Air, Land, Sea & Space Systems M&A Update – December 2025

Rapid Advancements in Technology and Drone Warfare Drive Significant Increase in Air, Land, Sea & Space Systems M&A

The Air, Land, Sea & Space (ALSS) Systems Merger and Acquisition (M&A) market has experienced a significant year-over-year (YOY) rise in deal activity in year-to-date (YTD) 2025, driven by recent shifts in modern warfare. The continuation of large-scale global conflicts has provided robust end market demand for ALSS systems as countries look to shore up defenses and bolster stockpiles amid a tense geopolitical landscape. Advancements in drone warfare have accompanied wider technological adoption within warfighting, increasing demand for technology-enabled combat solutions to establish intelligent all-domain capabilities. Real-world use cases stemming from the Russo-Ukrainian and Gaza wars have demonstrated the efficacy of small-scale unmanned systems (UxS)—both in terms of battlefield utility and cost-effectiveness. The global rush to adapt warfighting strategies in response to these developments has provided a two-fold opportunity for ALSS system manufacturers to deliver both offensive and defensive systems. Emerging drone contracts have incentivized capability-driven consolidation, backed by strong demand-related organic revenue growth. These end market opportunities have reinforced expectations for continued deal volume expansion within the ALSS sector.

The mission successful application of unmanned systems in prosecuting conventional or irregular warfare, now at a lower cost point for small scale battlefield drones, continues to drive the market demand and technological innovation in autonomy. We are also witnessing this uptick in demand in the M&A market.

Tess OxenstiernaManaging Director, Head of Aerospace, Defense, Government & Security (ADGS) Investment Banking, Capstone Partners

Tense Geopolitical Environment Spurs End Market Demand for ALSS Sector

Worldwide geopolitical tensions have heightened amid a rise in the number of conflicts across the globe, including the continuation of the Russo-Ukrainian and Gaza wars, U.S. strikes in the Caribbean, rising hostilities in Taiwan, and fast-moving civil wars in Sudan and Syria. Regional struggles have pushed neighboring nations to fortify borders and prepare for direct involvement, should the conflicts elevate. Since the February 2022 Russian invasion of Ukraine, the U.S. has directed $195 billion in aid towards supporting Ukraine and surrounding regional allies as of July 2025, according to the Council on Foreign Relations (CFR).¹ Of this sum, $70.6 billion has represented weapons, equipment, and other military support. The European Union (E.U.) has dedicated ~$197 billion in total aid to Ukraine as of October 2025, including ~$70 billion in military assistance—consisting of missile defense systems, armored personnel carriers (APCs), Leopard series tanks, and Mirage 2000 fighter jets, according to the E.U.² This massive influx in material aid has exposed critical gaps within the weapons stockpiles of the U.S. and E.U. member states, spurring heightened production output in these nations’ Defense Manufacturing industries and renewed investment in the ALSS sector.

A wind down in the Gaza war has resulted in a fragile ceasefire agreement marked by continued flare-ups in fighting. Long-term defense strategies stemming from the conflict are expected to uplift future demand for combat systems across the region. The Israeli Knesset has approved an approximately $12.5 billion increase (~26.6% YOY) in defense spending in July 2025, with plans to dedicate a significant portion of those funds towards shoring up the country’s network of air defense systems, according to the Foundation for Defense of Democracies (FDD).³ Security initiatives have spilled out to surrounding Gulf states, including a combined $57 billion in spending packages from Saudi Arabia and Qatar centering around the U.S.-made Terminal High Altitude Area Defense (THAAD) missile battery system, according to Breaking Defense and Forbes.^4,5

Rising tension in South America—including a potential armed conflict between the U.S. and Venezuela—and North Atlantic Treaty Organization (NATO) expectations for an impending Chinese-led invasion of Taiwan will likely continue to drive end market demand for ALSS systems, incentivizing M&A activity targeting companies that can deliver cutting-edge defense capabilities. Cross-border dealmaking has picked up—expanding 200% YOY and representing 16.4% of total deal count to date—driven by strategic buyers’ attempts to capitalize on these global opportunities.

Strategics Demonstrate Appetite for Capability-Driven Tuck in Acquisitions in Air, Land, Sea & Space Systems M&A Market

The ALSS Systems space has undergone a multi-year transformational shift in capabilities. Mirroring broader technology and internet of things (IoT) adoption trends across industries, battlefield systems have been increasingly defined by technical capabilities. Real-time communication among systems has become a critical aspect of modern warfighting, while artificial intelligence (AI) and machine learning (ML) have aided in target acquisition and mission planning. Preference towards all-domain combat approaches and the intermingling of systems across air, land, sea, and space has further emphasized the importance of advanced technological integration and spurred a significant shift in the competitive landscape of the Defense Contracting space. Traditional prime contractors have seen a market share increase by rapidly growing technology-focused competitors such as Anduril, Palantir (Nasdaq:PLTR), and Shield AI. These agile companies have rapidly integrated technologies such as AI and autonomy, winning lucrative contracting bids over their sizable, established competitors. Recent acquisition reforms from the U.S. Department of War (DOW) (formerly Department of Defense) have eliminated cumbersome requirements in favor of rapid capability delivery, amplifying competitive pressures from more nimble market participants. The reforms are intended to “redefine how the Department develops requirements, manages programs, and engages industry to ensure America’s warfighters receive critical capabilities at the speed of relevance,” according to a November 2025 update from the U.S. DOW.⁶ In response, large strategics across the Defense industry have ramped up inorganic growth efforts to quickly tuck in advanced technology capabilities.

This shift will likely further support an acceleration in dealmaking within the ALSS sector in YTD 2025, with acquisitions rising 35.2% YOY to 73 transactions announced or completed. Valuations have maintained stability in the face of rising deal count, posting average EV/Revenue and EV/EBITDA multiples of 2.4x and 14.0x in YTD 2025, respectively, compared to 2.7x and 14.7x in the prior year period. Targets boasting exposure to rapidly growing Military Space Systems market have demanded premium valuations amid a global rise in space defense initiatives such as the U.S. Golden Dome. Acquisitions have dropped in target size to comfortably within the upper middle market, with average deal size falling from $987.2 million in YTD 2024 to $375.2 million in YTD 2025 and middle market transaction composition increasing from 63.6% to 75% YOY. These shifts evidence the increased attention paid towards smaller companies within the Defense industry. Strategic-led dealmaking has accounted for 84.9% of total volume to date. Public strategics have led 36 deals (49.3% of volume) and privates 25 (35.6%). Notably, private buyer activity increased 78.6% YOY while publics increased 28.6%, with both groups buoyed by the race to add technology capabilities at speed.

Overall private equity (PE) activity has experienced a decline YOY, with these buyers establishing five platforms (-16.7% YOY) and conducting six add-on transactions (+0% YOY) YTD. Sponsor-led M&A has largely targeted companies with customer bases diversified across Public and Private sectors, offering investors more favorable risk profiles with revenue streams independent of volatile government contracting. Facing a more advantageous lending environment in 2026, financial buyers will likely ease their cautious investment approaches and compete more intensely with strategics for innovative targets. Increased competition for this pool of targets is likely to drive valuations and deal count upwards, positioning the ALSS sector for a stronger next twelve months.

Developments in Drone Warfare Drive M&A Interest in Unmanned Systems

The Russo-Ukrainian War has spearheaded a critical change in modern warfighting, exposing gaps in traditional defense tactics that are expected to drive sustained ALSS Systems sector growth. Unmanned aerial vehicles (UAVs) have shrunk in size—and cost—from the lengthy MQ-9 Reaper to foot-long first-person view (FPV) drones. Armed forces on both sides of the conflict have demonstrated the real-world effectiveness of retrofitted commercial drones as reconnaissance tools, intelligence gathering devices, and loitering munitions. This evolution in modern combat systems has spurred intense investment in the manufacturing of unmanned systems as militaries across the world rush to establish dedicated drone operator units. DOW acquisition plans present a substantial market opportunity for UxS manufacturers. The U.S. Army alone has proposed acquiring at least one million drones over the next two to three years, with subsequent plans to expand its inventory by half a million units annually, according to a November 2025 article from Reuters.⁷ The Pentagon currently acquires just 50,000 drones across all service branches, marking a considerable increase in U.S.-based demand for UxS. Proposals for 2026 defense spending have included $179.1 billion in funding for research, development, test & evaluation (RDT&E) purposes—an increase of 25.1% from the DOW’s fiscal year (FY) 2025 request, according to a June 2025 article from Defense One.⁸ Much of this discretionary funding has been slated for the development of UxS programs. Proposed funding earmarked directly for the development and acquisition of UxS has totaled a reported $16.4 billion of the nearly $1 trillion budget request, according to a June 2025 article from DefenseScoop.⁹ The Department of the Navy alone has requested $5.3 billion in funding for unmanned assets, an approximate 71% increase over FY 2025. Subsequent funding for UxS across branches is expected to grow rapidly as the DOW shifts emphasis in future years from project development to system acquisition.

Acquirers in the ALSS sector have leveraged M&A in an effort to capitalize from this lucrative opportunity. Strategics have targeted developers of UxS to reposition portfolios and capture a share of military funds. The cancellation of manned systems contracts (e.g., Future Attack Reconnaissance Aircraft) in favor of uncrewed alternatives and re-evaluation of existing unmanned systems contracts (e.g., Future Tactical UAS) has forced companies to increase the pace of their UxS programs. In the face of slower in-house development, many strategics are turning outwards to inorganic growth to acquire the capabilities they need to serve the future of warfare. Several notable transactions are highlighted below.

• Leonardo to Acquire Iveco Defence Vehicles (July 2025, ~$2 billion, ~1.5x EV/Revenue) – Global defense contractor Leonardo (BIT:LDO) announced its acquisition of Iveco Defence Vehicle (IDV) from Iveco Group (BIT:IVG) in July 2025 for an enterprise value of ~$2 billion, equivalent to ~1.5x EV/Revenue. IDV brings expertise in the development of defense vehicles, five manufacturing facilities, six research and development (R&D) sites, and 2,000 employees to Leonardo, according to a deal press release.¹⁰ IDV was awarded a three-year contract with NATO in July 2025 to develop autonomous solutions for unmanned ground vehicles (UGVs) and UAVs, according to a company press release.¹¹ Product integration opportunities between the two companies served as key drivers behind the deal, with plans to use IDV’s portfolio of tracked and wheeled ground vehicles as platforms for Leonardo’s combat electronic systems and gun turrets. The acquisition aligns strongly with Leonardo’s core growth strategy, which highlights expansion of the company’s unmanned systems portfolio via inorganic growth as a key component. “The acquisition of Iveco Defence represents a key milestone in the execution of our inorganic growth strategy and supports the full implementation of our Industrial Plan. This transaction reinforces Leonardo’s position as a reference player in the European Land Defence market, a segment expected to experience sustained growth in the coming years,” said Leonardo CEO Roberto Cingolani in the deal press release.

• Rocket Lab to Acquire Mynaric (March 2025, $150 Million) – In March 2025, Rocket Lab (Nasdaq:RKLB) announced its acquisition of Munich-based Mynaric for an enterprise value of $150 million, equivalent to a next twelve months (NTM) EV/Revenue multiple of 8.6x. Mynaric develops and manufactures laser communication systems for industry and national security use cases. The company offers satellite terminals for ground, air, and space-based vehicles, providing air-to-air, air-to-ground, and ground-to-ground communications in support of surveillance and reconnaissance missions. Mynaric provides a critical solution to the electronic warfare (EW) threats faced by UAVs, providing defense against radio frequency (RF) jamming in contested airspace. The transaction bolsters Rocket Lab’s existing position in space launch, spacecraft manufacturing, and component fabrication with an essential niche in laser communications. Established collaboration between the two companies served as a key driver behind the deal. Mynaric was chosen as a subcontractor on Rocket Lab’s January 2024 Space Development Agency (SDA) contract totaling $515 million, according to a deal press release.¹² Further, Mynaric provides Rocket Lab with its first Europe-domiciled facilities at a critical turning point for European space development, signaled by the European Space Agency’s (ESA) newfound willingness to engage in military operations.

• Redwire Acquires Edge Autonomy Operations (January 2025, $925 million, 4.2x EV/Revenue, 12.9x EV/EBITDA) – Space infrastructure and defense technology company Redwire (NYSE:RDW) acquired Edge Autonomy Operations from AE Industrial Partners in January 2025 for an enterprise value of $925 million, equivalent to 4.2x EV/Revenue and 12.9x EV/EBITDA. Edge Autonomy brings vertically integrated fixed-wing UAV and UAV subsystems and components manufacturing capabilities to Redwire, combined with 600 global employees and 265,000 square feet of manufacturing space across the U.S. and Europe, according to a deal press release.¹³ The acquisition comes at a critical point for Redwire, bringing significant intellectual property and production assets to Redwire’s ongoing efforts to develop its own very low earth orbit (VLEO) autonomous orbital drones. “The combination of Redwire and Edge Autonomy creates a uniquely positioned space and defense company focused on two of the fastest growing trends in defense technology. As space and airborne platforms converge into an integrated network of autonomous, collaborative systems, Redwire will be poised to provide end-to-end solutions for multi-domain operations from the surface of the Earth to the surface of the moon and beyond,” said Redwire CEO Peter Cannito in the deal press release.

Advancements in technology have reshaped the modern battlefield. Ongoing conflicts have served as real-world testing grounds for new weapon technologies. Amid rising global threats, nations have invested heavily in the development and manufacturing of the systems required to dominate air, land, sea, and space. Collaboration with industry will prove essential to rapidly field the systems required to defend against threats and gain an edge over near peers, providing strong market opportunities across Defense and Manufacturing industries. The advancement of drone warfare has initiated a global arms race that is likely to extend recent growth in ALSS M&A. Capstone expects strategic buyers to continue focusing on tuck-in acquisitions, with the return of financial sponsors leading to healthier valuations and a more competitive M&A market.

To discuss the market implications of unmanned systems, provide an update on your business, or learn about Capstone’s wide range of advisory services and Air, Land, Sea & Space Systems M&A market knowledge, please contact us.

Brendan Bradley, Associate, was the lead Market Intelligence contributor to this article.

Endnotes

1. Council on Foreign Relations, “Here’s How Much Aid the United States Has Sent Ukraine,” https://www.cfr.org/article/how-much-us-aid-going-ukraine, accessed November 17, 2025.

2. Delegation of the European Union to the United States of America, “EU Assistance to Ukraine (in U.S. Dollars),” https://www.eeas.europa.eu/delegations/united-states-america/eu-assistance-ukraine-us-dollars_en?s=253, accessed November 17, 2025.

3. Foundation for Defense of Democracies, “Israel to Increase Defense Budget by $12.5 Billion Amid Multifront War,” https://www.fdd.org/analysis/2025/07/18/israel-to-increase-defense-budget-by-12-5-billion-amid-multifront-war/, accessed November 17, 2025.

4. Breaking Defense, “Trump Says Qatar to Buy THAAD Defenses, Pegasus Refuelers among $24B Investment,” https://breakingdefense.com/2025/05/trump-says-qatar-to-buy-thaad-defenses-pegasus-refuelers-among-42b-investment/, accessed November 17, 2025.

5. Forbes, “Saudi Arabia Diversifying Air Defenses and Boosting Local Industries,” https://www.forbes.com/sites/pauliddon/2024/05/14/saudi-arabia-diversifying-air-defenses-and-boosting-local-industries/, accessed November 17, 2025.

6. U.S. Department of War, “Secretary of War Announces Acquisition Reform,” https://www.war.gov/News/Releases/Release/Article/4329487/secretary-of-war-announces-acquisition-reform/, accessed December 2, 2025.

7. Reuters, “Exclusive: US Army to Buy 1 Million Drones, in Major Acquisition Ramp-Up,” https://www.reuters.com/business/aerospace-defense/us-army-buy-1-million-drones-major-acquisition-ramp-up-2025-11-07/, accessed November 17, 2025.

8. Defense One, “How Drone Warfare Fares in the 2026 Budget,” https://www.defenseone.com/technology/2025/06/how-drone-warfare-fares-2026-budget/406046/, accessed November 17, 2025.

9. DefenseScoop, “Billions for New Uncrewed Systems and Drone-Killing Tech Included in Pentagon’s 2026 Budget Plan,” https://defensescoop.com/2025/06/26/dod-fy26-budget-request-autonomy-unmanned-systems/, accessed November 17, 2025.

10. Leonardo, “Leonardo to Acquire Iveco Defence,” https://www.leonardo.com/en/press-release-detail/-/detail/30-07-2025-ldo-iveco-defence, accessed November 17, 2025.

11. Iveco Defence Vehicles, “IDV has Been Awarded by the NATO Support and Procurement Agency (NSPA) with a Three-Year Contract for Concept Development and Experimentation Services for Robotic and Autonomous Systems (RAS),” https://www.idvgroup.com/2025/07/15/idv-has-been-awarded-by-the-nato-support-and-procurement-agency-nspa-with-a-three-year-contract-for-concept-development-and-experimentation-services-for-robotic-and-autonomous-systems-ras/, accessed November 25, 2025.

12. Rocket Lab, “Rocket Lab Announces Intention to Acquire Mynaric, Leading Laser Communications Provider, in Latest Strategic Step Toward Becoming an End-to-End Space Company,” https://rocketlabcorp.com/updates/rocket-lab-announces-intention-to-acquire-mynaric-leading-laser-communications-provider-in-latest-strategic-step-toward-becoming-an-end-to-end-space-company/, accessed November 17, 2025.

13. Redwire, “Redwire Announces Acquisition of Edge Autonomy; Transformational Transaction Creates a Multi-Domain, Scaled and Profitable Space and Defense Tech Company,” https://ir.redwirespace.com/news-events/press-releases/detail/153/redwire-announces-acquisition-of-edge-autonomy, accessed November 17, 2025.