HigherGov Report Shows Aerospace, Defense, and Government (ADG) M&A Market Saw Second Busiest Year Ever

Key Takeaways:

• 433 ADG transactions were announced in 2022, a 10% decrease from 2021, but a much more modest decline than the broader M&A market
• Defense acquisitions increased 12%, propelled by increased military spending in the U.S. and Europe among the war in Ukraine and expanding nation-state threats
• Private Equity has rapidly become a dominant force in the ADG market – now accounts for 47% of all transactions
• Space and cybersecurity are increasingly key drivers of ADG M&A activity

NEW YORK--(BUSINESS WIRE)--A new report by government market intelligence platform HigherGov shows the Aerospace, Defense, and Government market had its second highest number of transactions ever in 2022. The Aerospace, Defense, and Government M&A Review 2022 Report, based on proprietary HigherGov data, found that the sector recorded 433 transactions in 2022 with a disclosed deal value of $46 billion.

“The modest decline in the number of transactions in 2022 is primarily attributable to a normalization of activity following a very active 2021,” said Justin Siken, founder of HigherGov. “We expect that the ADG market will outperform the broader M&A market in 2023 as positive government spending trends and stable recession-resistant cash flows in the sector attract investment.”

Major Trends:

• Sector valuations shook off macroeconomic headwinds to reach an all-time high 13.5x EBITDA in 2022
• Department of Defense concerns about consolidation and higher interest rates sharply reduced the number of transactions greater than $1 billion as transactions of small- and mid-sized contractors grew
• Private equity now accounts for almost half of all transactions, twice the share of a decade ago
• As commercial aerospace continues to recover from COVID-19, pre-pandemic trends in horizontal and vertical consolidation are returning
• Space and government cybersecurity and health transactions all saw retrenchment from 2021, but demand for these capabilities from acquirers remains strong

2023 Outlook:

HigherGov expects ADG M&A activity to remain robust in 2023. Increased global defense spending, demand for space, cyber and other technology capabilities, and predictable cash-flows in the sector will support volumes despite higher interest rates and increased government scrutiny of consolidation.

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