Aerospace & Defense M&A Middle Market Update

As of December 2025, the Aerospace & Defense (A&D) middle-market is experiencing strong and steady M&A activity, driven by rising defense spending, continued commercial aerospace recovery, and a focus on acquiring new technologies. Both strategic buyers and private equity firms are active participants.

Despite some regulatory and supply chain challenges, middle-market A&D activity has been driven by private equity investment and strategic acquisitions in technology and next-gen capabilities throughout 2025. Record defense spending and resilient commercial demand continue to fuel M&A, particularly for companies focused on AI, unmanned systems, space technology, and supply chain resilience.

Market drivers of A&D middle-market activity are primarily rising global defense budgets, technological innovation, supply chain resilience efforts, and favorable macroeconomic conditions.

Key drivers include:

• Increased Defense Spending — Continued global conflicts and national security priorities are leading governments worldwide to ramp up defense budgets, driving demand for modernization, new technologies, and a stronger domestic industrial base.
• Technological Advancements — Companies with advanced capabilities in areas like artificial intelligence (AI), autonomy, cybersecurity, space technology, and data analytics are attractive acquisition targets for both strategic buyers and private equity firms.
• Supply Chain Consolidation and Resilience — The A&D supply chain remains a pain point with persistent bottlenecks and labor shortages. Companies are pursuing M&A to vertically integrate, secure critical raw materials, and on-shore or “friend-shore” production to mitigate risk and ensure operational readiness.
• Commercial Aerospace Recovery — A sustained recovery in air traffic and large order backlogs for new aircraft are driving production expansion and M&A in the commercial A&D aftermarket and MRO (maintenance, repair, and overhaul) sectors.
• Favorable Financing and Capital — Stabilized interest rates, an improved capital market environment, and significant levels of unspent private equity capital (dry powder) are creating favorable conditions for deal-making.
• Portfolio Reshaping — Larger A&D primes are divesting non-core assets to focus on mission-critical competencies and high-growth areas, providing opportunities for middle-market companies and private equity to acquire and optimize these assets.
• Aging Ownership — A demographic trend of aging owners of privately-held middle-market A&D businesses is leading to more sell-side activity as they look to exit and monetize their life’s work.

As of December 2025, key areas of interest for middle-market activity in the Aerospace & Defense (A&D) sector center on advanced technology integration (AI, autonomy, space), supply chain resilience, and MRO services, driven by rising global defense budgets and commercial aviation recovery.

Key Areas of Interest:

• Advanced Technologies — There is strong interest in companies developing capabilities in AI, autonomous systems (drones), analytics, and digital integration. These technologies are being adopted for applications in threat detection, predictive maintenance (MRO), and general operational efficiency.
• Space and Next-Generation Capabilities — Increased investment is flowing into space technology, satellite communications, and missile defense systems (“Golden Dome” initiative), driven by evolving national security needs.
• Supply Chain Resilience and Onshoring — Persistent supply chain fragilities and the need to de-risk critical inputs (e.g., rare earth minerals, semiconductors) are driving M&A activity focused on acquiring or strengthening domestic suppliers and manufacturing capabilities.
• Maintenance, Repair, and Overhaul (MRO) — With new aircraft deliveries constrained and airlines utilizing older fleets for longer periods, demand for MRO services and aftermarket parts has increased significantly, making this a hot area for investment.
• Portfolio Optimization — Both strategic and private equity buyers are actively engaged in M&A to align their portfolios with these high-growth areas, often shedding non-core or underperforming business units to focus on core competencies.
• Talent Acquisition — The sector faces significant labor shortages, particularly for skilled engineering, automation, and cybersecurity talent. Acquisitions are increasingly used as a means to onboard specialized teams and fill these gaps.
• Advanced Air Mobility (AAM) — Capital continues to flow into emerging segments like electric vertical take-off and landing aircraft (eVTOL), though regulatory pathways remain a key gating factor for M&A theses.

Middle-market deals are expected to dominate M&A activity as business owners seek strategic partners to access capital and drive growth, leveraging tailwinds from strong defense spending and the commercial aerospace rebound.

As of December 2025, recent middle-market A&D M&A activity is characterized by a strong focus on specialized technology, defense electronics, and supply chain vertical integration, with private equity firms playing an increasingly active role.

Below are examples of A&D middle-market deals announced or active in 2025, generally involving companies with revenues between $5 million and $300 million:

Select 2025 A&D Middle-Market Deals:

• Pryer Aerospace acquired by Argonaut Private Equity — Pryer Aerospace, an aerospace components manufacturer, was acquired by the private equity firm in January 2025.
• Integra Technologies acquired by Micross Components (Behrman Capital) — In January 2025, Micross Components, a portfolio company of Behrman Capital, acquired Integra Technologies, a provider of semiconductor testing and related services.
• Kranze Technology Solutions acquired by SPX Technologies — SPX Technologies acquired Kranze Technology Solutions, a provider of ruggedized electronics and systems for defense applications, for $350 million in January 2025.
• McStarlite acquired by Standex International — Standex International acquired McStarlite, a manufacturer of aerospace components, for approximately $56.5 million in February 2025.
• Phased n Research acquired by Radiance Technologies — Radiance Technologies acquired Phased n Research, which specializes in advanced engineering and R&D, in March 2025.
• OpenGate Capital’s ScioTeq — Tikehau is in exclusive discussions to acquire ScioTeq (a manufacturer of advanced visualization solutions for demanding environments), with OpenGate Capital retaining a minority stake.
• Essential Turbines add-on acquisition — Essential Turbines, backed by Swift Anchor and Balance Point, completed an add-on acquisition of AeroMaritime Mediterranean to enhance MRO (Maintenance, Repair, and Overhaul) capabilities.

• Technology Focus — Buyers are paying a premium for companies with unique intellectual property, mission-critical applications, and capabilities in AI, autonomous systems, and space technology.
• Private Equity Interest — Financial buyers increased their share of deal activity in early 2025, driven by ample capital and a favorable debt market for quality A&D assets.
• Strategic Consolidation — Strategic buyers are using bolt-on acquisitions to build scale, secure supply chains, and vertically integrate operations to meet high demand for both defense and commercial aerospace components.
• Stable Valuations — Valuations for high-quality, mid-market companies have remained stable, even amid broader market uncertainties, due to persistent buyer demand.

Artificial Intelligence (AI), Autonomy, and cybersecurity are the main technologies driving mergers and acquisitions (M&A) in the aerospace and defense (A&D) and wider tech markets. Companies are acquiring capabilities in these areas to drive strategic growth, build new capabilities, and enhance their competitiveness.

• A&D sector — Companies are acquiring firms with advanced AI capabilities for applications like unmanned aerial systems (drones), advanced air mobility, and next-generation research. AI also helps improve production processes and is a factor in dual-use technologies for both defense and commercial applications.
• Tech sector — Across the board, dealmaking is heavily focused on AI-related investments, from building AI-ready infrastructure to acquiring AI platforms and talent.
• Efficiency and growth — AI and machine learning (ML) are used to streamline the M&A process itself, from identifying targets to analyzing data during due diligence.

• Autonomous vehicles — The automotive industry has seen significant M&A activity related to autonomous technology.
• Operational efficiency — AI and robotics drive operational efficiencies, such as automated inventory management and predictive maintenance, making companies more attractive acquisition targets.

• Strategic consolidation — Strategic buyers are driving consolidation in the cybersecurity and data analytics sectors.
• Compliance — In the A&D sector, new requirements like the Cybersecurity Maturity Model Certification (CMMC 2.0) are driving consolidation, as smaller firms seek the resources and scale to become compliant.
• Resilience and threat detection — M&A hotspots include cloud resilience, data governance, and enterprise-wide threat detection.
• Cross-industry need — Companies across different sectors, including those outside of tech and defense, are acquiring data analytics firms to stay competitive.

• Cloud computing — Cloud services and data infrastructure are key areas of interest for M&A, as companies seek to modernize operations.
• Sustainability and ESG — Companies are acquiring firms with strong Environmental, Social, and Governance (ESG) practices to align with regulatory requirements and consumer expectations.

For suppliers, to approach the middle market A&D sector, focus on providing specific solutions with demonstrable value, and understand the importance of compliance and qualification. Be aware of the industry’s unique demands, such as government contracting, security clearances, and long-term project cycles, and tailor your approach to its current trends, like consolidation and modernization.

• Focus on solutions — Middle-market companies look for solutions that are tailored to their specific needs.
• Prioritize compliance — Government contracting requires a strong emphasis on compliance. This includes adherence to business systems, processes, and security protocols, which are critical for both new deals and M&A.
• Emphasize qualifications — For suppliers, getting the necessary technical certifications, security clearances, and quality system approvals is crucial for gaining a competitive advantage and securing long-term contracts.
• Be aware of contract cycles — Understand that many opportunities, like those in military aircraft sustainment and modernization, are part of multi-decade programs that require early engagement to secure long-term work.

• Stay current with trends — Pay attention to emerging trends like the integration of AI, advanced sensors, and robotics in A&D.
• Consider consolidation — The sector may see more consolidation as smaller companies look to grow or be acquired. Be prepared for opportunities related to roll-ups.
• Understand growth drivers — Be aware of factors like global security threats that are driving increased demand for defense technology and services.
• Explore new paths to growth — Middle-market companies are exploring options beyond traditional contracts, such as partnerships with private equity and larger defense contractors.