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Valuations, AI and Defense Dealmaking Dominate ACG Middle Market Week
Dealmakers at ACG New York’s Middle Market Week earlier this week discussed valuation expectations and a robust aerospace and defense market, noting that AI is changing how sponsors evaluate potential investments.
Meanwhile, a mismatch in valuation expectations between buyers and sellers seems to be settling, said one attendee, who is optimistic that exit activity will increase in 2026.
Another attendee noted increasing interest in lower middle-market targets, saying many large companies seen as good potential investments are sitting on the sidelines, causing some private equity firms to move down market.
Aerospace and defense dealmaking was another key topic of discussion during the event. In June, NATO allies agreed to spend 5% of their gross domestic product on defense and security, including a 3.5% allocation to what the organization called “core defence requirements,” which is driving a surge in sector M&A, one attendee said.
Within aerospace and defense, the space sector is quickly gaining momentum, the source added, noting the size of the federal defense budget. For fiscal year 2026, President Donald Trump has proposed a U.S. Space Force budget of about $40 billion, representing a more than $11 billion increase from the budget for FY 2025, as part of a total defense budget of $1.01 trillion.
Recent aerospace and defense deals include Arkview Capital’s acquisition of electronics manufacturer NeoTech, which is being financed with a $400 million debt package, Octus reported. Commercial and facility services are also expected to be a resilient sector moving forward, according to one source.
Middle Market Week attendees also mulled artificial intelligence. One attendee said AI is leading to a lot of experimentation with business cases and business models because of companies feeling like they need a certain level of exposure to the technology.
Likewise, sponsors are considering the impact of AI on companies they may acquire during diligence, increasingly assessing its potential to displace existing revenue sources, said another attendee.
For internal operations, the source said AI is useful for quickly summarizing information, whether it be from earnings calls, conference calls or earnings transcripts. In the future, AI could allow advisors to focus more on tasks requiring higher levels of critical thinking, the source added.
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