Capstone's Aerospace, Defense, Government & Security Group Reports: Sector Fundamentals Strengthen While M&A Activity Declines

Core Insights - The Aerospace, Defense, Government, & Security (ADGS) sector showed improved earnings and shipments in 2023, surpassing pre-pandemic levels, while M&A activity declined due to higher interest rates [2][3] Group 1: Sector Performance - U.S. Aerospace & Defense sector shipments rose 17% year-over-year in 2023, returning to 2018 peaks [3] - Public company EBITDA earnings in the A&D sector increased by 10% year-over-year in 2023, outperforming flat S&P 500 earnings [3] Group 2: M&A Activity - The number of A&D sector M&A transactions fell by 12% year-over-year in 2023, and were 24% below pre-pandemic 2019 levels [4] - The decline in M&A activity was particularly noted among private equity buyers, influenced by rising interest rates [4] - Valuation metrics remained stable, with size and sector being significant drivers of M&A transaction multiples [4] Group 3: Future Outlook - Strong sector fundamentals and a stabilizing financing environment suggest that future M&A activity is more likely to increase [2] - Reasons for cautious optimism in M&A activity were noted, including the return of demand for commercial air travel and aircraft, despite production constraints [7]