The Defense and Aerospace Sector
In business, timing the sale of a company is as crucial as the decision to build it. For owners in the defense and aerospace sector, today’s environment presents a unique and perhaps unprecedented opportunity to exit at peak value. Global realignment of security priorities, aging founder demographics, record levels of dry powder in private equity, and strategic acquisition demand from primes and tier-one contractors are converging—creating a window that may not remain open for long.
Global instability is fueling long-term defense spending
From Eastern Europe to the South China Sea, rising geopolitical instability has reignited global interest in defense readiness and modernization. NATO countries are committing to increased military budgets, the U.S. National Defense Strategy emphasizes innovation and supply chain resiliency, and emerging technologies like hypersonics, space systems, and cyber defense are taking center stage.
This geopolitical environment directly benefits defense contractors, integrators, and manufacturers—particularly those with:
- Defense-related IP or ITAR-compliant operations
- Prime or sub-prime contracts with the DoD or allied governments
- Critical manufacturing or R&D capabilities in areas such as avionics, space systems, C4ISR, and autonomous platforms
Why it matters for sellers: Strategic and financial buyers are aggressively seeking to acquire established players in this space, particularly companies with cleared facilities, recurring revenue contracts, or differentiated technologies.
Strategic Buyers Are Hungry for Specialized Capabilities
Defense primes like Lockheed Martin, Raytheon, General Dynamics, and Northrop Grumman are under pressure to accelerate innovation, ensure vertical integration, and secure critical components amid supply chain constraints. They’re looking downstream to acquire niche manufacturers and engineering firms that offer:
- Proprietary systems or intellectual property
- Cleared workforces and facility security clearances (FCLs)
- Rapid prototyping and low-rate production capabilities
- Cybersecurity compliance (e.g., CMMC readiness)
Recent acquisitions (e.g., L3Harris acquiring Aerojet Rocketdyne) show that even large and legacy suppliers are targets, but smaller companies with key capabilities are highly sought after—often commanding premium valuations.
Why it matters for sellers: Mid-sized businesses ($5M–$100M revenue) are now being valued for their strategic relevance, not just EBITDA multiples.
There’s record dry powder, and it’s finding its way to the defense sector
As of 2025, private equity firms hold over $2.5 trillion in uninvested capital globally. A significant portion is earmarked for recession-resilient, government-backed sectors—especially defense and aerospace.
Unlike in past cycles, private equity firms are now:
- Establishing platform companies specifically focused on defense
- Hiring defense industry advisors and former DoD executives
- Investing in companies that support both military and commercial aerospace
Examples include AE Industrial Partners, Arlington Capital Partners, and Enlightenment Capital—firms that have successfully closed dozens of deals across MRO, space tech, UAVs, and electronic warfare.
Why it matters for sellers: PE buyers offer flexible deal structures, opportunities for management rollover, and strong interest in family-owned and founder-led companies with potential to scale.
Current valuations reflect strong industry tailwinds and scarce supply
Defense and aerospace companies are trading at higher-than-average EBITDA multiples, particularly those with high margins, sole-source contracts, or classified work. Valuations of 8–12x EBITDA are common in competitive sale processes, especially when buyers see synergy potential or long-term revenue visibility.
However, valuations are cyclical. A combination of the following could lead to compression:
- A shift in U.S. federal budget priorities
- Rising interest rates affecting buyer financing
- Global de-escalation of conflict hotspots
- Greater scrutiny of foreign investment in defense assets (CFIUS restrictions)
Why it matters for sellers: Delaying a sale could result in a materially lower valuation environment 2–3 years from now, even if business performance remains stable.
Selling now can be a strategic step—not just an endgame
For many defense business owners, the company represents the majority of their net worth. Given the binary nature of government contracting—where one lost recompete can devastate revenue—rebalancing personal wealth through a partial or full liquidity event is prudent.
Many sellers pursue one of the following:
- A majority recapitalization with a private equity partner
- An ESOP sale for tax-advantaged transition and employee continuity
- A strategic sale with transition agreements to remain involved
Why it matters for sellers: De-risking at a market peak enables personal financial security while creating optionality for future involvement or retirement.
Conclusion: Exit on Your Terms—Not the Market’s
In the defense and aerospace sector, the stars rarely align as clearly as they do today. Strategic buyers are acquiring, private equity is investing, valuations are high, and global security needs are not abating. Yet, these tailwinds are not guaranteed to last. For business owners who want to monetize years of hard work while their companies are in demand, this is not just a good time—it may be the best time.
A thoughtfully structured exit process can:
- Maximize your valuation
- Ensure cultural and legacy fit with the buyer
- Provide continuity for employees and customers
- De-risk your personal wealth
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