Air, Land, Sea, & Space Systems Market Update: Commercial Sector Innovation Drives Merger and Acquisition Demand

M&A Volume Largely Mirrors Pre-2021 Levels in the Air, Land, Sea, & Space Market

Capstone Partners released its November 2022 Air, Land, Sea, & Space Systems Market Update, reporting that continued innovation in the Commercial sector has propelled growth in the Space Systems segment, contributing to healthy operating performance for market participants in 2022. In addition, a continuing resolution for fiscal year (FY) 2023 has halted new government spending on Department of Defense (DOD) projects, emphasizing the importance of private investment.

Increased private investment in commercial space exploration, expansion of transportation alternatives, and elevated funding for the Navy has driven growth in the Air, Sea, and Space Systems segments. The Air and Space Systems segments have continued to demonstrate a healthy balance between maximizing government contracts and fostering the growth of products with commercial applications. The sector remains highly defensible and recession resistant due to the revenue visibility provided by government contracts. Funding allocation requests for the U.S. Navy in FY 2023 have surged, supporting healthy deal activity and revenue opportunities in the Sea Systems segment through year-end and into 2023. However, commercial viability for fixed Earth satellites has also been outpaced by low-Earth orbit (LEO) space satellites, dampening growth forecasts for the Land Systems segment.

Sector transaction volume has stabilized in year-to-date (YTD) 2022 following a frenzy of merger and acquisition (M&A) activity in 2021 across all industries. Sector M&A volume has largely mirrored pre-2021 levels, as increased federal and commercial investment in the sector has fostered a favorable environment for start-up and middle market enterprises. Private equity (PE) firms in 2022 have been hesitant to pursue platform acquisitions, partly due to elevated interest rates, as financial acquirers have focused more on add-on deals. A renewed space race between the U.S. and its near peer adversaries (Russia and China), including an escalating war in Ukraine, has supported projections for an increase in spending on DOD programs once a budget for FY 2023 is passed.

Also included in this report:

• Coverage of the October 2022 MilSat Symposium, featuring panelist and Capstone Managing Director, Tess Oxenstierna.
• A highlight of recent innovation and success in the Commercial Space sector.
• A breakdown on what types of buyers are targeting Space segment players, and how it has contributed to recent M&A activity.