Mapping, Modeling & Simulation Market Update: Geopolitical Tensions and Aviation Headwinds Drive Robust M&A Activity

Mapping, Modeling & Simulation M&A Volume Has Stabilized, But Demand is Poised to Increase With DOD Partnerships

Capstone Partners released its November 2022 Mapping, Modeling & Simulation (MM&S) Services Update, reporting that the global shortage of civil and military pilots has created significant opportunities for MM&S players offering innovative pilot training services. The dearth of available pilots has necessitated a shift towards simulation training, which is expected to be a popular cost-effective solution as inflation and interest rates in the U.S. continue to rise. In addition, geopolitical tensions and military competition between the U.S. and its near peers (Russia and China) have emphasized the importance of force readiness and robust training solutions.

Prolonged flaws in U.S. military flight training and safety standards have inflicted significant financial costs on the government, emphasizing the need for increased collaboration with MM&S sector players. Companies with valuable product offerings and existing relationships with the U.S. Department of Defense (DOD) are expected to be well-positioned to achieve favorable revenue opportunities and buyer interest. Providers of the most up-to-date virtual flight training solutions are poised to attract significant demand and buyer interest as the DOD overhauls its pilot training safety procedures.

Merger and acquisition (M&A) volume in the MM&S sector has slowed through year-to-date (YTD) 2022, falling 30.4% year-over-year (YOY). However, 2021 deal volume was significantly elevated due to lower interest rates and anticipation of higher capital gains taxes—making for a unique YOY comparison. While a backdrop of economic uncertainty has contributed to the slowdown, quality businesses have continued to garner healthy buyer interest. Public strategic buyers have comprised the majority of deal activity in the sector YTD and have continued to consolidate by actively targeting companies in the Mapping segment. Private equity platform and add-on activity is also expected to increase as firms leverage vast reserves of dry powder, which has amounted to $1.2 trillion as of Q2 2022.

Also included in this report:

• An interview with AVT Simulation Founder & CSO, Robert Abascal.
• Insights into the growth of the Simulation & Training and Virtual Reality markets.
• A breakdown on how a continuing resolution passed for fiscal year (FY) 2023 has impacted DOD budgets during elevated competition with near peer adversaries.