Defence and Aerospace M&A Outlook 2026

The UK defence and aerospace sector is entering a period of sustained transformation, driven by rising geopolitical tensions, structural increases in government spending, and rapid technological change.

For businesses operating in defence and aerospace sector and its supply chain this is translating into a more competitive M&A environment, one where strategic positioning, scale and differentiation are key to unlocking value.

The Market in 2026

Structural demand and committed pipeline revenue is driving valuations

The most important shift is that defence is no longer a cyclical opportunity it is a multi-decade structural growth story. The demand in defensive products is increasing due to rising geopolitical tension and North Atlantic Treaty Organisation (NATO) members commitments to increase defence spending to 5% of GDP are locking in long-term defence spending, backlogs across the sector are at record levels and providing multi-year revenue visibility and buyers are increasingly underwriting future programme exposure, not just current earnings.

M&A is being used to secure capability, not just scale

The nature of M&A in the defence space has changed and is now primarily about capability acquisition and supply chain control.

Some of the key areas for investment are defence tech, autonomy, cyber and space capabilities. Primary contractors are moving earlier to acquire innovation and constrained capacity and vertical integration is accelerating as buyers seek to de-risk supply chains and secure production bottlenecks.

A more competitive, global and supply-chain-led market

The buyer pool is expanding and competition for strong businesses is intensifying private equity is moving deeper into the supply chain, targeting fragmented SME assets with recurring programme exposure and consolidation is accelerating across fragmented supply chains, especially in constrained or strategic segments. Cross-border deals are also increasing, particularly into Europe as defence spending accelerates.

Europe was less than 10% of global defence deal value in 2023 increasing to 39% of deal value in 2024 and 38% of deal value in 2025.

The key driver of valuation in defence is the committed pipeline of future earnings. Defence companies often have multi-year government contracts, with backlog representing several years of committed revenue. This provides exceptional revenue visibility, which is rare in most industrial sector and as a result, investors apply lower risk premiums and higher multiples, and visibility often matters more than current EBITDA growth.

EBITDA multiples

EBITDA multiples vary depending on the strength and visibility of contracted revenue. Below is an indication of where multiples will be.

High-quality contracted revenue

7.0x– 10.0x EBITDA

The typical profile of a business which would attract this multiple is one with clear defence exposure and multi-year contracts / strong backlog, niche and defensible capability (e.g. electronics, testing, precision engineering) with good relationships with primes or direct MOD exposure.

Mixed-quality / partially contracted revenue (majority of deals)

6.0x – 8.0x EBITDA

The typical profile of a business which would attract this multiple is one with a blend of defence contracts pluss reactive/project work subcontractor exposure to one to two key primes but a limited backlog duration.

Low-visibility / project-based revenue

4.0x – 7.0x EBITDA

The typical profile of a business which would attract this multiple is one with limited contract coverage, ad hoc / project engineering with an element of civil aerospace or industrial crossover.

Three distinct buyer types are active in the market, each with different motivations and deal structures. The majority of acquirers are still trade buyers however, private equity platforms are increasing and are expected to continue to increase over the coming year.

Typical buyer mix (by deal volume)

The defence supply chain market is highly fragmented with over 12,000 SMEs operating in the ecosystem. Our analysis show that supply chain manufacturing is where the majority of M&A is occurring. The UK government has committed to increase spending with SMEs operating in this space which seeing interest growing in this space.

1. Revenue visibility (quality of backlog & contracted pipeline)

Revenue visibility is the single most important driver of value in defence M&A because it underpins earnings certainty in a sector defined by long procurement cycles and government funding. Buyers place significant weight on the size, duration and quality of contracted backlog, particularly where programmes are already funded and margins are well understood. High-quality, multi-year contracts reduce downside risk, improve forecastability, and support premium valuation multiples, as investors are effectively underwriting predictable cash flows rather than cyclical growth.

2. Customer and programme diversification (concentration risk)

Customer diversification is critical because defence businesses are often exposed to a small number of contracts, programmes or government bodies, creating binary risk. High concentration to a single programme, MOD department or prime contractor increases vulnerability to budget changes, procurement delays, or contract loss, all of which can materially impact earnings. As a result, buyers favour businesses with a diversified customer base across multiple programmes and geographies, as this reduces volatility and strengthens negotiating position at contract renewal, supporting higher valuations.

3. Alignment to funded, priority defence capabilities (demand quality)

Not all defence demand is equal, so value is driven by how well a company is positioned against funded, priority programmes rather than general market growth. Buyers pay a premium for assets exposed to mission-critical capabilities, such as cyber, ISR, munitions, or autonomous systems, where government spending is both committed and structurally increasing. This alignment provides clearer revenue growth prospects and reduces the risk of budget reallocation, making the business more strategic and therefore more valuable in a competitive M&A environment.

4. Exportability and international reach (access to multiple budgets)

International reach enhances value by expanding the addressable market beyond UK defence spending and reducing reliance on a single budget source. European defence spending is expected to increase by Euro 300 billion to Euro 800 billion by 2030 and Euro 1 trillion by 2035. Companies with exportable products, proven international contracts, and the ability to navigate export licensing are able to access higher-growth markets and larger programme opportunities. This not only diversifies revenue streams but also signals scalability and strategic relevance to buyers, particularly as governments increasingly prioritise exports to sustain domestic defence industries and drive long-term growth.

How Crowe Can Help

Whether you are considering a sale, seeking investment to support growth, exploring acquisitions, or simply looking to understand how your business would be valued in today's market, our Corporate Finance team can help. We have extensive experience advising owner-managed businesses, shareholders and management teams across the defence, aerospace and broader industrial sectors.

If you would like to discuss your strategic objectives, understand current market appetite for your business, or receive a confidential valuation assessment, please contact your usual Crowe contact.