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Aerospace and Defense M&ASector Fundamentals Support Ongoing M&A Activity

Capstone Partners has released its Aerospace, Defense, Government, & Security (ADGS) Annual M&A Report, which features insights into the current environment as well as a review of last year including merger and acquisition (M&A) activity. Healthy fundamentals suggest M&A activity is likely to fare better than in many other industries.

Industry M&A activity stabilized, slipping slightly last year, while earnings and valuation metrics ticked up. The number of Aerospace and Defense M&A transactions decreased 14% in 2022, and were 13% below pre-pandemic 2019 levels, following a similar trend across all industries in North America. Component Manufacturing was the strongest performing subsector as commercial aerospace improved while A&D Electronics and Defense Information Technology (IT) reversed the uptick of prior years. Sector earnings exceeded pre-pandemic levels. U.S. Aerospace industry shipments rebounded increasing 13% in 2022, with a 22% increase in civil shipments and a 1.5% uplift in defense. Sector valuation multiples increased slightly and transaction size continues to become an increasingly important factor in valuation.

Private equity has become integral to the sector accounting for half of acquisitions as buy-and-build strategies become ever more prevalent. Founders, who typically choose to sell when times are good and business is at a high-water mark, comprised the majority of sellers with memories fresh of recent challenges.

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 sees return of passengers and new aircraft orders.
• Defense spending increase is strategy driven—potentially highest military budget since WWII.
• Ongoing increases in Federal Government IT.
• Cybersecurity demand rises while valuations fall.
• Simulation & Training demands grow and capabilities expand.
• Aerospace & Defense M&A activity likely to fare better than many other sectors.
• Private equity’s growing presence in the sector, including an expanding preference for buy-and-build strategies.

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 with a member of the team or through our Contact Us form.

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