Capstone Partners Reports: Aerospace and Defense M&A Activity and Earnings Outperform Broader Market

Core Insights - The U.S. Aerospace and Defense Industry experienced increased deal activity in 2024, outperforming the broader M&A market levels [1] - The sector's earnings growth surpassed public market benchmarks, with EBITDA rising 14% year-over-year compared to 11% for the S&P 500 [2] - M&A volume in the Aerospace and Defense sector rose 15% year-over-year, recovering to pre-pandemic levels, while North American M&A activity across all industries only increased by 3% [3] Industry Performance - Sector shipments increased by 8% year-over-year, exceeding pre-Max issue peaks, driven by the recovery in global commercial air passenger traffic [2] - Valuation multiples remained stable in 2024, with slight increases in both Aerospace and Defense M&A transaction multiples and public company trading multiples [3] - The majority of M&A deals were driven by sponsors, with significant dry powder reserves expected to expand this trend through 2025 [3] Future Outlook - The Aerospace and Defense market is anticipated to show resilience despite macroeconomic headwinds such as federal budget cuts and elevated interest rates [4] - Strong fundamentals in the industry are likely to attract both strategic and financial acquirers [4] - Favorable end market dynamics, including demand for air travel and new commercial aircraft, as well as rising cybersecurity threats, are expected to sustain robust demand for Aerospace and Defense products and services [4] Additional Insights - The Commercial Aerospace sector reached new highs in 2024, although concerns for 2025 are emerging [7] - The President's budget proposes a 13% increase in Defense spending, while federal cuts may impact Information Technology development [7] - Security Solutions and Cybersecurity sectors are showing strong fundamentals and stable transaction activity [7]