Sector fundamentals are strengthening while M&A activity is declining

BOSTON

,

May 29, 2024

/PRNewswire/ — Capstone Partners, a leading middle market investment banking firm, released its report

Aerospace, Defense, Government and Security (ADGS) Annual Report.

which provides insight into the current situation as well as an overview of the past year, including mergers and acquisitions (M&A).

U.S. aerospace and defense (A&D) earnings and shipments improved in 2023, surpassing pre-pandemic highs, while M&A activity declined, reflecting the broader market with a knock-on effect of higher interest rates. Strong sector fundamentals and a stabilizing financial environment indicate that future M&A activity is more likely to be up than down.

U.S. A&D shipments returned to 2018 highs, increasing 17% year-over-year (YOY) in 2023. Public A&D EBITDA increased 10% YoY in 2023 (adjusted one-time payments at baseline defense prices), outperforming unchanged S&P 500 earnings.

The number of M&A transactions in the A&D sector decreased by 12% y/y in 2023 and was 24% lower than the pre-pandemic level in 2019. Similar trends were observed in most industries, including

North America

. The decline in transaction activity affected private equity buyers (an integral part of the sector) and highlights the impact of interest rate increases. Valuation metrics have remained relatively stable as size and sector continue to be important drivers of M&A multiples. The founders were the majority of sellers, driven by economic and personal factors.

The report, which can be downloaded below, provides in-depth analysis and commentary on the overall health and prospects of the ADGS industry and covers the following topics:

• How demand for commercial air travel and airplanes returned while manufacturing limited supply.

• Defense spending is capped at 1% under the Fiscal Responsibility Act.

• Government information technology (IT) services continued, but were increasingly selective.

• Security solutions and cybersecurity, solid foundations and perspectives.

• Training and simulation services provided safety in the chaos.

• Reasons for cautious optimism in M&A activity.

To access the full report, click here.

Learn more about

Capstone’s aerospace, defense, government and security group

or to discuss the content of this report, please contact us.

ABOUT CAPTONE PARTNERS

For over 20 years, the firm has been a trusted advisor to leading middle market companies, offering a fully integrated range of investment banking and financial advisory services specifically tailored to assist owners, investors and creditors at every stage of the business lifecycle. Capstone’s services include mergers and acquisitions advisory, debt and equity placements, corporate restructuring, special situations, valuations and integrity opinions, and financial advisory services. Headquarters in

Boston

the company employs over 175 professionals in multiple offices throughout the United States. With 12 specialized industry groups, Capstone delivers industry expertise through large, cross-functional teams. Capstone is a subsidiary of Huntington Bancshares Incorporated (NASDAQ:HBAN). More information can be found at www.capstonepartners.com.

For more information contact:

Ian Cookson


Managing Director for Aerospace, Defense, Government and Security

617-470-9330

[email protected]

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SOURCE Capstone Partners