Market Matters Sep 21, 2026 45m 31m saved
With Meghan Welch, Managing Director in the Aerospace, Defense and Government Services group at Brown Gibbons Lang & Company
General Electric bought a castings business and paid 26 times EBITDA for it, before counting any synergies. Jet engine turbine blades are made in very few places, and the ones that can hold the tolerances on schedule have become a choke point.
Defense technology is trading north of 20 times. Meghan Welch says the whole sector has rerated by two, three or four turns of EBITDA, including the parts nobody calls exciting.
"Even in sectors like tactical equipment which are protective soldier systems we're seeing an appreciation of value there of two or three turns of EBITDA."
Welch runs deals in the aerospace, defense and government services group at Brown Gibbons Lang & Company, which means she sits between the primes buying supply-chain certainty, the private equity firms that have to deploy capital, and the family-owned machine shops deciding whether to sell.
The full interview is covered here so you can skip it. 45 minutes of audio, 14 minutes of reading.
Here are the 10 insights that matter.
Key Takeaways
Aerospace and defense are both in the early innings of an M&A super cycle, for different reasons
Commercial aero has a backlog Welch puts at 13 to 15 years
The primes cannot return cash through buybacks, so they buy companies — the alternative is being called in front of Congress
GE paid 26 times EBITDA for a castings supplier, a number she calls a defense-tech multiple
The whole sector has rerated by two to four turns, tactical equipment included
Private equity is paying strategic multiples because it has to deploy, and because the IPO window has reopened as an exit
Alaska Native corporations and family offices are now winning processes, helped by set-aside contracting status and a permanent hold period
The money in unmanned is in platform-agnostic components, not in the platform that wins this year's program
Counter-drone defense is the gap — Welch says the US is behind Russia and China and the answer looks like a layered dome
Antitrust blocked TransDigm's purchase of a microwave-component maker, because single-supplier risk is now a national security question
Foreign buyers from allied countries still get through, but clearance that took 30 days can take 60
The aftermarket is booming because planes are flying past their retirement dates and the mechanics who repair them are retiring
1. Two Super Cycles At Once
Marley Kayden opened by asking for the single biggest narrative behind the deal activity. Welch said the question understates it, because there are two.
Both halves of the sector are early in a cycle
both aerospace and defense are in early innings of super cycles from an M&A perspective
Meghan Welch
On the commercial side it is build rates at Boeing and Airbus, and a supply chain that has never faced demand like it, against a backlog she puts at 13 to 15 years. On the defense side it is record spending in the US and abroad, plus a modernization requirement that is not only American. Both, she said, are firing on all cylinders.
2. What Broke Procurement
Kayden's next question was what changed, given that defense procurement ran for decades on long timelines and large prime contractors.
Welch split it. The macro driver is geopolitical instability. The specific driver is that the buying process itself did not work.
The underinvestment is chronic, and procurement is why
We have chronically underinvested in our military and a lot of that is a function of procurements
Meghan Welch
She credits the current administration, and names Pete Hegseth, with changing the demand signal to industry: competitive programs that down-select in a couple of months rather than years of testing, contract negotiation and protest. Venture capital had circled defense for years and kept stalling on what the industry calls the valley of death, the gap between a promising technology and a program that pays for it. Shortening that gap is what brought the money back.
Two other things hold the bid up. Defense was designated a critical industry after COVID, so investors treat it as insulated from the macroeconomic cycle — a quality they wanted when oil prices moved and inflation rose. And the stockpile problem is real: missiles and munitions have been depleted since the start of the war in Ukraine and further since.
The maritime gap is her sharpest example. Twenty years of asymmetric warfare in Iraq and Afghanistan were paid for out of the Navy, which now has to be rebuilt to keep pace with China and Russia.
On the commercial side, COVID was the black swan, and it landed alongside the 737 MAX situation and the production limits the FAA placed on Boeing.
3. Why The Primes Must Buy
The most mechanical argument in the interview is about why the buyers cannot simply sit still.
The primes have cash they are not allowed to hand back
these defense primes and tier ones are trading at record valuations in the public market. They have record amount of cash on their balance sheet and they can no longer do share buybacks.
Meghan Welch
Either the buyback does not make financial sense or it gets the company hauled in front of Congress.
That leaves one route
So, they have to do something to return shareholder value and really the only way to do it is to do acquisitions.
Meghan Welch
The second motive is capability. A prime that wants to be on the next platform or in a new domain often does not have the intellectual property, the engineers or the expertise, and building it from scratch takes too long once testing and regulatory approval are added. Buying the technology is faster than green-fielding it.
Boeing's repurchase of Spirit AeroSystems is her example of the defensive version. Boeing had spun Spirit out years earlier as it moved toward being an integrator; bringing it back was expensive in cash, and the point was the signal it sent to the market, to the supply chain and to the FAA that it was returning to control of quality. Kayden asked whether that makes vertical integration worth the financial pain. For high-priority, lucrative programs, Welch said yes: a company that has outsourced its entire supply chain cannot promise delivery on time and to quality.
4. Who Else Is Bidding
Strategic buyers are not the only ones paying up.
Private equity is holding a great deal of cash it has to deploy, has had fewer exits than it wanted elsewhere, and is under pressure — which is why, Welch said, it is paying strategic multiples and building aerospace and defense theses. Precision manufacturing is the favorite hunting ground, because there are few assets of scale and a long tail of family-owned shops that suit a rollup.
She made a distinction that matters for what those shops are worth. A supplier may own its intellectual property and be written into the engineering drawings, or it may be build-to-print, making a part someone else designed. The build-to-print business can still be the only supplier able to hit the tolerances and the schedule, and requalifying another one takes years and real money in testing and regulatory approval.
The bidders nobody talks about are the third group.
Family offices and tribal corporations are competing at strategic value
They're also flushed with cash. They have mandates that they need to do and they become very competitive in processes and very compelling, especially for founders because they tend to have a long-term hold horizon.
Meghan Welch
In many cases they never sell, which appeals to a founder. In the case of Alaska Native corporations, Welch said they are cash-rich from casino operations and eligible for set-aside and disadvantaged-status government contracts, which accelerates growth on the defense side.
And the exit has widened. The IPO market has reopened for aerospace and defense at valuations that compete with a strategic sale, which is what makes the buy-and-build strategy work: assemble a focused rollup in a fragmented, nationally important niche, reach scale, then float it or sell it.
5. A 26x Casting Deal
Asked which capabilities command the highest multiples, Welch went back to the deal she keeps citing.
GE paid a defense-tech multiple for a casting business
GE paid a very healthy multiple without synergy suggested. It was 26 times EBITDA.
Meghan Welch
Castings are a bottleneck: few facilities can make jet engine turbine blades to the required quality on time, so the price bought supply certainty rather than growth. Defense technology, space technology, weapon systems and munitions are all trading north of 20 times on her read.
The rerating reaches the unglamorous parts
everything has rerated, meaning the valuations have gone up two, three, four turns
Meghan Welch
That includes business aviation and aftermarket maintenance, and even tactical equipment, meaning protective soldier systems, which she puts up two or three turns of EBITDA. She reads it as a function of available capital, competition in processes, and demand fundamentals that are politically agnostic: both parties agree defense spending holds or rises. Her aside is that adjusted for inflation, the US is spending less on defense than it has historically.
6. What Buyers Pay Up For
Backlog and contract structure are where the valuation is actually decided.
Long-term agreements and what the industry calls programs of record, which run five or ten years with option years after them, give a buyer visibility across the whole forecast period, and both strategic and financial buyers pay for that. Contract type drives margin, and the mix is shifting: more deals are being written under other transaction authority, an alternative to the traditional federal acquisition process that is faster, more flexible and harder to protest. The drone programs, she said, are largely written that way.
Incumbency is the asset
becoming the incumbent is really important here and that's where those programs of record drive huge value
Meghan Welch
Her reasoning is that the buyer on the other side, the defense department, does not want to recompete critical technologies, and prefers a supplier it has relied on for years or decades.
7. Where Unmanned Pays
Kayden raised the chairman of the joint chiefs saying forces have to be ready to be hunted by autonomous swarms, and asked whether the opportunity is in drones or in the picks and shovels around them.
Own the components, not the platform
my perspective is that the best area to play unmanned are the platform agnostic sensors, the systems, the picks and shovels as you say
Meghan Welch
A component that goes into every drone does not care which program wins and gets recompeted in three years. The same logic governs software: platform-agnostic, able to work in an environment where the asset cannot communicate in real time, and increasingly the AI layer behind that.
She also flagged the cost-per-shot argument. A low-cost cruise missile program built with commercial components changes the arithmetic of a conflict in which munitions get used at scale, which is why access to those programs is valuable on its own.
The counter-drone gap is the one to fix
counter UAS is a very important market right now and it's a market that we have massive holes in terms of technology and capabilities and we are behind Russia and China and others in our capabilities there.
Meghan Welch
What the answer looks like, on her description, is a layered defense in the shape of Israel's dome and the Golden Dome discussion: interceptors at several ranges, laser weapons, microwave and electronic-warfare jamming.
There is a second-order effect in who is bidding for this. Technology investors who were overweight AI and took the recent hit are treating defense as a hedge — they understand software, and the sector looks insulated.
8. Where Deals Get Blocked
Antitrust is live again in a sector the government is otherwise pushing to consolidate.
Welch's example is TransDigm, which was under a letter of intent to buy Stellant, a microwave-component business owned by Arlington Capital, and agreed to walk away over Department of Justice concerns.
Single-supplier risk is now a security question
There's a real consideration around putting too many eggs in one basket from a simplification perspective.
Meghan Welch
The reference point is the post-Cold-War consolidation, which left some components with a single manufacturer and is part of why the industrial base is short of capacity now.
The other screen is foreign ownership. Deals involving national security assets, sensitive technology or munitions go through the US government's committee on foreign investment, and Welch says the sensitivity is high even for close allies: Kongsberg's purchase of Zone 5 Technologies was held up for a long time and looked uncertain, and she knows of international strategic buyers that were blocked from the energetics and weapon-systems supply chains.
They do still get through. For an ally such as Germany or the UK, she said, the question is timing rather than approval, and the delay is now largely a staffing problem after federal departures.
Clearance takes twice as long as it used to
what used to take 30 days may take 60 days now
Meghan Welch
Europe is running the same argument in reverse. Two years of reckoning with its reliance on the United States has produced a concern that if the US turns to the Pacific, Europe faces Russia without the industrial base to supply itself. Welch names Advent's UK strategy of taking public companies private, carving them up and selling the pieces to American private equity, which she calls commercially successful and, in her view, corrosive of the British defense industrial base.
9. Aero's Weak Link
In commercial aerospace the risk has moved down the chain.
The question is no longer Boeing's build rate
It's now shifted to the risk in the supply chain. Can the supply chain deliver?
Meghan Welch
The suppliers are middle-market companies, family-owned shops and smaller private equity assets that have carried heavy working capital and inventory while Boeing and Airbus repeatedly missed their own build-rate forecasts. A lot of those owners are exhausted after COVID and the years after it, and want out, which is the raw material for consolidation.
The bottlenecks she names are castings, forgings and composites, three places with few assets of scale, alongside precision manufacturing.
10. The Aftermarket Boom
Asked where the next feeding frenzy is, Welch said the aftermarket is already in one, and named the deals: HEICO's purchase of Wencor, and TransDigm buying a portfolio company earlier this year. What buyers want is the engineering approvals that let a repair shop design and make its own replacement parts.
The demand side is an accident of the production delays.
Airlines are flying planes they expected to have retired
We've got older planes flying longer which need more and more frequent repairs
Meghan Welch
Aircraft due for retirement in 2025, 2026 and 2027 are still in service because of engine design delays, the production caps the FAA placed on Boeing and quality concerns. Capacity to repair them has gone the other way: mechanics retired through COVID across union shops, airline operations and independent repair businesses, and the average age of the workforce keeps rising because the trade is not attracting younger workers.
Business aviation has rerated for a different reason. Welch said the industry carried an elitist connotation into the 2007 and 2008 downturn and cycled hard; COVID produced fractional ownership models that opened it to a broader customer base and made demand steadier.
Bonus Insights
Quantum is the next compliance problem
Welch said cyber compliance requirements keep tightening with mixed success, and that the coming requirement is quantum. Protecting existing platforms, programs and ships against what quantum computing makes possible, retroactively and on assets already in the field, is the part she thinks is under-discussed.
Where the most aggressive buying will be
Anything designated a national security priority: unmanned systems, low-cost munitions and missiles, and any bottleneck in the supply chain. Maritime is the biggest single gap. Training and simulation is the one she calls a problem nobody has solved, because the assets to train personnel are not there.
What would stop it
An administration change could alter individual programs, and a fight between entitlement spending and defense spending is the real risk, but Welch's view is that the recognition is bipartisan and the underinvestment too large for the direction to change in the near or medium term.
The rapid-fire round
On drones: "Transformational for agnostic drone components, platform drones, I think, are becoming very commoditized." On AI in defense: "It's revolutionary if it's true AI, if they actually have AI capabilities" — and it is used as a buzzword for things that are merely automated. The most underappreciated technology, on her answer, is radio-frequency microwave connectors, wire harnesses and hermetics: 20-year-old technology that will still be in the installed base in 20 years. The most overhyped is harder to name, but the warning is specific.
There's a lot of flash in the pan businesses. There's a lot of investments in businesses that are really good marketing, but they don't actually have the tech solution.
Meghan Welch
On whether humans stay central to the battlefield, she thinks so for the foreseeable future, with more manned-unmanned teaming as the answer to an adversary with far more people: "you can put more iron in the sky, you can put more boots on the ground if you have one man to 10 unmanned systems." The acronym she says every investor should learn is the contract vehicle, because it sets the duration of the demand and the margin.
Welch's bottom line is that this consolidation is being driven by a buyer that cannot return cash any other way and a supply chain that cannot deliver without it, which is why the multiples have moved up across every subsector rather than only in the parts of defense that make the news.
Products, Companies & Tools Mentioned
Brown Gibbons Lang & Company (Welch's firm; she is a managing director in its aerospace, defense and government services group)
GE Aerospace (Paid 26 times EBITDA, before synergies, for a castings business that makes jet engine turbine blades)
Boeing (Bought Spirit AeroSystems back to regain control of quality, after years of moving toward an integrator model)
Spirit AeroSystems (The supplier Boeing had divested and then repurchased, in what Welch calls a defensive deal)
Airbus (The other half of the record commercial build rate, and of the backlog Welch puts at 13 to 15 years)
TransDigm (Walked away from buying Stellant over antitrust concerns, and has kept buying in the aftermarket)
Arlington Capital Partners (Owner of Stellant, the microwave-component business at the center of the blocked deal)
Kongsberg (Its purchase of Zone 5 Technologies was held up for a long time in foreign-investment review, despite Norway being a close ally)
HEICO (Its acquisition of Wencor is her marker for when the aftermarket frenzy started)
Advent International (Took UK defense businesses private and sold the pieces on — successful, and in Welch's view corrosive of Britain's industrial base)
Safran and Pratt & Whitney (The engine makers whose design challenges were holding up production before the risk moved to the wider supply chain)
Lufthansa Technik and Delta TechOps (Named among the repair operations losing mechanics to retirement)
Wheels Up and NetJets (The fractional models that changed who flies privately and made business aviation demand steadier)
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