Carve-Outs, Bidder Competition Driving Frothy Market for Aerospace and Defense M&A, ACG Attendees Say

Dealmakers discussed carve-outs, bidder competition and strong valuations during the 2025 ACG Aerospace & Defense Middle Market Leadership Forum in Los Angeles last week, underscoring a frothy M&A market within the sector.

In the European market, many large industry players such as Advent International-backed Ultra Electronics have already been taken private and are now looking to carve out assets in the United States, encouraging other major contractors such as BAE Systems to think about reshaping their own portfolios due to high valuations, one attendee noted.

The situation is presenting favorable investment opportunities, as such companies tend to be well run with tight financial and security controls, the attendee noted, adding that deal certainty and speed are oftentimes more important than valuation for corporate carve-outs. Over the past several years, carve-outs from large strategics such as Northrop Grumman, Safran, Airbus and others have already accounted for a large percentage of deal flow in the industry, the attendee added.

Valuation Changes

Another attendee said that the calculus for valuations seems to be changing, with the LTM and next-12-months, or NTM, multiples becoming less relevant, while more of a focus is being applied to forward-looking growth potential over the course of an ownership period.

Businesses with pricing power are also scarce in light of prior consolidation by investors such as TransDigm and Arcline Investment Management, meaning that companies with a proven ability to continually raise prices are trading for high EBITDA multiples around 20x, a third source noted.

A fourth attendee echoed this sentiment, noting that EBITDA multiples for companies with a proven ability to recognize pricing power can reach the high teens. This includes recognition of unused pricing power for components that are difficult to source, the attendee added.

Attendees also reviewed valuations, with one noting that aerospace and defense has emerged as the highest-returning area for funds investing across the broader industrials sector. Decision-makers at such funds are likely to prioritize end markets that have continued secular growth, that attendee added.

Maximum leverage tends to hover around 5x in the sector, which is part of the reason why there has never been a large amount of restructuring activity in the industry, said one attendee. Meanwhile, some sponsors are increasing their leverage profiles to place bigger bids on larger assets, with a growing number of direct lenders enabling sponsors to do so, said another source.

Looking Ahead

In terms of future trends in aerospace and defense dealmaking, one attendee said there seems to be high levels of interest in the technology that will be used for the Golden Dome for America (previously known as the Iron Dome for America), which is a federal effort to develop an integrated air and missile defense system.

In May, President Donald Trump announced that the Golden Dome project, which he intends to be operational by 2029, would cost an estimated $175 billion to complete. Last month, the Pentagon announced that 1,014 companies are eligible to compete for awards in the first phase of the project.

Likewise, some investors are targeting the suppliers of the components that underpin the technology that will be used to facilitate such projects, which are seen as less risky investments, another attendee said.

In terms of valuations, there is not a big disconnect between strategics and sponsors, which can remain competitive bidders through using high amounts of equity to back a transaction or utilizing a supporting bidder, such as when Blackstone and Tinicum agreed to acquire TriMas Aerospace, one source added.

The source also pointed to Arcline Investment Management’s pending $2.2 billion purchase of KKR-backed Novaria Group, which ran a sale process with Morgan Stanley that saw strategics make it into the second round, Octus previously reported.

Other aerospace and defense companies in the market include Stanley Black & Decker-backed Consolidated Aerospace Manufacturing, according to Octus reporting. Elsewhere, Arlington Capital Partners-backed Tex Tech Industries, a specialized textile manufacturer for the aerospace and defense industry, collected first-round offers from potential buyers last month as part of a sale process advised by William Blair and Harris Williams, as reported.