are outlined below.

• Shield AI to Acquire Aechelon Technology (March 2026, Undisclosed) – In March 2026, Shield AI, a defense technology company specializing in autonomous systems software, announced its acquisition of Aechelon Technology from Sagewind Capital (undisclosed). Notably, Shield AI raised $1.5 billion in a Series G funding round through a combination of debt and equity in March 2026 for a post-money valuation of $12.7 billion and indicated it will use a portion of the capital raise to finance its acquisition of Aechelon. Aechelon is a provider of immersive visualization solutions for mission-critical training and simulation, with technology deployed by the U.S. military and allied forces to train pilots and support the testing of autonomous systems—including programs within the Pentagon’s Joint Simulation Environment (JSE). The acquisition is expected to materially enhance Shield AI’s simulation capabilities while also expanding its access to high-value military contracts and national security programs. “The acquisition of Aechelon will accelerate the work we are doing with Hivemind, particularly in simulation like the Department of War’s JSE. It’s an incredible company with a fantastic team and a leading technology that plays a role in how we think about the AI pilot development lifecycle. It will also help advance our Hivemind Foundation Model for Defense, which is trained in simulation and continuously refined through real-world operations,” stated Gary Steele, CEO of Shield AI, in a press release.⁴
• By Light Professional IT Services Acquires Dignitas Technologies (February 2026, Undisclosed) – By Light Professional IT Services, a portfolio company of Sagewind Capital, acquired Dignitas Technologies for an undisclosed amount in February 2026. Dignitas Technology develops open-source Modeling, Simulation, and Training (MS&T) solutions for various end markets. These products are focused on the development, design, and testing of mission-critical situational readiness platforms. Dignitas provides By Light access to key customers including the U.S. Army, Navy, Air Force, and Marine Corps. The transaction will bolster By Light’s existing capabilities within MS&T. “Dignitas expands our product and solutions offering in the critical areas of cyber training, virtual cyber effects, and live, virtual and constructive training in multi-echelon simulations across the DoD [Department of Defense, now DOW]. We’re excited to add these capabilities into By Light’s synthetic training ecosystem,” mentioned Bob Donahue, Founder and CEO of By Light, in a press release.⁵

Capstone Speaks with Training & Simulation Executives on 2026 Sector Outlook

Capstone spoke with industry leaders at HTX Labs and Renovus Capital-backed MES, to gain insight into current trends and future opportunities for military applications within the Training & Simulation sector. Perspectives from HTX Labs, MES, and Renovus Capital point to a strong and consistent prioritization of modernized, platform-based solutions—particularly those leveraging AI, immersive technologies, and performance-driven analytics—which are increasingly viewed as critical to readiness and operational effectiveness. Collectively, these discussions underscore the sector’s shift toward scalable, data-enabled training environments designed to reduce time-to-proficiency, standardize outcomes, and support evolving warfighting requirements across domains. Additional detail is provided through the conversations below.

Scott Schneider, CEO

Scott Schneider is the CEO of HTX Labs, a defense technology company that developed EMPACT, an AI-enabled software platform that allows DOW users to more efficiently develop, deliver, and manage immersive training, improving operational readiness, and mission support worldwide.

 How are you utilizing AI both internally and externally for the customer to improve HTX Labs’ offerings?

From an internal perspective, AI is broadly embedded across our organization, with different functions leveraging it in ways that align to their workflows. Our product engineering and innovation teams are deeply AI-enabled, using AI-powered development tools and government-approved AI models to accelerate software development and improve code quality. From an external perspective, we view AI as a core execution layer on the EMPACT platform going forward. This includes automating content generation from technical data, validating procedures and training accuracy, and enabling more adaptive, performance-based learning and mission support experiences. Obviously, AI is a huge part of what the DOW and the broader defense community is asking for, what the warfighter is asking for, and what the warfighter needs. But I think it’s important to remember that AI is the means, not the end. What ultimately matters is whether AI-enabled systems deliver better outcomes for the warfighter—faster learning, better decisions, improved readiness, and more effective mission execution. For HTX Labs, the goal is not simply to “add AI” to the platform, but to use AI to make training faster to create, easier to maintain, more adaptive to the learner, and more useful in operational environments. Over time, we believe AI will help reduce the burden of building immersive training content, keep procedures aligned with changing technical data, and provide more personalized feedback to users based on how they actually perform. That is where AI becomes meaningful: when it improves readiness, reduces friction for instructors and maintainers, and helps the warfighter execute more effectively.

What are the most common use cases and platforms for HTX Labs’ software?

EMPACT is designed as software infrastructure that is inherently flexible across a multitude of use cases and platforms. That said, the most common and valuable use case today is maintenance and operations training across complex systems, including aircraft, ground equipment, vehicles and munitions. More broadly, we see three primary categories of use cases: maintenance and sustainment training, operational training and mission rehearsal, and knowledge capture and transfer. A layer that we might place over each of these use cases is where training can be of high consequence (aka, dangerous) or where equipment shortages exist – both of which prevent users from receiving training that is consistent, realistic and accessible. From a platform perspective, EMPACT is hardware-agnostic and supports a range of deployment models, including VR [virtual reality], AR [augmented reality], desktop, and on-premise/edge environments, depending on mission and security requirements.

The important point is that EMPACT is not tied to a single platform, device, or training modality. Once the underlying technical content, 3D assets, procedures, and performance data are loaded onto EMPACT, they can be reused and adapted across multiple training experiences, delivery environments, and mission sets. That reuse is what makes EMPACT scalable: a customer can start with one high-priority training need and expand over time into additional systems, scenarios, locations, and user populations.

Does HTX Labs measure the performance of learners/trainers on its platform versus traditional methods?

Yes, EMPACT is fully instrumented and captures detailed data on user behavior, progression, and performance within immersive training environments. This data is structured using xAPI [eXperience Application Programming Interface] and stored within a Learning Record Store (LRS), enabling tracking and analysis at a granular level. The platform can capture metrics such as:
> task completion accuracy
> procedural adherence
> time-to-completion
> error rates
> repetition frequency
> decision pathways
> overall learner progression over time

This level of instrumentation enables our customers to move beyond completion-based metrics toward performance-based insights, identifying skill gaps, optimizing training pathways, and improving overall training effectiveness.

Historically, many training environments have relied heavily on attendance, written testing, or subjective instructor evaluation as indicators of readiness. EMPACT enables organizations to measure how learners actually perform against operational procedures within realistic environments, creating a more direct connection between training activity and mission readiness.

The platform also enables customers to compare performance across users, teams, locations, and training iterations over time, helping identify skill gaps, optimize training pathways, standardize instruction, and improve overall training effectiveness.

As the platform evolves, we also see increasing opportunity to leverage AI to further personalize training experiences, identify performance trends earlier, and provide more adaptive learning and mission support workflows.

What does HTX Labs hear back from the customer about the software’s value add?

The things we hear back from our customers and the things that are important or should be important have consistently centered around three areas of value: reduced time-to-proficiency, improved retention, and increased accessibility. Immersive, hands-on training reduces time-to-proficiency by enabling users to build practical experience faster than traditional classroom-based or static training methods. One of the biggest keys to job performance is retention and developing muscle memory—and the key to retention / muscle memory is getting reps and sets. Experiential learning improves knowledge retention and performance by actively performing the task (virtually), with repetition to develop muscle memory, resulting in greater confidence and more effective execution in real-world scenarios. Additionally, EMPACT enables scalable and standardized training across distributed units while capturing and preserving institutional knowledge that might otherwise be lost.

Beyond the individual learner impact, customers also value EMPACT because it gives them a repeatable way to modernize training across organizations. It helps reduce dependence on scarce instructors, improves consistency across locations, and creates a data-driven foundation for understanding readiness and performance. Over time, that helps organizations move from fragmented training approaches to a more standardized, measurable capability that can scale across units, platforms, and mission sets.

Can you speak to the major opportunities you see for HTX Labs within the Air Force but also within the SHIELD [Scalable Homeland Innovation Enterprise Layered Defense] Program?

With the state of the world and the real-world Ops tempo that we’re experiencing right now, you would certainly expect that training would be even more important than in times of peace. Within the Air Force, the primary opportunity is the continued transition toward standardized, platform-based training environments that can scale across commands, aircraft, and mission sets. There is strong alignment around reducing training variability, improving readiness, and enabling more efficient use of resources, which favors solutions that can serve as a system-of-record for training and simulation. As defense systems become more interconnected and multi-domain in nature, the need for scalable training and mission rehearsal environments increases significantly. What makes SHIELD particularly compelling is its structure—it creates a broad, competitive ecosystem where qualified vendors can rapidly compete for task orders spanning R&D [research and development], testing, deployment, and sustainment. For HTX Labs, this creates opportunity in several areas including training and readiness for complex, multi-domain systems supporting missile defense operations, simulation and mission rehearsal environments for operators interacting with highly integrated sensor and command-and-control architectures, and finally knowledge transfer and workforce enablement as new systems are fielded and require rapid scaling of trained personnel.

Does HTX Labs support unmanned systems or autonomous technologies through its platform? Does the company view these next-generation systems as an opportunity, threat, or both?

Like anything new and potentially highly impactful, we see opportunity. Whether you seize that opportunity or whether you’re able to is a whole different question, but these unmanned and autonomous systems will require training to operate and maintain them and frankly, there’s going to be a lot more of them in play in future conflicts. As autonomous systems scale, the operational model shifts from many operators managing individual systems toward fewer operators supervising larger autonomous fleets. We see this as a significant opportunity for training and mission support. The complexity of human-machine teaming, supervisory control, and exception handling in autonomous systems creates new training requirements that are well suited to immersive and simulation-based environments. So, no, we don’t see unmanned/autonomous systems as a threat. We see them as a huge opportunity to expand the use of EMPACT’s training and mission readiness capabilities.

How do you envision the recently announced $1.5 trillion budget request impacting demand for DOW simulation/training and mission readiness software?

We view increased defense spending as a tailwind for training and mission readiness, particularly as the DOW continues to prioritize modernization and operational effectiveness. We aren’t going to fight current or future conflicts like we fought previous conflicts. We can’t train our warfighters like we used to either. If we want to fight differently, we need to train and support our warfighters differently. Training is increasingly recognized as a critical component of readiness, not a secondary function. As systems become more complex and operational environments more dynamic, there is a growing need for scalable, flexible, and data-driven training and mission execution solutions.

Tim James, CEO and Manan Shah, Partner

Tim James, CEO of MES, and Manan Shah, Partner at Renovus Capital, lead and oversee the growth of Renovus Capital-backed MES. MES is a defense-focused provider of advanced training and simulation solutions supporting mission-critical programs across U.S. military and allied forces. MES specializes in high-fidelity image generation, modeling and simulation software, and integrated training environments designed to enhance operational readiness, accelerate learning outcomes, and support evolving warfighting requirements across air, land, sea, and emerging autonomous domains.

What are the key criteria you look for today when evaluating new simulation and training investments?

Shah: We continue to see attractive investment opportunities across the broader government services market, including modeling, simulation, and training. From an investment perspective, the strength and relevance of the underlying capability set is critical—particularly in areas such as live, virtual, and constructive (LVC) training environments, mission readiness, and next-generation simulation technologies that address evolving defense and operational requirements. Equally important is the quality and durability of the contract backlog.

Where we believe we add the most value as a private equity investor is partnering with companies that have already done the hard work—building differentiated capabilities, establishing trusted customer relationships, and developing a strong core portfolio. From there, we can help accelerate growth through strategic M&A, operational scaling, and other initiatives that may be difficult to execute independently.

For new platform investments, we are generally focused on companies in the $50 million to $100 million revenue range. For add-on acquisitions, we remain flexible and can evaluate opportunities ranging from approximately $5 million to over $50 million in revenue.

Understanding there are numerous programs MES currently supports, which programs are witnessing the most demand or increase in adoption?

James: Oddly enough, I’d say the one that’s in highest demand is just our services. The government is under a lot of pressure right now between the DOGE [Department of Government Efficiency] cuts and focus on activities in Iran and Venezuela, among others. Their existing manpower is being pulled in a various directions, and they really rely on those contract vehicles to pick up the slack. The products that we have in support of warfighter training are in demand, but those cycle times last so much longer. That’s usually very well laid out, you have two-year acquisitions, and it can be a multi-year cycle. Those orders haven’t come in yet, but we’re getting a lot of questions about them. So, we could see the product side in high demand here pretty soon as well.

Given MES’ exposure to U.S. Navy training programs, among others, how do you envision the increased DOW budget request for the Navy will increase demand for training and simulation programs the company supports?

James: One downside of our type of training system is that it can handle a lot of throughput. Before a customer decides to buy another immersive simulator, they often try to maximize the one they already have—running it 16 hours a day instead of eight. That’s usually the first thing we see: over-utilization of existing equipment. For us, the initial upside comes through increased maintenance and spare parts, or services to help keep the system running. Eventually, when the equipment is either worn out or demand exceeds what one system can handle, the customer reaches the point where they need another simulator. That’s when we see additional system sales.

Does MES currently work with allied militaries, and has increased defense spending in Europe or Asia resulted in higher demand for MES’ technology?

James: We have both. On the product side, we’ve had a multi-year relationship with one allied country, and we’re starting with three others right now in the initial discussions on the same kind of products going out there. So, any of those countries that are involved with groups like the UN [United Nations], that have a common expectation—they might have to deploy together, fight together, and operate together—there are standards across all their training. We are seeing increased demand now that we’ve had kind of the newest, shiniest trainer that has passed certification and other people would like repeat that success story.

How has the Iran conflict impacted MES’ customer demands for training and simulation? Are priorities shifting or is there an increased need to train personnel faster?

James: It’s a little bit too new for us. You’re going to see that first wave on the operational side. You’re going to see an increased order of ammunition, bombs, missiles, whatever is required to keep operations running. Eventually, as operators encounter tactics they’re less prepared for, we expect a surge in requests for creative solutions to address those gaps. The calls we’re going to start seeing is where the tactics need a little beefing up, and there are going to be some rapid solution requests to see what we can do to help move that forward.

What are the common improvements customers see when adopting MES’ technology over legacy training methods? Are there any metrics MES measures to benchmark its technology over alternative training methods?

James: Normally when we put out a new system, we try to clean sheet it and do whatever the current and even our estimated future requirements are. We don’t have a lot of critical critiques, but we try to survey the user out there on what they possibly want going forward. One of the things that always comes up is AI. We can get the very generic metrics on the cost per training hour using our system as opposed to using real equipment. The ones that are really impressive are the ones on the user side when we come in and the time to train drops from a certain number of weeks to a certain number of weeks or days. But those are all kind of sensitive and held by each of our customers.

Could you speak to how MES is incorporating AI into its image generators and simulation software? Have customers requested AI improvements or tools embedded into the training software?

James: So, for instance, the JTAC [Joint Terminal Attack Controllers] trainer. Can you have the AI create the scenarios as fast as possible? Because right now it might take a couple hours to a couple days to build up a scenario. But if I could just tell the computer what I want, maybe I can get that done in a couple minutes. So just automating the normal workflow is kind of the go-to initial response for people as they first experience AI. But having just retired from the military, I’ve seen this go through other training systems. What I’m expecting next is AI to do automatic assessments, like objective grading of training students, and point out where they didn’t follow the procedure or where they were suboptimal. And then finally, having AI actually reach in and control both the opposition and allied forces to make them more realistic so I don’t have to program ahead of time what the good guy or the bad guy is going to do.

Is there anything else you would like to add with respect to the Training & Simulation market, MES, or Renovus Capital?

Shah: I think this administration is going to continue increasing its use of simulation and training environments, whether it’s physical simulators, electronic, online, or other types of technology to make this training efficient. Companies that have developed those capabilities are going to be in great demand. They just need to figure out how to interact with the government and get on the right vehicles or figure out a way to provide what the government really needs for its missions. It’s a great environment right now. I think are plenty of growth opportunities for companies that have invested in this and have developed capabilities to continue to provide more services and solutions to the government customers.

Warfare modernization initiatives, expanding defense budgets, and growing reliance on digital training solutions are expected to sustain expansion across the Training & Simulation M&A market in 2026. Sector participants with meaningful exposure to government contracts and innovative technological capabilities will likely align portfolios to capitalize on these tailwinds and position themselves for outsized acquirer interest. As a result, buyers within the space are expected to pursue value-add assets that assist in the build out of existing platforms throughout 2026.

To discuss the modernization of military training solutions, provide an update on your business, or learn about Capstone’s wide range of advisory services and Training & Simulation sector knowledge, please contact us.

 Matt Milone, Analyst, was the lead Market Intelligence contributor to this article.

Endnotes

1. Office of The Under Secretary of Defense, “United States Department of Defense Fiscal Year 2026 Budget Request,” https://comptroller.war.gov/Portals/45/Documents/defbudget/FY2026/FY2026_Budget_Request_Overview_Book.pdf, accessed April 9, 2026.

2. The White House, “Budget of the U.S. Government,” https://www.whitehouse.gov/wp-content/uploads/2026/04/budget_fy2027.pdf, accessed April 9, 2026.

3. CAE, “CAE reports third quarter fiscal 2026 results,” https://www.cae.com/media-centre/press-releases/cae-reports-third-quarter-fiscal-2026-results, accessed April 9, 2026.

4. Shield AI, “Shield AI to acquire software simulation company Aechelon and raise $2B at $12.7B valuation,” https://shield.ai/shield-ai-to-acquire-software-simulation-company-aechelon-and-raise-2b-at-12-7b-valuation/, accessed April 9, 2026.

5. By Light, “By Light Acquires Dignitas Technologies,” https://bylight.com/press-release/by-light-acquires-dignitas-technologies/, accessed April 9, 2026.