For these sole-source suppliers sitting at a production choke point with a defensible moat, valuation multiples are sky-high. “You see more and more public companies trading in the 20s, more than 20x EBITDA, which once was very much the exception and now is becom- ing the norm,” says Peraldo. Peraldo and Albright note that because of these values, IPO exits are also back in vogue as of late, like Trive Capital-backed Karman Space & Defense’s IPO in 2025 and Greenbriar Equity Group’s IPO of Applied Aerospace and Defense in 2026 that saw the company valued at $3.5 billion. “IPO is back on the menu,” says Peraldo. “We spent many years where IPO was not an option—now it’s becoming increasingly an option for an aerospace and defense company.” Predicting Demand Though demand is high and will likely remain so for a few years, A&D suppliers are wary of scaling up production to today’s height in case tomorrow’s does not match it. A significant economic downturn could kill demand for commercial flights. Maintenance, repair, and overhaul (MRO) remains hot on the aerospace side but may begin to lag if aircraft manufacturers make headway on their backlog. U.S. defense priorities, and thus spending, could rapidly change in election years. Farkas notes that in a boom market, investors need to be thinking about how they will be positioned if or when conditions change, espe- cially in less predictable arenas like defense technologies and contin- ued funding by Congress. “Defense sounds really good today, but think: How could things change quickly? What if Congress doesn’t get their act together, what are those kinds of events that could happen?” says Farkas, referring to the Fiscal Year 2027 National Defense Authorization Act that is stalled in the Senate and the funding gap for the Golden Dome. “Try to understand what those dynamics could be and make sure you have scenarios built out around those.” For dealmakers, Oakley and Carolus note that diligence in the space has ramped up, becoming far more stringent around customer rela- tions, pricing power, and program positioning—meaning where products fit within the programs spanning the core verticals within A&D. Program positioning challenges include product and services positioning in a shifting environment and how programs are funded, with a distinct buyer preference for funded programs of record, as opposed to Indefinite Delivery, Indefinite Quantity (IDIQ) contracts. Price sensitivity is a particularly high concern after years of purchasers swallowing huge price increases to get their hands on the right parts. As companies contend with more expensive labor and capital, they are
IPO is back on the menu. We spent many years where IPO was not an option—now it’s becoming increasingly an option for an aerospace and defense company.
MATTEO PERALDO | Partner and Managing Director, AlixPartners
becoming more sensitive to the price of supplies and are more closely scrutinizing the cost of even difficult-to-source materials and components. “Of course, you’re not going to roll back to a 2019 cost structure, but in an environment where on average prices increased over 10% per year, we are seeing well-structured procurement cost reduction efforts achieve double-digit cost reduction, measured against today’s inflated baseline,” says Peraldo. Ongoing challenges like labor shortages are likely to remain a permanent feature in the coming years, says Peraldo, with shortages in almost every role. Eventually, he expects that AI and technology will not only narrow that labor gap but also facilitate a shorter learning curve for training new personnel on highly specialized tasks. “From my conversations at Farnborough, the labor shortage was not a strong topic of dis- cussion,” he says. “That doesn’t mean it’s fully solved. It means that we have learned to live with it.” //
HILARY COLLINS is ACG’s associate editor.
ACG MAGAZINE 23
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