Private equity investors ramped up activity across the aerospace and defense sector in the second quarter, even as individual deal size shrank and large platform buyouts became less common.

Aerospace and defense deal count rose nearly 11% from the first quarter of 2026 and more than doubled from a year earlier, according to a new PitchBook report. But total deal value fell nearly 58% year over year, highlighting a shift toward smaller growth-equity investments and add-on acquisitions.

Defense stood out as the strongest area of activity. Deal count jumped to 44 in the second quarter from just nine a year earlier, a 389% increase. During the first half of 2026, defense investors completed 80 deals, compared with 20 in the same period last year, a 300% increase.

Deal value also climbed sharply in defense, reaching $2.4 billion in the second quarter, up 107% from $1.1 billion a year earlier. First-half deal value rose 145% to $5.8 billion.

"Deal activity continues to roll on in 2026, as the wars in Iran, Ukraine, and Gaza have led to increased militarization globally and sharp increases in defense budgets. PE, seeing this hard-to-miss trend, has stepped up investing accordingly," PitchBook analysts noted in the full report.

The divergence between deal count and value suggests investors are spreading capital across a larger number of smaller companies rather than concentrating it in a handful of major acquisitions.

That trend comes as governments increase defense spending and militarization accelerates globally. PitchBook pointed to the wars in Iran, Ukraine and Gaza as contributing to higher defense budgets and increased investor interest in the sector.

Private equity firms are responding by backing niche suppliers and growth-stage businesses. Among the companies attracting investment was Swiss motion-simulator maker Acutronic and Indian defense manufacturer VEM Technologies.

The quarter also produced a wave of notable exits, with IPOs playing an unusually large role. Five of the 10 largest aerospace and defense exits in the quarter were public listings, including an IPO from a nearly 250-year-old UK engine-parts maker, a Swedish MEMS foundry and a KKR-backed air ambulance operator.

KKR was among the firms benefiting from the stronger exit environment through the public listing of its backed air ambulance business, underscoring how investors are finding opportunities to monetize aerospace and defense assets even as dealmaking shifts toward smaller transactions.

On the strategic M&A side, Norwegian Air Shuttle agreed to acquire Sunclass Airlines for roughly $840 million, while Voyager Technologies announced a $300 million acquisition of lunar lander maker Astrobotic, PitchBook noted.

Airlines, however, moved in the opposite direction. Both deal count and deal value declined from the first quarter, weighing on overall aerospace and defense activity.

The result was a split market: defense dealmaking accelerated as investors chased rising military spending, while commercial aerospace and airlines showed a more mixed picture.

For private equity, the second quarter offered a clear signal that opportunity remains plentiful across the sector—but increasingly through smaller bets, specialized suppliers and add-on deals rather than the blockbuster buyouts that have historically driven aerospace and defense activity.

Photo: Image via Shutterstock/ Joris van Boven