Dear Friends,
We hope you’re enjoying the summer and finding time to recharge as we enter the second half of 2025.
The first half of the year was among the most active in KAL Capital’s history. We closed seven transactions across the aerospace and defense landscape, including platform sales in propulsion, surface treatments, EMI shielding, composites, and refractory metals. These transactions reflect a broader market trend: sustained buyer conviction for differentiated platforms supporting defense modernization, space, and other mission-critical initiatives. Conversations with both strategic acquirers and private equity sponsors suggest that M&A pipelines remain strong – particularly for companies with proprietary technologies, engineering depth, or entrenched program positions.
While commercial aerospace continues to face headwinds – from soft airline earnings to tariff-driven cost pressures – the defense sector remains a clear outlier. A&D equities significantly outperformed broader indices, fueled by rising procurement budgets, persistent geopolitical tensions, and growing demand for munitions, missile defense, and shipbuilding. The proposed FY26 defense budget, at $961 billion, is the largest in U.S. history and signals the start of a sustained rearmament cycle. Key funding priorities include hypersonics, AI, space systems, and the nuclear triad, alongside efforts to accelerate acquisition and streamline procurement.
Global developments – such as Operation Midnight Hammer, escalating tensions in the Indo-Pacific, and the war in Ukraine – have further sharpened the industry’s focus on precision strike capabilities, supply chain resilience, and dual-use innovation. Meanwhile, the Paris Air Show spotlighted next-generation aerospace platforms, with Airbus and several eVTOL players stepping into the void left by Boeing. Commercial markets remain volatile, weighed down by inflation, regulatory friction, and deteriorating airline profitability.
Looking ahead, we see a favorable environment for M&A across defense and critical technology sectors. Strategic buyers and sponsors remain aggressive in pursuing acquisitions that offer vertical integration, exposure to high-priority platforms, or defensible aftermarket positions. The confluence of geopolitical urgency, abundant capital, and a shifting policy environment is creating a rare window of opportunity for well-positioned companies.
We wish you a productive and successful remainder of the year and look forward to reconnecting soon. As always, thank you for your continued partnership and trust.
Sincerely,
Trevor Bohn & Ryan Murphy