C4ISR Market Update – November 2026

Artificial Intelligence Integration Drives Significant Expansion in C4ISR Market M&A

The Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR) market has benefited from heightened global security concerns, sustained increases in global defense spending, and the central role of artificial intelligence (AI) in modern battlefield management. These dynamics have supported robust merger and acquisition (M&A) activity, as defense contractors have pursued inorganic growth strategies to expand technological capabilities and address evolving mission requirements. Military organizations have increasingly prioritized modernization initiatives centered on multi-domain operations, real-time digital battlefield connectivity, and AI-enabled decision support, fueling buyer demand for providers of advanced software, sensing, and intelligence solutions. Strong defense budget visibility and accelerating adoption of next-generation technologies have incentivized strategic consolidation, private equity (PE) acquisitions, and venture capital (VC) investment across the sector. Modernization programs across defense agencies, coupled with the growing integration of AI into command and intelligence workflows, are expected to sustain investor interest and support continued M&A momentum across the C4ISR market.

Technology-enabled solutions to speed multi-sensor data collection and dissemination to the forward edge of the warfighter is driving the demand signal for AI use, especially for autonomous platforms.

Tess OxenstiernaManaging Director & Head of Aerospace, Defense, Government and Security
Capstone Partners

Geopolitical Tensions Set the Stage for Record-Breaking Global Defense Spending

The continuation of armed conflicts worldwide has spurred significant growth in global defense spending, providing strong end market opportunities for the C4ISR market. Global military expenditures grew 2.9% year-over-year (YOY) to reach ~$2.9 trillion in 2025, marking the 11^th consecutive year of expansion, according to the Stockholm International Peace Research Institute’s (SIPRI) 2025 Trends in World Military Expenditure report.¹ This uptick in global spending followed a significant spike in military procurement (+9.4% YOY) in 2024 due to the Russo-Ukrainian war, signifying continued defense funding at elevated levels. Key markets for U.S.-based defense contractors have displayed unprecedented levels of growth. Total European defense spending accelerated 14% YOY to $864 billion in 2025, while North Atlantic Treaty Organization (NATO) member states (excluding the U.S.) budgets have grown 60.4% from 2020 through 2025. The Russo-Ukrainian war has largely driven this acceleration in military spending as key Allied markets demand C4ISR technologies to bolster defensive posturing and replenish military aid packages. Intelligence cooperation has served as a critical component of Allied support for Ukraine, enabling long-distance strikes of key assets deep within Russian territory. Additionally, advanced sensors and command and control (C2) systems have proven crucial to defensive posturing in Europe, providing early warning capabilities and enabling rapid interception of unauthorized drones and other potential threats. Meanwhile, ongoing defense modernization efforts have converged with autonomy and AI arms races, driving significant end market demand for cutting-edge technologies capable of enhancing decision-making, communication, and operational coordination. U.S. Department of War (DOW) priorities—such as the Golden Dome—have placed the C4ISR market at the core of mission success. The continuation of heightened geopolitical tension is set to provide ample end market opportunities for the sector, attracting intense investor and acquirer attention to the C4ISR market.

Defense Organizations Deploy Artificial Intelligence to Optimize Kill Chains and Decision Making

Defense automation has undergone recent real-world trials, validating continued investment in the space. Operation Epic Fury has introduced the first large-scale deployment of AI by U.S. forces, serving as a testing ground for a range of AI-enabled C4ISR capabilities. The Maven Smart System (MSS), a product of the DOW’s AI and machine learning (ML) initiative Project Maven, has been central to the U.S.’ targeting strategy, enabling coordinated air, land, and sea-based strikes. The AI-powered software platform has accelerated the attack kill chain by integrating multiple intelligence, surveillance, and reconnaissance (ISR) data streams into a singular graphical user interface (GUI) for Combined Joint All-Domain Command and Control (CJADC2) activities. The advancement of AI has rapidly expanded the capabilities of Project Maven since its establishment in April 2017, with Palantir (Nasdaq:PLTR) reengineering the system in 2025 and serving as the lead prime contractor for MSS, according to an article from the Center for Strategic & International Studies (CSIS).² Use of MSS allowed the Pentagon to engage more than 1,000 targets in the opening 24 hours of the Iran war, a reported tenfold increase over previous capabilities. The program has offered lucrative opportunities to smaller defense technology companies beyond the larger firms leading the project. MSS has grown to include several smaller subcontractors including AI-enabled defense startup Rebellion Defense, offering lucrative opportunities for middle market technology developers to capture a share of the contract while positioning them as attractive M&A targets.

Competitive Processes Target Defense Technology Firms, Support C4ISR Market M&A Volume and Valuation Expansion

Demand for innovative technologies has accelerated M&A activity across the C4ISR market. Sector dealmaking in year-to-date (YTD) 2026 has surged 125.9% YOY to a total of 122 announced or completed transactions. Strategic acquirers have led this expansion, with acquisitions increasing 162.2% YOY to account for 79.5% of total sector volume to date. Public companies have been particularly active, expanding 143.5% YOY to 56 deals and representing 57.7% of all strategic-led transactions. Publicly traded prime contractors have faced pressure from the U.S. government to shift financial priorities toward manufacturing and product development initiatives to sustain a proactive domestic industrial base. Alongside facility footprint expansion, many primes have redirected funds once earmarked for dividends and buybacks toward acquisitions of innovative technology developers with commercially viable solutions, creating lucrative exit opportunities for established middle market companies. The median disclosed deal size in the C4ISR market has risen to $310 million to date, compared to $150 million in the prior-year period, reflecting demand for scaled businesses within the upper middle market (enterprise value between $250 and $500 million) capable of delivering the commercial-off-the-shelf (COTS) solutions prioritized under recent DOW acquisition reforms.

Private equity buyers have continued to pursue both platform and add-on acquisitions in the C4ISR market. Sponsor-led transaction activity has expanded 47.1% YOY to 25 deals in YTD 2026. Add-ons have represented the majority (68%) of transaction volume within this cohort, rising by three deals YOY to 17. Platform investments have more than doubled to date, totaling eight transactions. Notably, sponsors have targeted platforms with diversified exposure across the Commercial and Defense end markets, reflecting a preference for balanced demand exposure and reduced customer concentration risk. Sponsors historically averaged 33.6% of deal activity from 2020 through 2025, though active strategic M&A has pushed this share down to 20.5% to date. Moreover, intense strategic buyer dealmaking in the near term may temper long-term acquisition appetite, limiting the number of viable exit opportunities for PE investments.

Strong end market demand has lifted recent M&A valuations in the C4ISR sector. Revenue multiples have averaged 2.9x from 2024 through YTD 2026—a half-turn increase over the prior two-year period—while EBITDA multiples have expanded to an average of 14.2x (+1.2x). The significant attention directed towards top-level AI software developers has spread down the technology stack to hardware manufacturers and other companies that enable complete autonomous systems. Adjacency to AI and broader Software verticals has commanded premium valuations within the C4ISR market. Notably, Ennoconn (TWSE:6414) acquired Kontron (XTRA:KTN) in June 2026 for $2 billion (1.1x EV/Revenue, 16.3x EV/EBITDA), underscoring the robust inorganic growth opportunities for foundational embedded electronics manufacturers and others across the value chain. Autonomy exposure will likely remain a key driver of buyer appetite and valuations as battlefield deployments validate AI-enabled systems. Several AI-focused transactions are highlighted below.

• AEVEX Acquires Maritime Applied Physics (August 2026, $581.9 Million, ~3.9x EV/Revenue, ~25.9x EV/EBITDA) – Defense technology company AEVEX (NYSE:AVEX) acquired autonomous maritime systems developer Maritime Applied Physics (doing business as BlackSea Technologies) in August 2026 for an enterprise value of $581.9 million, equivalent to ~3.9x EV/Revenue and ~25.9x EV/EBITDA. BlackSea’s fleet of unmanned tactical vessels combines rapid strike capability with ISR capacity. The company’s ~five-meter-long Global Autonomous Reconnaissance Craft (GARC)—a small unmanned surface vehicle (sUSV) which has logged more than 450 combat hours during Operation Epic Fury—operates as a communications relay, collects and transmits intelligence, and allows for the modular deployment of critical sensors and mission systems, according to an April 2026 article by National Interest.³ The similarly-sized Chaser unmanned surface vehicle (USV), dubbed the GARC Block II, augments the core ISR mission set with a 30 millimeter remote weapon system (RWS) and vertical launch capabilities. BlackSea’s manufacturing operations were a key asset in the transaction, providing AEVEX with an advanced Maryland facility integrated across the manufacturing process and capable of producing ~40 USVs per month, according to a press release.⁴

“This is exactly the kind of acquisition that aligns with our strategic priorities…BlackSea adds meaningful maritime scale to our mission with operationally proven platforms, deep customer relationships, and real production capacity that matches customer requirements,” said Roger Wells, CEO of AEVEX, according to the press release.

• Leonardo DRS to Acquire Raft (July 2026, $450 Million) – Leonardo DRS (Nasdaq:DRS), a U.S. subsidiary of international defense contractor Leonardo (BIT:LDO), announced its acquisition of mission support software vendor Raft in July 2026 for an enterprise value of $450 million. Raft develops AI-enabled software allowing for the consolidation of communications and ISR sources into digestible streams of actionable information to guide targeting, battlefield awareness, and tactics. Raft released its [R] AI Mission System ([R]AIMS) in March 2025, leveraging large language models (LLMs) to unify and analyze data, addressing the issue of information overload stemming from multiple disparate sources. The solution’s modular, open-architecture approach served as a key driver of the deal, providing a solution for the challenge of integrating legacy DOW systems. [R]AIMS complements Leonardo’s Mission Command Software Suite (MCSS) as well as its Command, Control, Communications (C3) Vehicle System (C3VS) and other hardware. The transaction—which is expected to close in the fourth quarter of 2026—is anticipated to provide Leonardo DRS with a tax benefit of ~$50 million over the next 15 years, according to a deal press release.⁵

“Our customers increasingly require integrated hardware, software, data, and autonomy to support mission outcomes. The acquisition of Raft will build on and accelerate the organic investment that DRS has made in that evolution. Raft adds proven software talent and open-architecture technology that complement our existing sensing and computing capabilities and strengthen our ability to deliver AI-enabled mission solutions at the speed our customers demand,” stated John Baylouny, President and CEO of Leonardo DRS, according to the press release.

• Ondas Acquires DZYNE Technologies (July 2026, $829.9 Million, 4.6x EV/Revenue) – Prime contractor Ondas (Nasdaq:ONDS) acquired DZYNE Technologies, a developer of autonomous ISR systems, from PE firm Highlander Partners to establish a unified mission set spanning multi-domain ISR, counter-drone technologies, autonomy, precision strike, and AI-enabled battlefield management (July 2026, $829.9 million, 4.6x EV/Revenue). Ondas integrated DZYNE into the company’s new Ondas Sentinel division. This new business unit delivers cross-domain capabilities through a scalable commercial model, aligning with DOW preference for COTS acquisition. Ondas has established this unit through an active inorganic growth strategy, looking to integrate the capabilities and production processes of subsidiaries DZYNE, Omnisys (May 2026, $259 million), World View Enterprises (March 2026, $135.8 million), Rotron Aerospace (February 2026, ~$6.6 million), and Sentrycs (November 2025, $223.3 million, 13.7x EV/Revenue). As a result of the transaction, former DZYNE sponsor Highlander obtained a significant minority investment in Ondas, choosing to receive ~$675 million of the purchase price in equity shares. The firm acquired DZYNE in January 2023 for an undisclosed sum, closing one add-on during its holding period (High Point Aerotechnologies, June 2024, undisclosed).

“The character of warfare is changing rapidly, and military advantage increasingly belongs to organizations capable of deploying autonomous systems at scale…DZYNE brings exceptional technology, world-class engineering talent, and mission-ready systems across long-endurance ISR, counter-UAS [unmanned aerial systems], and autonomous effects,” shared Eric Brock, Chairman and CEO of Ondas, in a deal press release.⁶

Government-Led Initiatives Foster Increased Venture Capital Investment in Core Defense Capabilities

The DOW has transformed its role from solely purchasing defense products to actively funding and catalyzing innovation, attracting outside investment attention. As a result, total equity financing in the sector has reached a record $9.4 billion to date—128.5% above the prior year period. Rising defense budgets have presented clear demand signals, while multi-year, multi-billion-dollar procurement and research, development, test, and evaluation (RDT&E) commitments have provided institutional investors with the visibility and confidence required to deploy capital. Acquisition reform has shifted DOW purchasing preference to COTS solutions, enabling smaller VC-backed companies with existing commercial relationships to compete more effectively for positions in high-value defense contracts. Of note, 75.2% of the 109 growth equity deals YTD have been early-stage VC (incubator through Series B)—a share that has steadily increased in recent years from 54.8% of equity financing activity in 2021. Furthermore, DOW procurement initiatives have increasingly employed dual-use technologies. For example, military agencies have leveraged commercial satellites for defensive ISR purposes, while data analysis and cybersecurity software have proven useful for both corporate customers and defense organizations. This diversification has lowered investment risk profiles while attracting traditionally generalist funds to Defense markets, fostering a favorable funding environment for the C4ISR market.

Further financing opportunities have arisen from more active investment arms of the federal government. Organizations including the Defense Innovation Unit (DIU), Economic Defense Unit (EDU), Export-Import Bank of the United States (EXIM), and Office of Strategic Capital (OSC) have offered critical funding opportunities for promising pre-revenue defense companies. Operating under national security mandates, these agencies can support earlier-stage and higher-risk technologies than traditional private capital providers. The Small Business Investment Company Critical Technologies (SBICCT) Initiative—a collaboration between the DOW and the U.S. Small Business Administration (SBA)—announced its first investment cohort in January 2025, with $4 billion in planned capital to be channeled into private funding vehicles committed to investing in component-level manufacturers and developers within the DOW’s Critical Technology Areas (CTAs), according to a press release.⁷ Private sector participation has complemented this government support. J.P. Morgan (NYSE:JPM) launched the Security and Resiliency Initiative (SRI) in October 2025, planning to support $1.5 trillion in financing towards middle market and large-scale manufacturers of key national defense products, according to J.P. Morgan.⁸ Renewed U.S. government support for bolstering domestic and Allied supply chains lent confidence to the initiative. Recent SRI transactions have included a $300 million EXIM financing package for defense communications developer CesiumAstro—including a $20 million revolving credit line from J.P. Morgan—in September 2026, and the ~$4.4 billion initial public offering (IPO) of defense conglomerate Czechoslovak Group (ENXTAM:CSG) in January 2026, according to press releases.^{9 , 10}  CSG’s Aerospace & Defense Electronics division includes C4ISR offerings spanning situational awareness, battlefield management, and radar tracking solutions. Growing investor appetite for pre-revenue and early-stage defense companies has suggested that DOW efforts to attract capital to frontier technologies have successfully expanded the innovation pipeline of growing companies for the C4ISR M&A market.

Expanding defense budgets will likely continue to provide ample end market opportunities within the C4ISR market. Converting those opportunities into commercial success will depend upon aligning products with the demands of the modern warfighter as well as rapidly delivering solutions to the battlefield. Technology development has served as the most impactful competitive differentiator within the C4ISR market, with significant capital available to help companies scale to commercial viability and an attractive M&A target size. The C4ISR market has been at the forefront of the technological curve, and recent advancements in AI and ML have only furthered the importance of innovation. Capstone expects converging geopolitical, governmental, and industry tailwinds to support the continued expansion of dealmaking targeting the C4ISR market.

To discuss the market implications of AI, provide an update on your business, or learn about Capstone’s wide range of advisory services and C4ISR market knowledge, please contact us.

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

Endnotes

1. Stockholm International Peace Research Institute, “Global Military Spending Rise Continues as European and Asian Expenditures Surge,” https://www.sipri.org/publications/2026/sipri-fact-sheets/trends-world-military-expenditure-2025 ,accessed September 14, 2026.

2.  Center for Strategic & International Studies, “What is Maven Smart System, and What Does it Do?,” csis.org/analysis/what-maven-smart-system-and-what-does-it-do, accessed September 14, 2026.

3.  The National Interest, “The U.S. Navy’s ‘GARC’ Drone Gets its Baptism by Fire,” nationalinterest.org/blog/buzz/us-navys-garc-drone-gets-baptism-by-fire-sa-041926, accessed September 14, 2026.

4. AEVEX, “AEVEX to Acquire BlackSea Technologies, Strengthening its Multi-Domain Autonomous Systems Capabilities,” https://ir.aevex.com/news/news-details/2026/AEVEX-to-Acquire-BlackSea-Technologies-Strengthening-Its-MultiDomain-Autonomous-Systems-Capabilities/default.aspx, accessed September 14, 2026.

5.  Leonardo DRS, “Leonardo DRS to Acquire Raft, Expanding Multi-Domain AI, Data Fusion and Mission Software Capabilities,” leonardodrs.com/news/press-releases/leonardo-drs-to-acquire-raft-expanding-multi-domain-ai-data-fusion-and-mission-software-capabilities/, accessed September 14, 2026.

6.  ONDAS Sentinel, “ONDAS Announces Transformative Acquisition of DZYNE Technologies, Establishing the Leading Autonomous Defense Platform Spanning Persistent Intelligence, Aerial Security, and Autonomous Effects,”dzyne.com/ondas-announces-transformative-acquisition-of-dzyne-technologies-establishing-the-leading-autonomous-defense-platform-spanning-persistent-intelligence-aerial-security-and-autonomous-effects/, accessed September 14, 2026.

7. U.S. Department of War, “Department of Defense and U.S. Small Business Administration Publish Names of First 18 Licensed and Green Light Approved Funds for the Small Business Investment Company Critical Technologies Initiative,” war.gov/News/Releases/Release/Article/4032999/department-of-defense-and-us-small-business-administration-publish-names-of-fir/, accessed September 14, 2026.

8. J.P. Morgan, “JPMorganChase Launches $1.5 Trillion Security and Resiliency Initiative to Boost Critical Industries,” jpmorganchase.com/newsroom/press-releases/2025/jpmc-security-resiliency-initiative, accessed September 14, 2026.

9.  CesiumAstro, “CesiumAstro Puts Future of U.S. Space and Defense Manufacturing on Display for EXIM Bank Chairman,” cesiumastro.com/press-release/cesiumastro-puts-manufacturing-on-display-for-exim, accessed September 14, 2026.

10.  J.P. Morgan, “J.P. Morgan Banks on Europe’s Defense Boom,” jpmorgan.com/insights/banking/capital-markets/europe-defense-ipo-csg, accessed September 14, 2026.