What $1 Trillion in Defense Spending Means for Founder-Owned A&D Shops
The lower-middle market for aerospace and defense manufacturing is the most competitive it has been in a decade. That is the central finding of a sector brief our team at SSK Capital recently completed, and it tracks with what we are hearing directly from founder-owners across the Midwest and South. A year ago, the typical conversation began with a question about whether the timing was right to begin exploring a sale. Today that question has inverted: owners are now more likely to ask whether continuing to hold will cost them value they cannot recover later.
Many of the founders we speak with have not yet fully appreciated how materially the ground has shifted beneath them. A few of the takeaways from the brief are worth sharing publicly.
The macro setup
Three forces have converged in this market, and any one of them alone would have been sufficient to move valuations.
The first is the federal defense budget. In FY2025, the U.S. defense top line crossed $1 trillion for the first time in history. The “Big Beautiful Bill” authorized roughly $150 to $157 billion of incremental funding, with major allocations directed to shipbuilding ($29B), munitions ($25B), and the newly established “Golden Dome” missile-defense program ($25B), along with sustained investment in nuclear modernization and hypersonics. The majority of that appropriation flows downstream to lower-middle-market precision suppliers.
The second is the commercial aerospace recovery. Boeing received FAA approval in Q3 2025 to increase 737 production from 38 to 42 aircraft per month, with further rate increases expected, and Airbus backlogs remain multi-year. After three years of supplier attrition, OEMs are now actively re-qualifying Tier-2 and Tier-3 sources. For shops with the appropriate certifications and available capacity, this represents a meaningful content-per-aircraft growth opportunity.
The third is the buyer side. Private equity has settled on A&D as the industrial vertical it most wants to own. The sector offers long contracts, meaningful certification moats in AS9100, NADCAP, and ITAR, aftermarket annuities, and sole-source positions. Every attribute on a typical PE underwriting template is present. Roughly 250 A&D M&A transactions closed in the first half of 2025 alone, representing a 43% increase over the second half of 2024.
What that is doing to valuations
The headline median A&D TEV/EBITDA multiple reached 16.4× in Q2 2025. That figure is somewhat distorted by scarce defense-electronics and space-hardware assets trading at 12× to 20× and above, and it does not reflect what a $5M-EBITDA machining shop in Missouri would realistically clear. The directional story, however, still holds.
For lower-middle-market A&D precision manufacturers, the ranges we are observing fall along the following lines.
Shops with $3 to $10 million of EBITDA typically clear between 7.0× and 10.0×. Sole-source positions, aftermarket revenue, long-term agreements in place, and a base of cleared personnel will push valuations toward the upper end of that range; customer concentration above 30% or a revenue mix skewed toward pure job-shop work will pull them toward the lower end. Scale platforms with more than $10 million of EBITDA trade between 9.0× and 13.0×, with engineered assemblies and multi-platform exposure doing most of the valuation work.
Defense engineering services firms in Huntsville and comparable markets are transacting between 11.0× and 16.0×, driven primarily by clearance density and prime-contractor intimacy with MDA, PEO Missiles & Space, and NASA Marshall. At the top of the stack, defense electronics, C5ISR, electronic warfare, and space hardware businesses command 12.0× to 20.0× and above when they bring program-of-record revenue and a deep TS/SCI-cleared workforce.
For comparison, general precision manufacturing without meaningful A&D exposure benchmarks at 5.0× to 7.0×.
The gap between that benchmark and the figures above is the entire story. Two shops running the same equipment and generating similar revenue can trade at materially different multiples, sometimes at double the value, depending on whether their customer mix and certification stack position them on the A&D side of the line.
The private equity playbook is mature
Through the first nine months of 2025, 43.7% of A&D private equity transactions were add-on acquisitions, 38.0% were new platform investments, and 18.3% were growth or expansion capital. That mix is the signature of a buy-and-build cycle mature enough that sponsors are executing it with considerable precision.
The pattern is now well-established. A sponsor acquires a founder-owned shop with sole-source positions, certifications already in place, and between $4 and $15 million of EBITDA, typically paying 7× to 10× for a quality asset. Over the subsequent three-to-five-year hold period, the sponsor adds three to eight smaller shops at 4× to 6×, expanding into adjacent processes such as castings, forgings, finishes, and special processes, while lifting overall content-per-aircraft. The multiple arbitrage alone contributes a substantial portion of the eventual return. Operational work proceeds in parallel: lean implementation, consolidated purchasing, ERP and QMS standardization, footprint rationalization, automation investment, and customer-scorecard improvements that reinforce long-term agreements. The platform is then sold to a larger sponsor or strategic acquirer at 10× to 14× on consolidated EBITDA.
Novaria Group offers the definitive recent example. KKR built it into a $2.2 billion aerospace platform through 13 add-on acquisitions before selling to Arcline in November 2025. Every active A&D sponsor in the market is attempting to replicate that trajectory.
Two regional clusters
St. Louis functions as Boeing’s operational backyard. Boeing Defense, Space & Security employs approximately 17,000 people across facilities in St. Louis, St. Charles, and Mascoutah, and hosts the F/A-18, F-15, T-7A, MQ-25, JDAM, Harpoon, and Small Diameter Bomb programs. The company recently reabsorbed the former GKN composites facility and has committed $1.8 billion to an expansion at Lambert Field. The supplier ecosystem supporting those programs is correspondingly deep, encompassing firms such as Essex Industries, Patriot Machine, Seyer Industries, Ducommun (the former LaBarge), LMI Aerospace, and Olin Winchester at Lake City. A significant portion of these suppliers are founder-owned businesses between 30 and 50 years in operation, and many are approaching a generational ownership transition. The 2024 sale of R&S Machining to Threadlock Precision, a D.E. Shaw-backed platform, at $53.5 million and 7.6× EBITDA is the clearest local precedent to date, and we expect several comparable transactions to follow.
Huntsville presents a different profile. Redstone Arsenal anchors the local ecosystem, hosting Army Materiel Command, AMRDEC, and the Missile Defense Agency, with NASA Marshall and the FBI’s Huntsville campus nearby. As a result, deal flow in the region skews toward engineering services and mission software rather than precision machining. The most attractive targets are firms with deep benches of cleared personnel and prime-contractor positions on hypersonics, GMD, THAAD, SM-3, and now Golden Dome. Arlington Capital (through SPA), Godspeed Capital (through SAS), Enlightenment Capital, Greenbriar Equity (which acquired NeXolve via Applied Aerospace), and AE Industrial are among the most active private equity sponsors in the market. Employee-owned primes including Torch, Radiance, and Dynetics are also acquisitive, typically using smaller add-ons to bring in specialized technical talent.
What is pulling premiums, what is pulling discounts
The sector-wide tailwind does not lift every business equally, and the differentiation among assets is widening.
The shops achieving top multiples today share a recognizable set of characteristics. They have meaningful exposure to hypersonics or missile-defense programs. They hold the full AS9100D, NADCAP, and ITAR certification stack. They occupy sole-source or preferred-supplier positions on the major prime contractors. And they produce engineered assemblies rather than discrete parts. Cleared engineering services firms in Huntsville, Colorado Springs, and the Northern Virginia corridor command similar premiums, as do space-hardware suppliers and aftermarket annuity businesses in USM, PMA, and independent MRO.
On the discount side, customer concentration above 40% is by a considerable margin the most common reason processes fail to reach the LOI stage. Legacy exposure limited to commercial-airline customers is compressing as the airline-MRO cycle cools. General job-shop machining without A&D content remains capped at 5× to 7×. Pre-revenue defense-technology businesses without a program of record are seeing a widening valuation gap relative to companies with contracted revenue. Single-facility operations, revenue mixes heavily weighted toward time-and-materials work, and platform dependency on F-35 or other sunsetting programs each result in meaningful multiple compression.
The magnitudes matter. Two full turns of EBITDA can be attributable to the certification stack alone. Three turns can come off for customer concentration. Owners consistently underestimate how mechanically buyers price these line items in a diligence model.
The window question
It is not my job to tell owners when to sell. Many have legitimate reasons to continue building, and that is a valid path. But on the narrower question of whether the present moment is a reasonable one to consider a transaction, the macro answer is unusually clear. It is rare to see the federal defense budget, the commercial OEM production ramp, and the private equity consolidation cycle all pulling in the same direction at once. At the moment, they are.
Sellers who choose to hold for the next cycle are betting against $1 trillion of federal commitment and a supply-chain reshoring program the government has now formalized in legislation. Some founders will still make that bet, and that is their prerogative. What matters is that the choice be made deliberately rather than by default.
If you own or lead an A&D precision manufacturing or engineering-services business in the Midwest or South and would find it useful to stress-test your position against this backdrop (certification stack, customer concentration, valuation range, buyer fit, timing), I'm always happy to have the conversation. No commitments.
Andrew Southwell, CFA, is Managing Director at SSK Capital, a boutique M&A advisory firm focused on aerospace and defense. Sources: PitchBook Q3 and Q4 2025 A&D Reports, PCE Investment Bankers Q2 2025, PrivSource, Business Wire, and SSK Capital transaction records.
