Private Equity Dealmaking in Aerospace and Defense Sees 32% Decline in Q2, Impacting Industry Dynamics

What's Happening?

Private equity dealmaking in the aerospace and defense sectors experienced a significant decline in the second quarter of 2025, according to data from PitchBook. The report highlights a 32% year-over-year drop in deal count, with a particularly sharp 61% decline in defense-related deals. This downturn is attributed to factors such as tariffs and geopolitical uncertainties, which have affected decision-making processes. Despite the decline, the overall outlook for the sector remains positive, with expectations of a rebound in the latter half of the year. Jim Corridore, a senior industrials analyst at PitchBook, noted that the new $1 trillion defense budget and NATO's commitments to increase defense spending should support future deal activity. The sector continues to attract venture capital and private equity interest, with new technologies and startups receiving funding.

Why It's Important?

The decline in private equity dealmaking within the aerospace and defense sectors could have significant implications for the industry. The reduction in deals may slow the pace of innovation and development of new technologies, potentially impacting the competitive landscape. However, the continued interest from venture capital and private equity firms suggests that the sector remains attractive for investment, driven by ongoing geopolitical tensions and increased defense spending commitments. Companies in the sector may need to navigate these challenges while capitalizing on opportunities presented by the evolving defense budget and international security concerns.

What's Next?

Looking ahead, the aerospace and defense sectors are expected to see a resurgence in deal activity as geopolitical uncertainties stabilize and the effects of tariffs are mitigated. The anticipated rebound in the second half of 2025 could be driven by increased defense spending and the introduction of new technologies. Industry stakeholders, including private equity firms and startups, will likely continue to explore opportunities for growth and innovation, leveraging the strong interest in defense technology. The sector's ability to adapt to shifting priorities and capitalize on emerging trends will be crucial for sustained growth.