Aerospace and defense (A&D) investment banking is a specialized coverage area that advises companies involved in the design, manufacture, and servicing of aircraft, spacecraft, defense systems, and related technologies. It is a sector defined by long product development cycles, massive government budgets, complex regulatory requirements, and a relatively concentrated set of major players. For bankers who enjoy working on large, complex transactions with strategic significance, A&D is one of the most interesting groups on Wall Street.
In this guide, we will cover what A&D investment bankers do, the types of deals in this sector, key valuation considerations, which banks are most active, and how to recruit for an A&D group.
What Does Aerospace and Defense Investment Banking Cover?
The aerospace and defense sector is typically divided into several broad categories:
- Defense prime contractors — The major companies that serve as the primary contractors on large government defense programs. These firms design and manufacture weapons systems, military aircraft, naval vessels, satellites, and missile defense systems. They are among the largest companies in the world by revenue.
- Defense electronics and systems — Companies that make the electronic components, sensors, communication systems, cybersecurity solutions, and software that go into defense platforms. This sub-sector has grown in importance as defense systems become increasingly software-defined and technology-driven.
- Commercial aerospace — Companies involved in the commercial aviation supply chain, including aircraft manufacturers, engine makers, avionics providers, and the broader network of Tier 1 and Tier 2 suppliers that provide components and systems.
- Space and satellite — Companies involved in satellite manufacturing, launch services, space exploration, and commercial space applications. This sub-sector has seen a surge of activity driven by both government programs and commercial space ventures.
- Defense services and IT — Companies that provide IT services, consulting, logistics, training, and maintenance to government agencies, particularly the Department of Defense and intelligence community. This segment has seen significant M&A consolidation.
- Aftermarket and MRO — Companies focused on maintenance, repair, and overhaul (MRO) services for both military and commercial aircraft. Aftermarket businesses are attractive because they generate recurring, high-margin revenue.
Key Deal Types in Aerospace and Defense
Mergers and Acquisitions
M&A is the primary driver of advisory work in A&D banking. The sector has seen significant consolidation over the past several decades, and M&A activity continues as companies seek to expand their capabilities, gain access to new programs, or achieve scale in specific technology areas.
A&D M&A has some unique characteristics. Government regulatory approvals are a major consideration — transactions involving defense contractors often require review by the Department of Defense, the Committee on Foreign Investment in the United States (CFIUS), and potentially foreign regulatory bodies. Certain deals involving classified programs or sensitive technologies face additional scrutiny. These regulatory dynamics add complexity and timeline uncertainty to A&D transactions.
Understanding enterprise value vs. equity value is important in A&D, as many of these companies carry significant pension obligations and other liabilities that affect the bridge from enterprise value to equity value. Pension-related adjustments can be material in A&D valuations.
Divestitures and Carve-Outs
Divestitures are common in A&D as large companies periodically sell non-core divisions to sharpen their strategic focus. These carve-outs can be complex because the divested business may share back-office functions, facilities, or even program contracts with the parent company. Establishing stand-alone financials and managing transition service agreements are key parts of the process.
Private Equity Involvement
Private equity has become increasingly active in the A&D sector, particularly in the middle market. PE firms are attracted to A&D companies because of their long-term government contracts, recurring revenue streams, and high barriers to entry. Defense services companies, IT contractors, and aerospace aftermarket businesses have been popular targets for PE-backed acquisitions and bolt-on strategies. Many A&D M&A deals involve a financial sponsor on at least one side.
Capital Raises and Debt Financings
A&D companies are active in the debt capital markets, issuing investment-grade and high-yield bonds to fund acquisitions, shareholder returns, and working capital needs. On the equity side, IPOs and secondary offerings occur periodically, particularly when PE firms exit their investments in A&D portfolio companies. Understanding how WACC is calculated matters for A&D companies, as their capital structures and risk profiles can vary significantly between defense-focused firms (lower risk, more predictable cash flows) and commercial aerospace suppliers (more cyclical).
Key Valuation Considerations in A&D
Valuing aerospace and defense companies uses the same core frameworks — trading comps, precedent transactions, and DCF analysis — but with several sector-specific nuances.
- Revenue visibility and contract backlog — A&D companies often have multi-year backlogs of contracted revenue from government programs. The size, quality, and duration of the backlog is a critical indicator of future revenue and heavily influences valuation. A company with a large and growing backlog of funded contracts will typically command a premium.
- EV/EBITDA multiples — EV/EBITDA is the primary comparable metric in A&D. Multiples vary significantly by sub-sector: defense services companies might trade at different multiples than defense prime contractors, and commercial aerospace suppliers at different multiples still. The premium generally goes to companies with more recurring, predictable revenue.
- Pension and OPEB obligations — Many legacy A&D companies carry significant defined-benefit pension obligations and other post-employment benefit (OPEB) liabilities. These obligations must be carefully accounted for in the equity value bridge, and they can materially affect the implied equity value.
- Government contract types and margins — Understanding the types of government contracts (cost-plus, fixed-price, time-and-materials) is important because they carry different risk and margin profiles. Fixed-price development contracts carry execution risk, while cost-plus contracts offer more predictable margins. This affects both the modeling of future financials and the appropriate valuation multiple.
- EBITDA adjustments — Adjusted EBITDA is commonly used in A&D, particularly in PE-backed transactions. Common adjustments include acquisition-related costs, restructuring charges, and pension-related items. Understanding which adjustments are reasonable and which are aggressive is important.
- Book-to-bill ratio — This metric (new orders divided by revenue) is a key indicator of growth momentum. A book-to-bill above 1.0x means the company is winning new orders faster than it is recognizing revenue, which suggests future growth.
Which Banks Have Strong A&D Practices?
Aerospace and defense banking is well-served by a range of institutions:
- Bulge brackets — Goldman Sachs, JP Morgan, Morgan Stanley, and Bank of America all have dedicated or semi-dedicated A&D coverage teams that advise on the largest transactions in the sector.
- Elite boutiques — Firms like Evercore, Lazard, and Centerview have been involved in major A&D advisory mandates. Moelis and PJT Partners are also active.
- Middle market and specialist banks — Given the volume of middle-market M&A in A&D (particularly PE-backed deals), banks like Baird, Houlihan Lokey, Harris Williams, and KippsDeSanto (a specialist A&D advisory firm) are very active. KippsDeSanto, acquired by Jefferies, has been particularly focused on defense and government technology M&A.
Skills for Aerospace and Defense Bankers
A&D bankers need the standard investment banking skill set plus some specific sector knowledge:
- Understanding of the defense budget process — Knowing how the U.S. federal budget, defense authorization, and appropriations process works is foundational. Defense spending drives revenue for much of the sector, and budget trends directly affect deal activity and valuations.
- Knowledge of government contracting — Understanding the different types of contracts (cost-plus, fixed-price, IDIQ), the procurement process, security clearance requirements, and ITAR/export control regulations is important for working with A&D clients.
- Strong financial modeling — A&D financial models need to incorporate backlog conversion, contract-level margins, R&D spending cycles, and working capital dynamics that are specific to government contracting businesses. A solid foundation in financial statement analysis is essential.
- Regulatory awareness — CFIUS, antitrust, ITAR, and security clearance requirements all affect deal execution. Being familiar with these regulatory frameworks makes you more effective on deal teams.
How to Recruit for A&D Investment Banking
Recruiting for A&D banking follows the standard investment banking recruiting timeline and process. Here are some specific tips.
Develop a genuine interest narrative. You should be able to articulate why A&D interests you specifically. Maybe you grew up near a military base, have family in the military, studied engineering, or are fascinated by space and aviation. Whatever your hook is, make it authentic and specific.
Follow the sector. Read defense trade publications, track the federal budget process, and be aware of major programs and recent deals. Being able to discuss current A&D M&A activity in a networking conversation will immediately set you apart from other candidates. Our networking guide can help you approach these conversations effectively.
Leverage any relevant experience. Prior experience at a defense company, government agency, military service, or engineering background is valued. Highlight this on your resume and weave it into your story.
Prepare for technical questions. Beyond the standard interview prep questions, expect questions about defense budget trends, contract types, and sector-specific valuation considerations. If you are asked about a DCF for a defense company, be ready to discuss how contracted backlogs affect revenue projections.
If you are coming from a non-target school, A&D banking at middle-market firms (which are very active in this sector) can be an excellent entry point. The middle-market A&D advisory space is large and growing.
Exit Opportunities from A&D Banking
A&D bankers have a strong and growing set of exit opportunities:
- A&D-focused private equity — There are numerous PE firms with dedicated A&D investment strategies (e.g., Veritas Capital, AE Industrial Partners, Arlington Capital Partners, and others). These firms actively recruit from A&D banking teams.
- Corporate development at A&D companies — Major defense primes and mid-tier companies hire bankers into M&A and strategy roles.
- Government and public sector roles — Some A&D bankers transition into government roles at the Department of Defense, intelligence agencies, or related policy organizations.
- Generalist PE and growth equity — Strong A&D bankers can also exit into generalist funds, particularly those with industrials or government services focus areas.
- Space and defense technology ventures — The growing commercial space and defense technology ecosystem offers opportunities for bankers who want to move into operating roles or venture-backed companies.
To learn more about planning your career path in investment banking, check out our free course and technical cheatsheet to start preparing today.
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