Capstone Partners Reports: Aerospace & Defense M&A Activity Shines in Muted Market

Capstone’s new ADGS report details robust Aerospace & Defense deal growth, valuation trends, and sector drivers heading into 2026.

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Capstone Partners (HBAN) released its annual Aerospace, Defense, Government & Security (ADGS) Industry M&A Report and 2026 Outlook, highlighting resilient deal activity despite broader market softness.

In Aerospace & Defense, 2025 M&A posted a 10.3% year-over-year increase in deal count and a 73.1% rise in total disclosed enterprise value, with average valuations of 3.0x EV/Revenue and 11.4x EV/EBITDA. Q1 2026 volume grew a further 37% YOY to $47.1 billion in disclosed EV, with EBITDA multiples at 9.5x and revenue multiples expanding to 4.8x. The report outlines divergent trends across Aerospace, Defense, Government contracting, and Security, and examines how factors such as record U.S. defense budget proposals, changing acquisition practices, and AI-driven cybersecurity demand are shaping M&A opportunities.

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BOSTON, Sept. 9, 2026 /PRNewswire/ -- Capstone Partners' annual Aerospace, Defense, Government & Security (ADGS) Industry M&A Report and 2026 Outlook examines Public market valuations, macroeconomic trends, and deal activity across each of the four industry pillars. Capstone Partners' ADGS Investment Banking Team provides merger and acquisition (M&A), capital formation, and financial advisory services to the owners of middle market businesses in the ADGS industry that serve growing end markets. Our team provides proprietary experience advising scaled, technology-enabled services and solutions providers across multiple mission-critical end markets.

Fervent Aerospace & Defense M&A Demand Backed by Resilient Market Dynamics

The ADGS industry entered 2025 after a prior-year-period that saw significant gains in deal count and strong valuation performance despite a volatile macroeconomic and geopolitical landscape that depressed dealmaking elsewhere in the market. Yet, Aerospace & Defense M&A continued to expand throughout 2025, posting a 10.3% year-over-year (YOY) uptick in deal count matched by a 73.1% increase in total disclosed enterprise value (EV) and robust deal valuations averaging 3.0x EV/Revenue and 11.4x EV/EBITDA. The first quarter of 2026 suggested no slowdown in buyer interest, marked by a 37% YOY increase in Aerospace & Defense M&A volume totaling $47.1 billion of disclosed EV. While Q1 2026 EBITDA multiples contracted nearly two turns from full-year 2025 to 9.5x, revenue multiples expanded significantly to 4.8x—a signifier of the growing demand for subscription-based solutions within the Government and Security markets, and early-stage technology-enabled developers in the Aerospace and Defense spaces.

Aerospace dealmaking in 2025 was defined by depressed aircraft production levels, delivering strong end market opportunities—and subsequent buyer interest—across the Manufacturing, Maintenance, and Leasing segments. Volatile fuel prices pushed low-cost carriers (LCCs) to their limits, providing a pool of eager sellers for airline consolidation through the first quarter of 2026. Fragmentation continued to define the Component Manufacturing segment as strategics and sponsor-backed platforms alike sought scale, specialization, and geographic expansion.

Defense spending underpinned continued expansion in military-focused M&A in 2025, extending gains through Q1 2026. A record-breaking fiscal year (FY) 2026 National Defense Authorization Act (NDAA) was followed by an even loftier FY 2027 President's Budget request, lifting proposed spending to $1.5 trillion, according to The White House. The Department of War (DOW) reformed the historically conservative acquisition process, incentivizing renewed investments in strategic inorganic growth and wider investment in the U.S. industrial base to align with new contracting opportunities and practices. Private market financing was accompanied by an active Office of Strategic Capital (OSC) and preference for commercial-off-the-shelf (COTS) solutions, delivering critical lifelines to small, innovative defense technology developers.

Government contracting M&A experienced an acute pullback in 2025. The Department of Government Efficiency (DOGE) injected uncertainty into the Federal Contracting space, exacerbated by the longest government shutdown in U.S. history. Acquirers adapted by shifting target criteria to diverse revenue streams across both federal and state, local & education (SLED) levels of government. The first quarter of 2026 saw M&A restored to stable levels of growth, signifying renewed confidence in government contracting.

Security remained a top concern in both the physical and cyber realms in 2025 and Q1 2026. A nationwide focus on inner-city law and order supported M&A demand across the Physical Security landscape, while chronic law enforcement staffing shortages brought uniformed guard services to the forefront of dealmaking. Software integration offered unique opportunities for service providers and systems integrators capable of upgrading legacy security systems with new technology enablement. Artificial intelligence (AI) defined Cybersecurity sector M&A, with buyers vying for solutions both powered by AI as well as those used to secure the vast amounts of sensitive data behind AI models and agents.

Looking ahead, Capstone expects the ADGS industry to continue embracing M&A as the preferred method of adapting to change, bringing innovation to market, and capitalizing on strong macroeconomic tailwinds. The industry is uniquely positioned to serve the needs of a geopolitically unstable world, and industry participants have displayed eager willingness to achieve the growth required to address global concerns.

Aerospace & Defense M&A Activity Trends by Sector

The full report, available for download below, includes M&A commentary and analysis on 14 key sectors within the ADGS industry:

• Aircraft Leasing
• Aircraft Maintenance
• Aircraft Manufacturing
• Flight
• Air, Land, Sea & Space (ALSS) Systems
• Command, Control, Communications, Computers, Intelligence, Surveillance & Reconnaissance (C4ISR)
• Electronic Warfare, Defense Electronics & Sensors
• Tactical Products
• Training & Simulation
• Unmanned Systems
• Government Services
• Cybersecurity
• Governance, Risk & Compliance
• Security Solutions

To access the full report, click here.

ABOUT CAPSTONE PARTNERS

For over 20 years, the firm has been a trusted advisor to leading middle market companies, offering a fully integrated range of investment banking and financial advisory services uniquely tailored to help owners, investors, and creditors through each stage of the company's lifecycle. Capstone's services include M&A advisory, debt and equity placement, corporate restructuring, special situations, valuation and fairness opinions and financial advisory services. Headquartered in Boston, the firm has 300+ professionals in multiple offices across the U.S. With 12 dedicated industry groups, Capstone delivers sector-specific expertise through large, cross-functional teams. Capstone is a subsidiary of Huntington Bancshares Incorporated (NASDAQ: HBAN). For more information, visit www.capstonepartners.com.

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SOURCE Capstone Partners

FAQ

What key M&A metrics for Aerospace & Defense does Capstone highlight for 2025 and Q1 2026?

For 2025, Aerospace & Defense M&A showed a 10.3% year-over-year increase in deal count and a 73.1% increase in total disclosed enterprise value, with average valuations of 3.0x EV/Revenue and 11.4x EV/EBITDA. In Q1 2026, deal volume rose 37% YOY to $47.1 billion of disclosed enterprise value, with average EBITDA multiples of 9.5x and revenue multiples of 4.8x.

How does the report describe M&A conditions across the four ADGS pillars?

Aerospace dealmaking was supported by depressed aircraft production, volatility in fuel prices, and fragmentation in component manufacturing. Defense M&A benefited from rising proposed U.S. defense spending, reforms to the acquisition process, and support for small defense technology developers. Government contracting saw a pullback in 2025 amid uncertainty and a prolonged government shutdown, before stabilizing in Q1 2026. Security M&A remained active in physical and cyber segments, with AI a central theme in cybersecurity transactions.

Which ADGS sectors are covered in Capstone’s full M&A report?

The full report covers 14 sectors: Aircraft Leasing, Aircraft Maintenance, Aircraft Manufacturing, Flight, Air, Land, Sea & Space (ALSS) Systems, C4ISR, Electronic Warfare, Defense Electronics & Sensors, Tactical Products, Training & Simulation, Unmanned Systems, Government Services, Cybersecurity, Governance, Risk & Compliance, and Security Solutions.

How can interested readers access Capstone’s full ADGS M&A report?

The full ADGS Industry M&A Report and 2026 Outlook is available for download via the provided link indicated as “click here” in the announcement.