C4ISR Market Report – November 2024

Defense Electronics Creates Basis for C4ISR Market Growth

Capstone’s latest C4ISR Market Report features insights on trends in the C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance, & Reconnaissance) sector and in-depth analysis on merger and acquisition (M&A) volume, pricing, and what is influencing buyer appetite.

Middle market owner-operators have benefitted from a robust funding environment supported by heightened demand for defense electronics production. Defense electronics have served as the backbone of C4ISR sector production, connecting the space’s multiple end users and end markets through workable technology. While many large-scale U.S. Department of Defense (DOD) projects in recent years—such as the renamed Combined Joint All-Domain Command and Control (CJADC2) program and the Replicator Drone initiative—have propelled financial growth in the space, middle market players and sub-contractors have driven the bulk of sector consolidation. These businesses have continued to bolster both the supply chain for defense electronics and the subcontracting ecosystem, allowing prime contractors to maintain margin strength and allocate capital efficiently. As demand sharpens, Capstone expects public players in the space to turn towards consolidation to solidify market positioning and bolster competitiveness for new government contract awards.

Capstone’s C4ISR Market Report details how M&A activity in 2024 to date has increased compared to the prior year period. Strategic competition with China and boiling geopolitical conflicts involving U.S. allies have hastened the pace of consolidation in the sector. Although political considerations for business owners may be hard to predict for M&A, robust and persistent defense spending is likely to drive continued consolidation in the space. Notably, the merger between Jacobs’ (NYSE:J) Critical Mission Solutions (CMS) and Cyber & Intelligence (C&I) business units, and Amentum Holdings (NYSE:AMTM) in November 2023 (undisclosed), has provided an optimistic blueprint for contractors looking to bolster awards. The transaction, which closed in September 2024, formed Amentum Holdings as a new publicly traded company that expects to compete for large enterprise contracts in the Intelligence, Defense, and Civilian end markets of the Government Services space. The new company brings a combined contract backlog of $47 billion and combined revenues of $13.7 billion for FY 2024, which places the firm between Leidos (NYSE:LDOS) and Booz Allen Hamilton (NYSE:BAH) in terms of annual revenue, according to an investor presentation.¹ This deal may signal opportunities for other sector players to gain significant market share from legacy operators through strategic consolidation and mission alignment across the Federal Government’s defense spending priorities.

Also included in this report:

• Analysis on current and historic M&A purchase multiples.
• Which public companies have seen revenue increases in line with Defense Electronic market growth.
• How the DOD’s Microelectronics Commons and Secure Enclave programs will support growing demand for defense electronics products.

Capstone Partners’ ADGS Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Defense industries. Our team partners with leading mid-to-large sized business in the C4ISR market that serve growing end-markets. For more information on C4ISR market trends featured in this report or to speak with one of our ADGS Investment Banking Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today to start a conversation.