Aerospace & Defense M&A: Confidence Returns to the Market
Deal Activity Is Gaining Momentum as Regulatory Clarity, Defense Spending and Financing Improve.
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July 01, 2026
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After a year of stalled processes and cautious buyer behavior, merger and acquisition (“M&A”) activity in Aerospace & Defense is showing clear signs of renewed momentum.
According to FTI Consulting’s 2026 Deals in Motion survey, Aerospace & Defense recorded the largest year-over-year improvement of any sector. Investment bankers rated current deal activity at 7.5 out of 10, up from just 3.5 a year ago, while the three-to-six-month outlook reached 8.0.1
What’s Driving the Recovery
Investment bankers point to three primary factors behind the rebound: improved regulatory clarity, stronger defense spending and renewed access to financing.2
Regulatory uncertainty weighed heavily on transaction activity in the sector throughout 2025. Buyers and sellers found themselves managing shifting policy priorities and an unclear dealmaking environment, causing many deal processes to slow or pause. That backdrop has begun to stabilize. Our conversations with bankers indicate that deal committees are now less reactive to macroeconomic uncertainty and more focused on long-term strategic fit and asset quality. Greater visibility into future defense spending and procurement priorities is providing buyers with clearer demand signals, helping previously delayed or paused processes move forward.
Defense spending is providing an additional tailwind. The United States defense funding for fiscal year 2026 is approaching $1 trillion when baseline appropriations and reconciliation funding are considered, while the fiscal year 2027 budget request would further increase defense spending.3 The proposal includes increased investment in missile defense, electronic warfare, munitions replenishment and space-based intelligence, surveillance and reconnaissance capabilities. For businesses tied to government programs, whether as prime contractors, subcontractors or suppliers, that level of procurement visibility provides clearer demand signals and strengthens the investment case for strategic acquisitions.
Financing conditions also appear to be improving. While higher borrowing costs and tighter capital markets slowed deal activity across many sectors, investment bankers identified renewed access to financing as one factor contributing to a more active Aerospace & Defense deal environment.
The Market Data Supports the Shift
The optimism reflected in Deals in Motion is showing up in transaction activity.
According to PitchBook’s Q1 2026 Aerospace & Defense Report, private equity deal activity in the sector more than doubled year-over-year during the first quarter, reaching an estimated 143 transactions. At the same time, private equity exit value climbed to a record $15.7 billion, signaling a healthy liquidity environment and improving exit opportunities.4
Within the broader market, defense-related assets have attracted particular interest. PitchBook estimates that the defense private equity deal count increased 382% year-over-year in the first quarter of 2026, supported by growing confidence in long-term spending priorities tied to missile defense, electronic warfare and related programs.5
Taken together, the survey results and transaction data point to a market that has moved beyond sentiment and into action.
What This Means for Deal Participants
The recovery in Aerospace & Defense M&A is not only creating opportunities but also increasing competition.
For strategic acquirers, improving market conditions are likely to bring more assets to market and attract additional buyers. Organizations that have already defined acquisition criteria, aligned stakeholders and prepared for diligence will be better positioned to move quickly when the right opportunity emerges.
For private equity sponsors, the combination of stronger deal activity, record exit value and improved procurement visibility represents one of the most compelling Aerospace & Defense investment environments in recent years. Sector-specific diligence is essential: government contracting requirements, export controls, customer concentration, program dependencies and supply chain risks can materially influence investment outcomes and should be evaluated alongside traditional financial and commercial considerations. In our experience, value creation planning matters just as much as deal execution in these circumstances. Sponsors that enter with a clear operational roadmap will be better positioned to accelerate performance and realize returns.
For sellers, particularly founder-owned businesses and Tier 2 and Tier 3 suppliers, market conditions are becoming more favorable. As buyer interest returns to the sector, businesses with exposure to defense modernization, mission-critical technologies and aerospace supply chains may be better positioned to attract attention. Those with differentiated capabilities, strong customer relationships and scalable operating models will likely be better prepared to capitalize on renewed market interest.
Looking Ahead
The Deals in Motion data points to a sector that has shifted from caution to confidence. The factors that constrained dealmaking in 2025 have begun to ease, and the processes that were paused are now moving forward.
As more buyers and sellers re-enter the market, execution will become an increasingly important differentiator. Organizations that combine strategic clarity with disciplined diligence and value creation planning will be best positioned to capitalize on renewed momentum across the Aerospace & Defense sector.
Footnotes:
1: Clogg, William & Justin M. McCarty, “Deals in Motion: How Investment Bankers View the 2026 M&A Market Shaping Up,” FTI Consulting (June 15, 2026).
2: Ibid.
3: U.S. Senate Committee on Appropriations, “Congress Approves FY 2026 Defense Appropriations Bill” (Feb. 3, 2026); U.S. House Armed Services Committee, One Big Beautiful Bill; Daniels, Seamus P., “Unpacking the $1.5 Trillion FY2027 Defense Budget Topline.” Center for Strategic and International Studies (Apr. 10, 2026).
4: Corridore, Jim, “Q1 2026 Aerospace & Defense Report,” PitchBook (May 13, 2026).
5: Ibid.
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