European Defense Spending Underpins Rise in Training & Simulation M&A
Capstone Partners released its latest Training & Simulation Sector Update, reporting that the Training & Simulation sector has experienced strong demand, especially for mixed reality solutions that support military battle-readiness efforts. Elevated defense spending in Europe and among North Atlantic Treaty Organization (NATO) allies has been the primary driver behind this demand. The U.S. has historically taken the lead in funding NATO operations, consistently contributing a substantial portion of the alliance’s defense budget. President Trump has asserted that NATO members must begin to contribute more to their defense spending. The initiative has been met with agreement among several NATO allies, who assented to the push towards the 5% threshold. This surge in funding has supported an increase in activity throughout the Training & Simulation sector.
NATO member states have begun redirecting portions of their expanded budgets toward modernizing military training infrastructure and acquiring advanced simulation technologies. The development of immersive virtual environments and artificial intelligence (AI)-driven training platforms has enhanced the realism and effectiveness of military exercises. Increased defense spending around the globe has established a strong foundation for innovation and expansion within the Training & Simulation space. The sector’s mergers & acquisitions (M&A) market has reflected heightened demand for solutions deemed mission-ready, rapidly deployable, and more cost-effective than traditional live training modules. Sector participants with these capabilities will likely continue to see robust revenue and acquisition opportunities through 2025 and into 2026.
Training & Simulation M&A volume has more than doubled year-over-year (YOY). Healthy deal activity has been supported by a sudden onset of demand for innovative virtual training solutions in both the Military and Civilian segments. From a military perspective, demand for these solutions has stemmed from armed forces aiming to build up training capabilities. The adoption of innovative solutions in the Civilian segment has enabled more streamlined learning capabilities, enhancing the speed and efficiency at which professionals prepare to address mission-critical scenarios. Strategic buyers have continued to lead sector transaction activity to date, comprising 80% of deals, with private strategics alone accounting for 57.1%. Active private equity (PE) firms have sought out platforms that offer proprietary capabilities that can be scaled to build out coverage in the sector.
Training & Simulation M&A volume in the Military segment has strengthened YOY. Military branches in the U.S. and internationally have increasingly adopted virtual reality (VR), augmented reality (AR), and AI to replicate real-world combat scenarios, uplifting inorganic growth strategies in the segment. Heightened defense spending has also driven participants to scale via M&A. Mirroring the broader sector, Military segment M&A growth has been driven by strategic buyer activity. Robust defense expenditure projections are anticipated to further buoy M&A in the Military segment, with advanced technology providers likely seeing outsized valuations.
Also included in this report:
A Q&A with several Training & Simulation sector executives diving into the growing demand within the space.
A breakdown of multiple notable military-focused transactions.
How disclosed M&A transaction values have fared in comparison to historical levels.
Capstone Partners’ ADGS Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Training & Simulation sector. Our team partners with leading mid-to-large sized industrials and manufacturing businesses that serve growing end-markets.
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