Defense & Aerospace M&A Surge: Geopolitical Tensions Drive Record Activity
bIAnk AI Research · January 2026 · 8 min
Heightened geopolitical tensions and increased defense budgets are driving unprecedented M&A activity in defense and aerospace. Strategic acquirers and private equity are competing for critical technology assets.
The defense and aerospace sector is experiencing a historic surge in M&A activity as governments worldwide increase military spending in response to heightened geopolitical tensions. According to Deloitte's 2026 Aerospace & Defense Outlook, global defense spending is projected to exceed $2.4 trillion, a 7% increase from 2025.
NATO member countries are accelerating efforts to meet the 2% GDP defense spending target, with many now targeting 2.5% or higher. This sustained budget growth is creating robust demand for everything from advanced munitions to drone technology to cybersecurity capabilities.
For M&A practitioners, the current environment presents compelling opportunities but also unique challenges. National security reviews have intensified, with CFIUS and European equivalents subjecting transactions to extended scrutiny. Deal timelines in the sector now average 18-24 months, compared to 9-12 months a decade ago.
Private equity interest in defense has reached unprecedented levels. Firms like Veritas Capital, AE Industrial Partners, and Leonard Green have built substantial defense portfolios, attracted by long-term government contracts, recession resistance, and technology moats. PitchBook data shows defense-focused PE deals totaled $28 billion in 2025.
The space and satellite sector represents a particularly active segment. Commercial space companies are being acquired for dual-use capabilities, while traditional defense primes are paying significant premiums for advanced propulsion, satellite communications, and earth observation technology.
Supply chain considerations are driving vertical integration. After pandemic-era disruptions exposed vulnerabilities, prime contractors are acquiring critical component suppliers to secure capacity and reduce risk. This trend is creating exit opportunities for owner-operators of specialized manufacturing businesses.
European consolidation is accelerating as companies position for increased procurement. Cross-border deals within Europe face fewer regulatory hurdles than transatlantic transactions, encouraging intra-EU combinations. The merger of major defense electronics companies signals further consolidation ahead.
Key takeaways
- Global defense spending projected to exceed $2.4T in 2026, up 7% YoY
- Defense-focused PE deals totaled $28B in 2025, record levels
- Deal timelines average 18-24 months due to national security reviews
- Space and satellite sector seeing premium valuations for dual-use technology
- Supply chain security driving vertical integration by prime contractors