May 2, 2022

Annual Aerospace, Defense, Government & Security Report – 2022 Middle Market M&A Activity & Outlook

Aerospace, Defense, Government & Security 2022Strength in Technology and Defense Offset Commercial Aerospace Weakness in Aerospace, Defense, Government & Security Industry

Capstone Partners has released its Aerospace, Defense, Government, & Security (ADGS) 2022 Annual Report, which features insights into the current environment as well as a review of last year including merger & acquisition (M&A) activity.

M&A activity in the ADGS industry rebounded to pre-pandemic levels with a 50% increase in transaction volume, though performance varied widely by subsegment. Defense Systems & Navigation; Software, Cyber & Artificial Intelligence (AI); as well as Space and General Aviation were all areas of M&A strength. Commercial Aerospace-related areas such as Component Manufacturing and Repair remained substantially below pre-COVID and MAX issue rates. However, looking ahead, industry participants and commentators expect a full return by mid-2023 and we envision ongoing M&A as: an uplift in commercial air travel causes sellers to re-emerge; increases in defense spending target peer threat and the broadening scope of warfare; and acquisitions capitalize on advances in emerging technologies.

Industry earnings and valuation metrics also saw a strong rebound. Public company earnings across the ADGS industry as a whole increased 22% in 2021, returning to pre-pandemic levels. While the size and subsegment were significant factors in deal valuations, the industry’s average multiple also ticked up to pre-pandemic levels. Transaction size continued to be a leading factor in sector valuation, with increasingly higher multiples paid for the largest deals. Additionally, multiples paid by private equity buyers across all sectors continued to increase in 2021.

The report, available for download below, provides in-depth analysis and commentary on the overall health and outlook of the ADGS industry and discusses topics including:

  • Commercial Aerospace eyes recovery from COVID-19 downdraft.
  • Defense spending sees renewed focus.
  • Government Information Technology (IT) Services fueled by advanced technology democratization.
  • Cybersecurity stands out as one of the fastest growing industry sectors.
  • Simulation & Training evolves through technology developments and cost advantages.
  • World events and technology advances are likely to drive further M&A.

To learn more about Capstone’s Aerospace, Defense, Government & Security Group or to discuss the content of this report, please do not hesitate to get in touch.

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