Dear Friends,
We Hope you’re enjoying the fall as we enter the final stretch of 2025.
The third quarter brought real dislocation across Washington and industry. As of this writing, the federal government remains shut down – a stark reminder of the fragility of the budget process at a moment of rising external risk. Even so, momentum across the defense sector has largely held, supported by ongoing conflict in Ukraine, elevated tensions in the Indo-Pacific, and sustained bipartisan support for critical technology programs.
At KAL Capital, Q3 was another active period. We closed transactions in advanced materials, electronic assemblies, and aerospace interiors, extending a record first half. Buyer interest remains strongest where capability meets priority: munitions and missile defense, hypersonics, ISR, and space-based communications. Private equity continues to refocus on durable, government-anchored demand with an emphasis on engineering-centric platforms, sole- or preferred-source positions, and programs that benefit from multi-year funding.
Public A&D equities outpaced broader indices, underpinned by healthy results a the primes and investor focus on national security tailwinds. At the same time, the Pentagon has pressed OEMs to significantly increase missile output and rebuild depleted stockpiles, reshaping the near-term M&A opportunity set. Companies supporting tactical weapons, radar and sensing, energetics, and embedded computing are seeing heightened interest and firmer valuations. Appetite for vertically integrated platforms with lifecycle leverage (DER/PMA, test, and repair) continues to grow.
Still, commercial aerospace faces persistent drag. Boeing’s continued delivery delays, geopolitical trade headwinds, and rising labor costs have dampened optimism. Many commercial suppliers are hedging their bets, expanding into defense-adjacent verticals or rebalancing their program mix toward higher-margin aftermarket content.
Looking ahead, we expect deal activity to remain strong across the defense and critical technologies ecosystem. The M&A window remains open – particularly for assets that align with national defense priorities and offer a path to programmatic or aftermarket pull-through.
As always, we appreciate your partnership and welcome the opportunity to connect. Wishing you a successful and impactful close to 2025.
Sincerely,
Trevor Bohn & Ryan Murphy