Aerospace & Defense Report 2026

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Inside the Report In our 2025 Aerospace & Defense Report last August, we wrote that the A&D indus- try is “experiencing powerful momen- tum.” That momentum has not only con- tinued but accelerated over the last 12 months, with industry sources reporting an escalation of M&A activity and an influx of new participants.

and shed assets—often using the proceeds to acquire high-growth defense tech inno- vators. Investment bankers and consultants spoke to ACG Magazine about the drivers behind recent divestitures, the types of carved-out assets that are most attractive to buyers, and how to execute a carve-out successfully. An accompanying Q&A with Thrive’s executive vice president of pri- vate equity and financial services looks at IT talent considerations and steps to take before, during, and after a carve-out trans- action to avoid critical talent gaps. The third topic spotlighted in the report is the aerospace and defense supply chain, which has struggled to keep up with the growing demand from customers across defense, commercial air travel, and space exploration. Many of these suppliers oper- ate in the middle market, making them prime acquisition targets for private equity sponsors that see potential in building large platforms that can better meet the needs of Tier 1 aerospace manufacturers and defense contractors. On Oct. 14–15, ACG will host its annual Aerospace & Defense Middle Market Leadership Forum in Los Angeles, where these topics will no doubt be part of the conversation among the business leaders, transaction advisors, and private capital investors driving dealmaking in the rapidly evolving A&D sector. //

This year’s A&D Report, sponsored by Thrive, explores the drivers behind that growth, with spotlights on three trends that are shaping aerospace and defense deal activity today. The first is the rise of defense technol- ogy and the proliferation of defense tech startups. Ongoing global conflicts and government appetite for cutting-edge weaponry have helped fuel an ecosystem of startups focused on autonomous vehi- cles, cybersecurity, advanced materials, and other innovative technology. Venture capital investors and corporate strate- gic acquirers have actively backed these companies, but private equity sponsors are treading more cautiously. We analyzed recent defense-tech deals and talked with PE investors about how they’re weighing risks and opportunities in the defense tech sector, and where they see the most prom- ising inroads. A second theme explored in this report is the carve-out opportunities created as large corporations reassess their portfolios

KATIE MALONEY Vice President, Communications & Content ACG kmaloney@acg.org

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Contents

Defense Tech Innovation Tests Private Equity’s Comfort Zone Private equity sponsors are dipping their toes into the fast-growing defense tech space via strategic add-ons and platform acquisitions of more traditional defense businesses.

Mission Possible: The A&D Carve-Out Opportunity As prime contractors and corpora- tions divest noncore A&D assets, private equity sponsors have an opportunity to build successful plat- forms—but executing a carve-out is no easy feat. 18 Closing the IT Talent Gap in PE-Backed Carve-Outs Thrive’s EVP of private equity and financial services explains how spon- sors can build stronger IT benches, accelerate value creation, and avoid costly carve-out mistakes.

10 Insights from Thrive Your IT stack is costing you more than you think. Thrive shares a framework for how organizations can protect EBITDA and accelerate growth.

This report is brought to you by

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CEO Brent Baxter bbaxter@acg.org

VICE PRESIDENT, COMMUNICATIONS & CONTENT Kathryn Maloney kmaloney@acg.org

SENIOR EDITOR Carolyn Vallejo cvallejo@acg.org

ASSOCIATE EDITOR Hilary Collins hcollins@acg.org

VICE PRESIDENT, SALES Kaitlyn Gregorio kgregorio@acg.org

The Suppliers Behind the Surge: Investing in a Strengthening A&D Supply Chain Record backlogs are putting A&D suppliers in the spotlight, creating opportunities for investment firms to back critical manufacturers and par- ticipate in long-term sector growth.

Key Takeaways Catch up quickly on some of the insights from this report.

ISSN 2475-9228 (online)

AEROSPACE & DEFENSE: DEFENSE TECH

Defense Tech Innovation Tests Private Equity’s Comfort Zone

Explosive growth in defense spending is prompting some PE sponsors to consider younger targets, while others seek less risky paths into the market

BY CAROLYN VALLEJO

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in modern warfare, is paramount to maintaining the upper hand in conflict. “National security is increasingly becoming an invest- ment theme,” says Meghan Welch, managing direc- tor at investment bank Brown Gibbons Lang & Company (BGL). Despite robust investment and active dealmaking in the space, PE investors still account for only a fraction of defense deals. In order to get in on the M&A action and capitalize on defense tech’s massive growth poten- tial, experts say, private equity must be mindful about which path it takes into the market.

Accelerating Innovation, Accelerating Competition

Ongoing wars in Ukraine, the Middle East, and else- where have dramatically expanded the U.S. gov- ernment’s military budget, with the Department of Defense pegging nearly $300 billion for contract and financial assistance awards, including grants and loans. That government support, along with tens of billions of dollars in private sector investment, has turned the defense tech market into a hotbed of innovative disruptors pushing the boundaries of tech capabili- ties with craft autonomy, AI-powered sensors, tactical computing, and more. “This surge of innovation has supported a proliferation of defense technology startups seeking to commer- cialize cutting-edge capabilities,” S&P Global Market Intelligence wrote in a March 2026 report. It’s proven attractive to venture capital investors in particular: VC funding for defense technology nearly tripled between 2020 and 2025, topping $29 billion last year, according to S&P Global. VC has also fueled valuations to new heights. At less than a decade old, U.K.-based Anduril, which special- izes in advanced autonomous defense systems, is said to be pursuing a $100 billion valuation with fresh fund- ing that would follow last May’s $5 billion Series H round, led by Thrive Capital and Andreessen Horowitz. Corporate acquirers, meanwhile, have also emerged as active buyers to “fast track” their own innovation and product development, says BGL’s Welch.

D efense investment continues at full steam in the U.S. as geopolitical conflicts push defense spend to the top of the White House’s priority list. Driven by growing demand and the opportunity for lucra- tive government contracts, a new class of defense start- ups has emerged on the bleeding edge of defense tech- nology innovation. Investors, including private equity sponsors, are jump- ing into the sector, encouraged by public funding and a seemingly insatiable federal appetite for defense tech that,

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10% of private equity A&D deal value is in defense A Beachhead in Defense Tech $11.3 billion in total PE A&D deal value in Q1 ’ 26 $1.2 billion in PE defense deal value in Q1 ’26

Of the 143 PE A&D deals in Q1 2026, just 18 were defense deals

Source: PitchBook’s Q1 2026 Aerospace & Defense Report

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in its March report, reflect an expanding landscape of innovative startups, yet fewer mature targets for stra- tegic and PE buyers. Stephen R. Perry, managing director at A&D-focused investment bank Janes Capital Partners, which advised ExoAnalytic on its sale to Anduril, agrees that the indus- try’s proliferation hasn’t opened the doors to more PE investment as dramatically as it has for other classes of private investors. “Technology changes in days and weeks, not months or years, introducing technology risk that traditional PE firms are either ill-equipped or unwilling to assume,” he says. Investing in the Cutting Edge PE investment in the most cutting-edge defense compa- nies is rare, but not unheard of, and reflects sponsors’ appetite for more seasoned targets. Arotech, a defense-focused training and simulation tech- nology provider, had already been operating for 35 years when it was acquired by Albion River from its previous sponsor Greenbriar Equity Group in February 2025. More recently, in August, McNally Capital acquired a majority stake in 18-year-old TENICA Global Solutions, which pro- vides digital modernization solutions to defense, space, and intelligence missions. According to Perry, PE can miss out on investing in many of the younger defense tech innovators whose capital needs are met early on by VC. “By the time a defense tech business fully matures, in many cases, it no longer needs or wants PE investment,” he says. “If PE wants to play in defense tech, investing earlier is a necessity.” Add-ons are one area in which PE sponsors have tar- geted younger, innovative companies. In March 2025, for example, Artemis Capital Partners-backed SightLine Applications acquired Athena AI, an AI-enabled computer vision system for defense applications that, at the time of the transaction, was only four years old.

Technology changes in days and weeks, not months or years, introducing technology risk that traditional PE firms are either ill- equipped or unwilling to assume.

STEPHEN R. PERRY | Managing Director, Janes Capital Partners

“Rather than building every capability organically, strate- gics increasingly recognize that speed has become a com- petitive advantage,” she says. “Acquiring a best-in-class technology company often compresses years of internal development while simultaneously securing engineering talent, intellectual property, and customer relationships.” Last March, for example, Anduril announced its acqui- sition of ExoAnalytic Solutions to integrate the compa- ny’s satellite tracking technologies—including a network of more than 400 telescopes and advanced modeling and simulation capabilities. Elsewhere, publicly listed Leonardo DRS announced in July its $450 million acquisi- tion of Raft, an AI software provider supporting real-time situational awareness for national security customers. On the private equity front, investment activity is more muted. According to PitchBook’s Q1 2026 data, only 18 of an esti- mated 143 private equity A&D transactions were defense deals. Defense transactions totaled $1.2 billion in the quarter, accounting for about 10% of the $11.3 billion in total PE A&D transaction value for the quarter. Further, S&P Global found that while VC funding rounds for defense companies have steadily climbed, M&A activ- ity is trending downward. The numbers, S&P Global noted

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The market is increasingly distinguishing between technological innovation and investable innovation.

MEGHAN WELCH | Managing Director, Brown Gibbons Lang & Company

BGL’s Welch says she’s seen PE investors growing more comfortable with stepping in earlier in a target’s lifecycle, though these sponsors need more than impressive tech- nology to take the leap. “The market is increasingly distinguishing between techno- logical innovation and investable innovation,” BGL’s Welch says. “Today, many sponsors are becoming more com- fortable stepping in earlier—but only if they believe they can materially accelerate that industrialization process.” Operational Resiliency Accelerating industrialization is a high bar to clear in the defense market, considering its supply chain and labor challenges. Deloitte reported in May that the three largest defense contractors in the U.S. have an order backlog amounting to $557 billion. McKinsey noted in June 2025 that labor

attrition in the U.S. A&D market remains at 15%, more than double the average across other sectors. When combined with a lack of market experience, the supply chain bottlenecks and talent shortages younger innovators face create a risk profile too large for many PE buyers. Some private equity dealmakers are willing to step in if a target either already demonstrated an ability to scale manufacturing and production, or presents a clear path to doing so with the financial and operational support PE can provide. Welch says sponsors active in defense tech see industrialization challenges as an opportunity to drive returns in targets that can overcome them. “The investment thesis is increasingly centered on operational value creation rather than purely financial engineering,” she says. Private equity firms without the risk appetite for the most innovative businesses can still access other avenues into the defense market, however.

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For some PE dealmakers in the space, the market’s supply chain hurdles are where the strongest investment opportunities lie. Manufacturers of the parts needed to build defense innovations are critical to the industrialization and scale of those technologies, and have therefore emerged as a space “ripe for PE dealmaking,” PitchBook’s report found. Sponsors capitalizing on this segment include Avem Partners, which acquired A&D fluid conveyance fittings manufacturer PAMCO in April, as well as H.I.G. Capital, which acquired A&D forged compo- nents manufacturer Premier Forge Group in June. Private equity firm Ventus Industrial Parters, which focuses exclu- sively on the national security space, has positioned supply chain and talent risk mitigation squarely within its investment thesis. In February, Ventus announced the formation of Aeron Defense through the combination of General Tool Company and Magna Machine Company. The platform, formed in partnership with GenNx360 Capital Partners and Admiralty Partners, aims to cre- ate a leading group of manufacturing partners for the U.S. defense sector to support intensifying production demand and help allevi- ate backlogs. When it comes to addressing the talent squeeze, Managing Partner Valerio Massimo di Roccasecca points to Ventus’ employee own- ership model as a key differentiator in the defense manufacturing sector, where he’s observed attrition rates as high as 20%. “We see high turnover in private companies as a potential opera- tional improvement given our model, and our focus on employee ownership is proving to be a strong competitive advantage,” he says. The firm’s investment thesis reflects what to many private equity firms is a more reliable strategy for defense M&A. While emerging

defense tech innovations (and their eye-wa- tering valuations) have captured headlines, experts note that these solutions will not be able to actualize their forecasted growth poten- tial without the ability to industrialize, scale capacity, and retain talent. That, some say, is where private equity can find its footing in the defense market. “One of the best things about defense is that investors don’t particularly need to be innova- tive,” says di Roccasecca. “There are so many mom-and-pop shops making critical compo- nents that could easily sell 2-3x more if they had the capacity to scale due to the underlying demand drivers. “There are certainly huge opportunities for investors within more innovative areas like autonomous vehicles and affordable mass drones, but that’s not the only way to generate an outsized return in this market.” //

CAROLYN VALLEJO is ACG’s senior editor.

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AEROSPACE & DEFENSE: TOPIC AT HAND AEROSPACE & DEFENSE: VALUE CREATION LEVERS

A Framework for Protecting EBITDA & Accelerating Growth BY BOB KISH & DANIELLE GAGNON Your IT Stack Is Costing You More Than You Think

The Maturity Model That Matters The 4-step maturity model that successful sponsors focus on is simple and practical. Achieving maturity reduces integration drag and cyber risk, and keeps leadership focused on growth. Map the model to your current outcomes to assess your maturity: Heroic & Reactive: Outcomes depend on specific people; incidents are common; operations rely on “tribal knowledge;” minimal documentation. Managed: Basic SLAs, established patching cadence, some process in place, minimal KPIs. Standardized & Repeatable: Documented controls, consistent tooling, established onboarding and offboarding processes, vendor governance, and predictable delivery. Optimized & Measurable: Automation, real- time metrics, continuous control monitoring, fast integrations, and low friction for the business. “ Private Equity value creation is often just moving from “heroic” to “repeatable” across Finance, IT, and Security… because repeatable operations attract buyers. – Bob Kish, Thrive vCIO Technical Debt Weighs Down EBITDA Avoiding or mitigating low maturity models and the impact of technical debt is critical to successful value creation. Private equity firms, portfolio company operators, and private businesses considering succession, fundraising, or PE exits need to contend with this issue. There’s significant pressure for firms with portfolio

Core Concepts 1. Scale is repeatability, not just growth 2. The maturity model sponsors (investors?) should care about (simple and practical) 3. Mitigating low maturity models and technical debt 4. Lean and mean EBITDA levers that don’t break the business 5. Tech stack and minimum viable controls (MVC) that protect EBITDA and the multiple Scale is Repeatability, Not Just Growth W hen considering value creation, an oft-overlooked driver lies within the IT department: scaling and maturing security infrastructure and posture against risk. Scalability is the ability to grow revenue without linear growth in cost or risk. Maturity enables repeatable, auditable ways of operating that survive leadership changes, acquisitions, and increased threat attention that funding announcements tend to raise. Every initiative should answer: 1. Does it expand EBITDA? 2. Does it reduce operational and/or cyber risk (therefore preserving multiple)? 3. Does it increase integration speed for bolt-ons, or readiness for exit?

keeps leadership focused on growth. “

Day 1 secure. Day 30 stable. Days 90 – 120 standardized. This is the playbook that reduces integration drag and

– Bob Kish, Thrive vCIO

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Comprehensive due diligence: Conduct thorough technical due diligence. Evaluate system architecture, cybersecurity, application code quality and development processes. Prioritizing remediation efforts: Remediation efforts must start as soon as technical debt is identified. Prioritizing these efforts based on their impact on the business can help manage costs and ensure that critical issues are addressed first. Start with the Minimum Viable Controls (MVCs). Strategic planning for integration or separation: Developing a strategic plan for integrating the acquired company’s technology (or moving to a standalone model) is vital. This plan should include steps for addressing technical debt, application rationalization, standardizing processes, documenting code and ensuring compatibility with existing systems. Ongoing monitoring and management: Technical debt should not be viewed as a one-time issue but rather as an ongoing challenge that requires continuous monitoring and management. Implementing robust governance frameworks and regular audits can help keep technical debt in check and prevent it from accumulating to problematic levels.

IT Integration – Due Diligence Questionnaire 7. Over-reliance on one or two “IT heroes” Strategic Discovery & Mitigation Once you know where to look, methodical IT discovery and assessments bring hidden costs and immature processes and systems to light. Correct inefficiencies and build roadmaps aligned with your portfolio strategy with these steps: holdings that have a planned 5-to-10-year exit; they have a shorter runway to create value than firms that retain tail investments. The latter case is not exempt however; as part of exit preparedness, it’s wise to avoid lingering technical debt that could affect post-close earnings. Signs of Technical Debt in PortCos: These warning signs can point to the issues behind an inability to quickly grow and scale with the existing tech stack, internal resources, and partners:. 1. Compliance or cybersecurity audit failures 2. Lack of multi-site IT standardization 3. On-prem systems with inconsistent backups 4. Resistance to cloud migration 5. Partially understood or mapped dependencies 6. Limited integration with other business systems

Category

Requested Item

Priority Status Notes

P1 P2 P1 P2 P2 P1 P1 P1 P1 P2 P2 P2 P1 P1 P2 P2 P1 P2 P1 P2 P1 P1

Organization & Spend Organization & Spend Organization & Spend Strategy & Governance Strategy & Governance Strategy & Governance Strategy & Governance Infrastructure & Hosting Infrastructure & Hosting Infrastructure & Hosting

IT spend by category (people, software, hardware, cloud, telecom, services)

Capitalization policy for IT and current capitalized IT assets

Planned/committed IT projects and capital requests (next 12 – 24 months)

IT strategy, roadmap, or board materials referencing technology

IT policies (acceptable use, access, data handling) with revision dates

Any prior IT, cyber, or technical assessments, audits, or pen tests (with findings)

IT-related insurance policies (cyber, tech E&O) with limits and claim history

Inventory of servers/VMs with OS, role, age, and location (on-prem/cloud/colo)

Hardware age profile and refresh plan; known end-of-life systems

Hypervisor/storage platform details and support status

Network & Facilities Applications & Data

Firewall and core network equipment inventory with age/support status

Data flow/integration map between core systems

Cloud & SaaS Cybersecurity

SaaS application list with owner, seats, and annual cost

Security incident history – breaches, ransomware, significant events (past 5 years)

Backup, DR, & Continuity

Disaster recovery/business continuity plans with stated RTO/RPO for critical systems

Vendors & Contracts People & Key-Person People & Key-Person Compliance & Legal

Telecom/connectivity contracts with termination dates and ETFs

Identification of key IT personnel and single points of knowledge

Documentation state – what runbooks/system docs exist

Applicable regulatory obligations (CMMC, HIPAA, PCI, GDPR/CCPA, etc.)

M&A / Structural M&A / Structural M&A / Structural

Known technical debt register or deferred maintenance list

Prior acquisitions and their integration state (any un-integrated environments)

Any systems, domains, tenants, or licenses shared with entities outside the deal perimeter

Sample IT integration due diligence questionnaire to guide the process.

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Lean & Mean EBITDA Levers These cost takeouts are key value creation levers that increase capability without breaking the business: Application rationalization: Retire duplicative tools, especially HRIS, ITSM, endpoint, identity, and BI. License and cloud spend governance: Put in FinOps basics – tagging, showback, annual subscriptions vs. pay-as- you-go, cloud resource reserved instances, and right-sizing. Standardize the workplace stack: One endpoint standard, one collaboration suite, one identity plane. Talent allocations: Choose the right talent at the right time for the right reasons.

Build the Team Behind the Tech Scalable systems need accountable owners. Turn to p. 18 for practical guidance on closing IT talent gaps during carve-outs.

Tech Stack & MVCs If you only standardize 5 things for scale and integration speed, these Minimum Viable Controls (MVCs) will protect EBITDA and the multiple: 1) Identity & Access: Such as SSO, MFA, and Conditional Access. Ensure that MFA is used everywhere, especially email, VPN, and admin accounts. Implement privileged access management basics such as using dedicated admin accounts that are separate from the administrators’ daily business accounts and email addresses. 2) Mobile Device Management (MDM) and Endpoint Detection and Response (EDR): To manage user devices, whether supplied by the organization or personally. MDM ensures that any device connected to organizational resources has proper security configuration and identity management. EDR allows for constant monitoring of laptops, servers, and other organization hardware to prevent intrusion or attacks. 3) Email security and phishing resistance: Especially security awareness focused on wire fraud and HR/payroll redirects. 4) Backups and recovery: With immutable and/or offline options. 5) ITSM and asset inventory: Because you can’t secure what you can’t see.

IT Priority #1: Protect the Business & Scale a Secure Foundation Why it matters: Technology enablement and risk management are successful when it enables the business with minimal disruption. The ability to scale is about repeatability, not just growth. Portfolio Companies need to achieve the maturity model that’s important to the strategy and focus on the lean and mean EBITDA levers.

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Scale is Repeatability, Not Just Growth

What to do: Every IT initiative should answer: 1. Does it expand EBITDA?

Why it matters: Scalability is the ability to grow revenue without linear growth in cost or risk; maturity is having repeatable, auditable ways of operating that survive leadership changes, acquisitions, and increased threat attention.

2. Does it reduce operational/cyber risk (therefore preserving multiple)? 3. Does it increase integration speed for bolt-ons / readiness for exit?

Simple + Practical IT Maturity Model

What to do: Mature through this model to achieve standardized with a stretch goal of optimized: 1. Heroic / Reactive: Outcomes depend on specific people; incidents are common; “tribal knowledge.” 2. Managed: Basic SLAs, patching cadence, some process, minimal KPIs. 3. Standardized / Repeatable: Documented controls, consistent tooling, onboarding/offboarding, vendor governance, predictable delivery. 4. Optimized / Measurable: Automation, real-time metrics, continuous control monitoring, fast integrations, low friction for the business. What to do: 1. Standardize the workplace stack: One endpoint standard, collaboration suite, and identity plane + Application rationalization: Retire duplicate tools. 2. ITSM + asset inventory (because you can’t secure what you can’t see). 3. Identity & Access: SSO + MFA everywhere (especially email, VPN, admin accounts).

Why it matters: Achieving the right model reduces integration drag, reduces cyber risk, and keeps leadership focused on growth.

Cost Takeout + Minimum Viable Controls (MVCs)

Why it matters: Focusing on cost takeouts that increase capability (not cuts it) + implementing the minimum viable controls (MVCs) help protect EBITDA and the multiple.

4. Endpoint management (MDM) + EDR. 5. Email security + phishing resistance.

6. Security awareness that focuses on wire fraud and HR/payroll redirects. 7. Backups + recovery (immutable/offline options and periodic restore testing). 8. License & cloud spend governance: Put in FinOps basics—tagging, showback, annual subscriptions vs. pay-as-you-go business.

Thrive’s Role: From Assessment to Optimization

Turn Infrastructure into a Strategic Asset Private equity firms excel at uncovering untapped business value. But too often, technical debt is left unaddressed until it becomes a major problem, such as dragging down performance, adding risk, and complicating exits. By partnering with Thrive, PE firms can shift from technical debt to technical equity. The result is a stronger, more secure, and scalable technology foundation that fuels operational efficiency, digital transformation, and long- term value. Contact: https://thrivenextgen.com/contact/ Email: info@thrivenextgen.com Phone: +1 866-205-2810

Thrive partners with private equity firms to evaluate and transform the IT landscape across their portfolios. Our process starts with technical due diligence to uncover hidden infrastructure risk and inefficiencies. From there, we design and execute modernization plans tailored to each business’s operations, growth goals, and compliance requirements. Our services span cloud transformation, managed cybersecurity, network modernization, AI enablement, and full-service IT support. We help standardize IT operations across the portfolio, enabling easier integration of new acquisitions and reducing overhead associated with disparate systems. Importantly, we understand the PE timeline. Our teams act fast, deliver with precision, and support every stage from post-close planning to exist optimization.

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AEROSPACE & DEFENSE: CARVE-OUTS

Mission Possible: The A&D Carve-Out Opportunity What’s driving carve-out momentum, and how can private equity sponsors transform divested assets into thriving standalone businesses?

BY KATIE MALONEY

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F ocus” is the new mantra for aerospace and defense corporations, as shifting federal defense spending priorities, technological advancements, and activist investors prompt them to reevaluate portfolios and sell units no longer deemed core to their businesses. Investment groups eager to acquire A&D assets are standing by, despite the complexity involved in corporate carve-outs in this highly regulated sector. High-profile deal announcements underscore divestitures’ role in recentering corporate priorities. When Boeing announced it would sell parts of its Digital Aviation Solutions business to private equity firm Thoma Bravo last year for over $10 billion, its CEO cited plans to “focus on core businesses.” In December, Stanley Black & Decker’s CEO said reducing debt and “focusing on growing our big- gest brands and businesses” informed the company’s decision to sell its Consolidated Aerospace Manufacturing business to Howmet Aerospace for $1.8 billion. For defense contractors in particular, divestitures have become a crit- ical tool to free up cash to reinvest in cutting-edge defense tech inno- vators—often at the behest of investors hungry for returns. “They can take businesses that are good, steady earners but that aren’t meaningfully driving growth and divest those, so they can reinvest in these new technologies,” says Rudy Minar, partner and co-head of technology at Mirus Capital Advisors. In the past, corporations may have tried to innovate on their own, but the speed at which startups are developing drones, cybersecurity solutions, and advanced weapons systems has pushed them toward M&A. “What they’re seeing in the market right now is that you don’t have time to build it,” says Michael Fiore, industrial products deals leader at PwC. Corporations’ race for relevance has generated a pool of assets look- ing for a new home, which is creating opportunities for buyers on the other side of the deal—provided they can execute the carve-out effectively and scale the business after the transaction closes. The Carve-Out Opportunity for PE Private equity sponsors have been active in the A&D market, evi- denced by elevated deal counts and new fundraising announcements. PitchBook’s Q1 2026 A&D report estimated 143 private equity deals in aerospace and defense in the quarter, up 22% from the prior quarter and 123% from Q1 2025. Recent fundraising activity further illustrates investor appetite for A&D assets. In July, Capitol Meridian Partners raised $1.9 billion for its second fund, exceeding its target by 50%. The private equity firm focuses on national security, defense, and commercial aviation. For PE sponsors, divested A&D assets can be an appealing place to direct capital. “The backlog visibility and the durable, high-quality

“

up 123% YoY 143 in Q1 2026 PE deal count in A&D reached

Source: PitchBook

cash flow is a strong interest factor,” says Laura Adams, partner and government contracting lead at CrossCountry Consulting. “A lot of these companies that they’re buying through carve- outs have longer-term contract and vehicle dura- tions, and that makes it appealing based on their hold time. It just gives a lot more visibility and structure.” Among the deals announced over the past year was L3Harris’ sale of its space propulsion, elec- tronics, and power systems businesses to AE Industrial Partners at a total enterprise value of $845 million, announced in August. In March, TriMas, a packaging and specialty products manufacturer, sold its aerospace unit, TriMas Aerospace, to private equity firms Tinicum and Blackstone. The divested unit, which makes fasteners and components for the commercial aerospace and defense industries and generates They can take businesses that are good, steady earners but that aren’t meaningfully driving growth and divest those, so they can reinvest in these new technologies.

RUDY MINAR | Partner and Co-Head of Technology, Mirus Capital Advisors

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Security is another paramount consideration, due to the highly reg- ulated nature of aerospace and defense. Buyers in a carve-out will have to plan carefully around the transfer of not only systems and hardware but, critically, IT talent. (See Q&A on p. 18.) “We can’t just ask about the technology we’re acquiring. We need to ask about who is going to operate it and secure it when the parent is gone,” says Kevin Ellis, executive vice president of private equity and financial services at Thrive, a global technology outsourcing provider. “Critical expertise often sits with the parent and does not transfer with the deal, and that needs to be known up front.” Ellis recommends evaluating leadership capabilities across key IT pillars—governance, cybersecurity, infrastructure, cloud, and ERP, among others—to make sure leaders of those areas are in place for Day 1 as a standalone entity. Buyers will also need to assess the carve-out’s compliance with CMMC—the Cybersecurity Maturity Model Certification, a Department of Defense framework for protecting sensitive infor- mation within the defense supply chain—which is a prerequisite for defense contractors to win federal bids. A carved-out business’s CMMC readiness will not only shore up its cybersecurity capabili- ties, but it could make or break its ability to sell to key customers in the government. Meanwhile, the transition services agreement (TSA), which dictates the support the seller will provide after the transaction closes, should clearly spell out all technical assets, such as the systems, hardware, and data that will transfer as part of the deal. A poorly constructed TSA could find the new company’s employees unable to access critical applications, information, or even email, and threaten the business’s ability to function effectively. The duration of the TSA, its focus areas and cost, and the provisions for unwinding it are all important elements to get right. “Above all, if you’re doing these activities behind the scenes, you’re also trying not to disrupt the business at large,” Adams says. “The more that can happen earlier in the process is really key.” Running behind schedule and having to extend the TSA can be costly, and it can delay the newly carved-out company from pursuing its value creation strategy. We can’t just ask about the technology we’re acquiring. We need to ask about who is going to operate it and secure it when the parent is gone.

approximately $374 million in annual reve- nue, merged with Tinicum portfolio company PennAero. In another example, Coherent Corp. agreed last year to sell its aerospace and defense unit, which designs and manufactures optical and laser sys- tems for defense applications, to private equity firm Advent International for $400 million. In January, the company announced its launch as a standalone entity under the name Attalon, Inc. The rebrand “signals a definitive shift from a subsidiary business unit inside a large com- mercially focused conglomerate, to an agile and purpose-built defense platform,” according to a press release. A well-executed carve-out that becomes a thriv- ing platform is the goal. But these transactions are inherently complex, with added challenges stemming from the nature of the A&D sector. Success requires an appreciation of the risks involved, an experienced team, and a clear vision for the future once the divested asset is fully separated from its parent. Separation Anxiety During any carve-out, buyers must decouple the finance, accounting, and back-office functions of the newly acquired business from its previous owner. A buyer will also want to scrutinize the order backlog and customer base. In the A&D sector, that requires considering the needs and priorities of customers across government agen- cies. “Who’s buying from this business, and then does it align with where we see policies going in the future?” says PwC’s Fiore, citing rearma- ment and reshoring as examples of the sector’s focus areas. Aerospace and defense carve-outs come with nuances stemming from their government customers. Among them is how contracts will transfer when the carve-out is separated, CrossCountry’s Adams says. The carve-out might also require untangling shared costs due to indirect rate structures—expenses not tied to a specific contract or product that are spread across the organization, like general overhead, utilities, or administrative costs—which are common among government contractors.

KEVIN ELLIS | EVP of Private Equity and Financial Services, Thrive

acginsights.org

Carve-out Snapshot Recent transactions include:

$10B+

Thoma Bravo acquired parts of Boeing’s Digital Aviation Solutions business Howmet Aerospace acquired Stanley Black & Decker’s Consolidated Aerospace Manufacturing business Tinicum portco and Blackstone acquired TriMas Aerospace from TriMas AE Industrial Partners acquired L3Harris’ space propulsion, electronics, and power systems businesses Advent International acquired aerospace and defense assets from Coherent Corp.

$1.8B

$1.45B

$845M

$400M

Sources: Press releases

A Scalable Platform Today’s A&D carve-outs tend to be strong, stable business units rather than undesired cast-offs, say M&A advisors. They might not have the fast-paced growth that the corporation and its investors are seeking, but they’re attractive assets, nonetheless. The long-term contracts that many A&D businesses have with gov- ernment agencies are a big part of the sector’s growing appeal. A manufacturer of a weapons system component, for example, will almost certainly have a contract for the lifespan of that weapon. A&D companies’ predictable, recurring revenue model is not unlike that of the software industry, which saw its own flood of investor interest in the 2010s. “It’s sort of the new SaaS,” says Mirus’ Minar. As they evaluate carve-out opportunities, private equity sponsors are seeking businesses with strong fundamentals and a clear path to create value post-close. Solid revenue and attractive margins, a strong customer base, and a clear cost structure are all attractive qualities, says Andy Camposeo, director at Mirus Capital. Sponsors are especially interested in future opportunities for market expansion and penetration, and in a carve-out scenario, they want to see that the separation costs are manageable, he adds. Carve-outs can also benefit from a technology upgrade in many cases, notes Adams. Artificial intelligence and other technologies can help

the business become more efficient and improve its offerings under its new ownership. “How are they using AI as they continue to develop their solutions, capabilities, products, and software, and as part of their delivery to their customers?” she says. “Everyone is looking at how to modernize and strengthen the infra- structure of a carve-out, stabilize it, and scale it. Then you can continue to either acquire and add on to that carved-out entity, or enable a future exit in whatever form that might be, whether an IPO or otherwise.” // KATIE MALONEY is ACG’s vice president of communications and content.

ACG MAGAZINE 17

Closing the IT Talent Gap in PE-Backed Carve-Outs A Q&A with Thrive’s Kevin Ellis

T echnology is an important consideration during a carve-out transaction, as a business entity separates from its original parent. Equally important are the IT and cybersecurity professionals who operate the businesses’ technology systems. Having an effective IT talent strategy can help a buyer jumpstart value creation after a carve-out, while a lack of strategy or improper planning can cost hard dollars and jeopardize the new parent/owning entity’s reputation. Kevin Ellis, executive vice president of private equity and financial services at Thrive, has supported hundreds of PE-backed portfolio companies during carve-outs, add-ons, and platform builds. He reflected on that experience in a conversation with ACG Magazine, sharing actionable insights about how PE sponsors can build an effective IT talent bench during a carve-out, accelerate their value creation roadmap, and avoid costly mistakes.

ACG MAGAZINE: How should buyers think about IT talent as they assess a carve-out’s readiness to operate independently? Kevin Ellis: You’re not just separat- ing the technology during a carve-out; you’re separating the operating capabil- ity. The systems don’t run themselves, so we need people to operate, secure, and govern them on a go-forward basis when the parent is gone. Critical expertise often sits with the par- ent and does not transfer with the deal, and that needs to be known up front. If there are talent gaps discovered after close that require extensions on a tran- sition services agreement (TSA), that can jeopardize the Day 1 stand-up and delay value creation initiatives.

ACG: What are the key talent areas to assess to avoid gaps post-close? KE: You want to evaluate IT talent for Day 1 capability, not necessarily head- count. Check for ownership around things like IT governance, cybersecurity, infrastructure, cloud, identity, network, and ERP, and make sure you have own- ers for those areas, either internally or through an outside technology partner. I would worry less about whether every IT position is filled and more about whether every critical capability has a clear and accountable owner. As you address core capability needs, it’s important to consider whether they merit a full-time staff member in the new company. If the heavy lifting hap- pens primarily during the separation, or if the new company doesn’t require

the same scope of services long-term, enlisting a third-party vendor might be more cost-effective than trying to build the capability internally. For example, take an enterprise company with a full in-house security operations center that divests a smaller business unit. The new company will need security capabilities, but there could be alternatives to build- ing their own permanent in-house func- tion. It might be more cost-efficient— and still meet the company’s needs—to outsource their security services. As a smaller platform looking to grow, those are things to look at. Buyers should also carefully consider services shared with the parent com- pany, to ensure that any core capabilities that sit with the parent are addressed when the new company separates.

acginsights.org

ACG: How should deal teams think about the role of IT leadership and cybersecurity talent during the transaction itself? KE: The top priority is that there’s a clear owner of the entire technology separation process on both sides of the transaction. Buyers certainly need that. On the seller side, transactions are more likely to be successful when the seller has a dedicated team that can be available, provide good documentation, and meet project deadlines. ACG: What is the most promising opportunity for private equity sponsors with a strong IT strategy during a carve-out? KE: First and foremost, executing against the TSA and getting ahead of it creates upside, because there are cost savings with becoming a standalone organization faster. The sponsor can then begin adding on additional orga- nizations through mergers and acqui- sitions, which speeds up the value cre- ation roadmap. The physical infrastructure often doesn’t convey with the transaction, so it becomes almost a greenfield opportu- nity. You get to rebuild the IT infrastruc- ture and, if done correctly, it becomes more scalable. When it’s time to make the next acquisition, you know the plat- form and the technology behind it, and you’ve already migrated from point A to point B before. Now you can do it faster. ACG: What are the consequences of a poorly executed IT separation? KE: Sometimes a TSA doesn’t include all the necessary technical considerations. In that instance, the buyer is refueling the plane while it’s in the air. They need

ACG: For A&D companies, how does CMMC readiness change the talent equation? KE: CMMC readiness is as much a rev- enue and market access issue as it is a cybersecurity issue. On Day 1, if you are not prepared and you can’t meet your attestations from a compliance and a technology perspective, you may not have access to the market that you sell into. Having evidence and documenta- tion—not just the security tools—really matters. From a talent standpoint, you need people who understand how to implement the proper controls and prove they’re operating effectively. Technical talent or tools alone aren’t enough. A good cybersecurity engineer isn’t necessarily a good CMMC resource. ACG: What role should external IT and cybersecurity partners play before close, during separation, and throughout the first 100 days? KE: The first 100 days don’t begin on Day 1. From an IT and cybersecu- rity standpoint, they should largely be designed before the transaction closes, and a lot of that design is based on pre- close diligence. It’s important that as the buyer, you have a full understanding of the com- pany’s technical debt and capabilities that will transfer from the parent, as well as any hidden shared services that will be gone on Day 2. Diligence is very important and should inform the TSA with detailed provisions around how long the buyer receives transition ser- vices and which extensions are available. There are certain deliverables that the seller must fulfill, otherwise the TSA can be extended without additional cost.

to make sure all the people coming over to the new company have full access to their applications, critical data, email, and other communications. You also have to maintain continuity of oper- ations for customers, often without direct access to the seller’s infrastruc- ture and data. That can add complex- ity and time, and ultimately require the buyer to extend the TSA, which adds additional cost. Another risk of improper planning is not having continuity of operations on Day 1. The last thing you want is to flip the switch and things aren’t work- ing. That starts to cost hard dollars in terms of profit and revenue, but also reputational damage when customers are impacted. ACG: How can you ensure a carve- out is aligned with the cybersecu- rity and IT culture of its new owner? KE: In instances where the carved-out entity will be a standalone platform, you can lean heavily on the security aspects of the compliance framework for your industry, whether that’s HIPAA in healthcare, CMMC in aerospace and defense, etc., to help establish the cybersecurity and IT culture. The new platform may not have the same security standards, requirements, and/or systems processes as the seller, so it’s also important to implement good change management and commu- nication. We recommend communicat- ing early to begin preparing people for upcoming changes, whether security or operational, and providing regular updates: “Here’s how you use the new portal to request help,” for example, or “Here’s the date that X or Y change is going into effect.”

ACG MAGAZINE 19

AEROSPACE & DEFENSE: SUPPLY CHAIN

The Suppliers Behind the Surge: Investing in a Strengthening A&D Supply Chain A&D supply chain companies work to raise and calibrate capacity to keep up with demand while keeping future changes in mind

BY HILARY COLLINS

acginsights.org 20

D emand is not the problem in the A&D supply chain sector. With a record U.S. defense budget of $1.5 trillion pro- posed for 2027 and a nearly $1.36 trillion backlog at the five largest U.S. A&D con- tractors, the only question is if produc- tion can keep up. The A&D supply chain has strengthened since COVID, when supply chains for sev- eral industries were stretched to their breaking point and many a weak link

That combination of scarce capacity and secular demand is a powerful tailwind. The supply chain is stretched, but fundamentally healthy.

ADAM OAKLEY | Senior Managing Director and Co-head of Investment Banking, Mesirow

snapped. Since, those critical links have become lucrative investment points, and dealmakers are paying attention: Recent deals span strategic roll- ups, like Arxis acquiring both Omnetics, a designer and manufacturer of connectors and intercon- nect assemblies used in A&D applications, and MagCanica, a designer and manufacturer of torque sensors for extreme conditions; to platform acqui- sitions, like Altair Industries’ acquisition of Central Wire Industries, a manufacturer of specialty wire and cable products with customers across the A&D supply chain. Matteo Peraldo, partner and managing director at AlixPartners, notes that on his recent visit to the

Though the supply chain is no longer as fragile as it was in the immediate aftermath of COVID, bottlenecks persist. On the aerospace side, experts say those bot- tlenecks include skilled labor shortages and manufacturing constraints, particularly around engines, castings, and forgings. Weak points in the supply chain often come down to a single supplier—the only one capable of producing critical components. “A lot of original equipment manufacturers have been aggressively pushing for dual sourc- ing and risk reduction, but the risk still remains in the supply chain,” says Peraldo. However, sentiment across the A&D supply chain is overwhelmingly positive as investments in improved capacity made two or three years ago have finally come fully online, per Peraldo. “What we see now is the result of the effort of the past few years in rebuilding the capacity that got lost during COVID.” Adam Oakley, senior managing director and co-head of investment banking at Mesirow, says that the still-rebuilding capacity and record commercial backlogs at Boeing and Airbus are driving increased aerospace deal activity. Those factors, along with the accelerating demand on the defense side, make the team at Mesirow as “bullish as they’ve been in years.” “That combination of scarce capacity and sec- ular demand is a powerful tailwind,” he says. “The supply chain is stretched but fundamen- tally healthy.”

Farnborough International Airshow, supply chain sentiment was overwhelmingly, and surprisingly, positive. “For the first time, peo- ple were not complaining—or were complaining a lot less—about the supply chain,” he says. “Crisis was no longer the main topic of discussion, which bodes well for the future.” A Stressed, but “Fundamentally Healthy” Supply Chain The demand placed on A&D suppliers is multi-pronged and global. Consumer appetite for air travel is expected to remain strong despite periodic recession fears. The space subsector, long quiet, has been especially active in recent years with global geopolitical conflict projected to drive demand for satellite defense systems. Defense spending is up globally, and no longer just concentrated in the U.S., according to Toby Albright, managing director of Aerospace, Defense and Government Services at investment bank D.A. Davidson. “We’re in a historic period for global defense with the U.S. and other NATO members looking to increase their defense spending,” he says.

ACG MAGAZINE

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