Global M&A trends in industrials and services

The 2026 M&A outlook for A&D is supported by rising global defence budgets, geopolitical tensions, supply chain restructuring, and multi-year procurement commitments that are restoring long-term visibility across the sector. While A&D transaction volumes remained modest in 2025, particularly in the US where tighter government spending and budget constraints weighed on activity, the uptick strengthened into year-end and is expected to build through 2026.

From budgets to build-out: modernisation takes centre stage

Defence modernisation has become a primary catalyst for M&A as buyers prioritise readiness, sustainment, and digital warfighting over new-build platforms. Capital is flowing into capacity, munitions, and software-defined defence areas such as C4ISR, secure cloud and edge infrastructure, AI-enabled systems, and cyber and electronic warfare. These priorities are accelerating consolidation and vertical integration across mission-critical subsystems and defence technology, particularly where assets combine technical differentiation with secure, cleared talent, and resilient supply chains.

Policy commitments and geopolitics are expanding the deal pipeline

NATO’s new 5% of GDP benchmark for defence spending, alongside expanded US and EU rearmament programs, is driving growth in deal activity tied to munitions, integrated air and missile defence, naval platforms, and space assets. Multi-year procurement pipelines are supporting larger, more strategic transactions and encouraging acquirers to bring critical capabilities in house. In Asia Pacific, the emergence of long-duration defence programmes such as AUKUS is expected to drive local and cross-border M&A. Europe’s heightened defence posture, shaped largely by Ukraine-related commitments, is also influencing strategic M&A priorities, particularly for safeguarding critical infrastructure such as telecommunications, subterranean pipelines, and energy corridors.

Deal activity accelerated in late 2025 as corporate and private equity investors positioned themselves for these policy and geopolitical tailwinds. Strategic buyers are pursuing selective acquisitions and carve-outs to expand into adjacent segments and strengthen supply chain control. Transactions such as Safran’s $1.8bn acquisition of Collins Aerospace’s flight control and actuation unit and Boeing’s $4.7bn acquisition of Spirit AeroSystems illustrate the emphasis on securing mission-critical components and advancing vertical integration.

Commercial aerospace recovery reinforces M&A beyond defence

In parallel, the ongoing recovery in commercial aerospace is providing incremental demand support, while persistent supply constraints, particularly in engines, castings, and forgings, are intensifying pressure for aftermarket consolidation. US and European acquirers are increasingly targeting maintenance, repair, and operations (MRO); parts distribution; and tiered supplier roll-ups as airlines and OEMs work to stabilise build rates and internalise critical components.

Mid-tier companies are advancing end-to-end integration strategies, spanning component manufacturing through lifecycle support, to improve operational resilience and reduce supply chain risk. This shift towards vertically integrated operating models is becoming a defining feature of middle-market M&A in 2026. Additional themes include the cross-industry application of defence technologies, such as the use of satellite communications assets for commercial telecommunications, logistics, and infrastructure monitoring.

Across Europe, consolidation is especially active in tactical air support, unmanned systems, and suborbital platforms. M&A will include supplier consolidation to build scale, reinforce industrial sovereignty, and deepen capabilities in propulsion, avionics, and mission-critical electronics. Activity is also accelerating across the space value chain, including launch infrastructure, low-Earth-orbit platforms, and satellite data services.

Private equity interest remains resilient, particularly in MRO, government services, and defence-adjacent infrastructure. Sponsors continue to pursue bolt-ons and roll-ups that enhance scale, cash flow, and exposure to long-duration government demand. This trend is most pronounced in the US, while activity in Europe remains more selective given regulatory complexity. Antin Infrastructure Partners’ acquisition of a majority stake in Spain-based Swiftair Group in October 2025 underscores sustained sponsor appetite for assets aligned with aviation infrastructure and mission-support aviation services.

Automotive M&A in 2026 remains selective as OEMs and suppliers adapt to overcapacity, capital constraints, and the shift towards software-defined vehicles, where control of system integration and data represents the primary value lever. Dealmaking is increasingly focused on partnerships and targeted acquisitions that diversify revenue through services and digital mobility and reposition portfolios at the intersection of manufacturing, technology, and services.

Automotive in structural transition, not cyclical recovery

Automotive dealmaking in 2026 will reflect a sector undergoing fundamental change rather than a cyclical recovery. Activity in 2025 remained limited, characterised by targeted divestitures and a small number of high-profile transactions. Global overcapacity, margin pressure, and uneven demand continue to weigh on OEM and supplier balance sheets, driving plant closures, footprint consolidation, and asset sales as companies work to restore financial flexibility and reset return expectations.

Selective consolidation and capital-light dealmaking

Against this backdrop, consolidation and supply chain restructuring are expected to accelerate selectively. OEMs and suppliers are prioritising transactions that support electrification and software-defined and autonomous technologies, while avoiding large, balance-sheet-intensive scale deals. Automakers continue to shift towards modular, asset-light innovation models. These structures are increasingly used to share capital intensity, technology risk, and regulatory exposure while preserving strategic flexibility. Some companies are expanding upstream into raw materials to secure supply and manage cost volatility, while others are targeting digital mobility platforms and aftermarket services to diversify revenue and reduce capital requirements.

Geopolitics and valuation gaps constrain deal activity

Geopolitical uncertainty and tariff volatility continue to weigh on automotive deal flow. In the US, persistent valuation gaps and stressed OEM and supplier balance sheets are limiting deal activity. Financial sponsors remain selective, deploying capital where strategic urgency and clear underwriting logic align, particularly in vehicle electrification, software-defined capability enhancement, and autonomous-driving platforms. Tata Motors’ agreement to acquire Iveco Group’s commercial vehicle business, with completion contingent on the separation of Iveco’s defence unit, illustrates the selective and structured nature of automotive dealmaking.

Investor interest in autonomy persists despite broader market selectivity. Kodiak Robotics’ business combination with Ares Acquisition Corp II highlights continued appetite for differentiated, scalable autonomous mobility platforms.

In Asia, portfolio realignment is unfolding through alliances and cross-border divestitures, particularly among Japanese OEMs seeking to reduce exposure to underperforming assets while funding the electric-vehicle transition under tighter return thresholds. At the same time, intensifying competition from Chinese OEMs is forcing the Association of Southeast Asian Nations and other growth markets to reprioritise, with greater emphasis on speed to market, localised partnerships, and cost-position resilience.

For suppliers, portfolio realignment is no longer optional. Companies are actively exiting or derisking internal combustion engine-heavy positions, resetting powertrain investment plans, and prioritising software-defined vehicles. While autonomy remains a longer-dated disruptor, near-term capital scarcity is already reshaping competitive behaviour, accelerating capital-light partnerships and IP-sharing arrangements tied to concrete, revenue-generating applications. Supply chains are increasingly treated as a strategic asset, with vertical integration expanding upstream into materials and downstream into connectivity, alongside joint ventures designed to satisfy localisation requirements and reduce geopolitical exposure.

Affordability has emerged as a strategic constraint. Elevated vehicle pricing and uneven demand are forcing more conservative launch, mix, and investment decisions, while weaker-than-expected electrification returns are prompting a reset in capital discipline. Ecosystem players, including leasing, insurance, and mobility providers, are moving the fastest. By using digital platforms, aftermarket value capture, and flexible ownership models, they aim to stay aligned with evolving customer behaviours.

Business services is expected to be one of the most active M&A areas in 2026 as corporates and sponsors pursue scale, specialisation, and recurring, tech-enabled revenue. Consolidation continues across professional and managed services, technology-enabled outsourcing, compliance-driven segments, and cybersecurity and risk platforms. As platform build-outs mature, investor focus is shifting towards integration, operational performance, and differentiation through data, workflow automation, and AI-enabled delivery.

Platform scale and recurring revenue remain the core M&A thesis

Private equity continues to focus on scalable platforms with recurring-revenue business models and resilient demand characteristics. Even amid macro volatility and uneven recovery, confidence in the sector remains high. Buy-and-build strategies in professional and technical services continue to attract outsized investor interest, while valuation discipline is increasingly differentiating outcomes. Assets demonstrating pricing power, mission-critical workflows, and low churn continue to command premiums.

Accounting services move from acquisition-led growth to operational delivery

Deal flow in accounting services continues, but the market has moved beyond the initial platform land grab. The value creation lens has shifted from acquisition-led growth to execution and integration. Sponsors are now focused on converting consolidation into performance through standardised delivery models, tighter pricing and utilisation discipline, cross-selling across service lines, and professionalised back-office functions that support margin expansion and scalability. While exits remain achievable, outcomes increasingly depend on proof of integration and organic growth. Competitive auctions and a large group of interested buyers continue to sustain elevated multiples for assets that can demonstrate repeatable post-acquisition value capture, with diligence and value creation plans concentrated on integration readiness and measurable operating model improvements.

Regional M&A patterns reflect regulatory constraints

Regulatory dynamics remain an important factor behind regional M&A trends because they support stable revenue streams. In Europe, for example, regulatory frameworks continue to shape deal activity. Germany’s tighter private equity restrictions in accounting and tax are likely to dampen volumes and push investors towards less regulated adjacencies, such as consulting and infrastructure-related services. By contrast, the UK and US remain attractive markets for platform expansion and add-on activity.

Platform models extend into new professional services verticals

Legal services are emerging as the next high-growth, “platformable” vertical of professional services as the sector shifts from partner-dependent economics towards more scalable delivery models enabled by specialisation, process standardisation, and technology. This trend is most pronounced in the UK and parts of Europe, where consolidation is accelerating and scaled platforms are being rewarded for repeatable execution and integration synergies. In the US, investor interest is building for consumer-facing legal services, a market historically off-limits to nonlawyer ownership due to professional conduct rules. However, evolving ownership models and structural changes in states like Arizona are beginning to open the door for outside capital in legal services, a trend that could accelerate private equity activity. Across markets, the winners will be those firms that can demonstrate scalable client acquisition and operational integration, not simply acquisition-driven growth.

Tech-enabled services enter a faster consolidation phase

Technical staffing and technology-enabled business process outsourcing are entering a faster consolidation phase as buyers respond to persistent labour shortages, wage inflation, and sustained demand for capacity for digital transformation execution. Strategic acquirers are pursuing scale to secure scarce talent; broaden delivery capabilities across cloud, data, and AI; modernise applications; and expand managed-services footprints. Private equity firms are leaning into platform builds and add-on programmes to create differentiated, multi-vertical service providers. Blackstone’s approximately $3.5bn tender offer for TechnoPro, Japan’s leading IT services provider, highlights sponsor conviction in scaled services platforms where multi-year value creation is increasingly driven by operational improvement and strength of the workforce supply chain, rather than multiple expansion. We expect strong investor interest to drive more pre-emptive bids and bilaterally negotiated transactions as buyers compete for high-quality assets in the segment.

In the US, IT managed services and cybersecurity remain active M&A themes, supported by sustained demand from mid-sized enterprises seeking integrated offerings that combine IT operations, security, and compliance. Sponsors are also showing heightened interest in certification and audit-related services, given their attractive recurring-revenue profiles and direct linkage to cyber risk management.

Looking ahead, digital engineering and enterprise application consulting are expected to gain traction as buyers target underpenetrated, high-margin niches with clear value-creation levers, including vertical specialisation, modernisation road maps, and scalable delivery models. Recent strategic activity, including Capgemini’s $3.3bn acquisition of WNS, underscores continued appetite for scaled, tech-enabled services platforms, and adjacent intelligent-operations capabilities. 

Overall, deal momentum in business services is expected to remain strong through 2026, driven by private equity’s emphasis on professionalisation and platform expansion. At the same time, growing scrutiny around valuations, exit timing, and multiple sustainability will remain important considerations for dealmakers. 

Engineering and construction M&A in 2026 is increasingly anchored in infrastructure, clean energy, and energy security. Investors are positioning for long-duration demand tied to grid modernisation, data centre buildouts, and AI-enabled infrastructure, while consolidation continues in specialty services and technical capabilities that improve execution, resilience, and labour efficiency.

Improving visibility supports renewed deal confidence

As engineering and construction companies move through 2026, sector fundamentals are stabilising and deal confidence is improving. Public infrastructure programmes and energy-transition investment are improving visibility into backlogs, while easing supply constraints are reducing execution volatility. Although labour shortages and residual inflation continue to pressure margins, greater cost stability is enabling more disciplined pricing and more actionable M&A underwriting.

Buyers recalibrate to policy shifts and tariff uncertainty

Buyers have largely recalibrated to the early impacts of recent US tariff and immigration policy shifts. Deal activity continues where assets are aligned with secular demand and offer differentiated exposure to infrastructure and energy transition investment. Apollo’s approximately $2.3bn acquisition of Kelvion, a global provider of energy-efficient heat exchange and cooling solutions, illustrates investor interest in assets at the intersection of energy efficiency, thermal management, and industrial infrastructure.

Labour availability becomes a defining M&A variable

Across the sector, operators are responding to labour constraints through targeted investments in workforce technology and expanded use of prefabrication and modular construction techniques. These approaches are helping absorb near-term volatility and improve project predictability, though continued wage inflation could still compress margins, tighten underwriting assumptions, and influence valuation expectations.

Engineering-related professional services M&A remains active, supported by ongoing fragmentation and opportunities to move up the value chain. Providers in electrical, HVAC, and other major systems are transitioning from basic installation and maintenance services towards more specialised, higher-value offerings. Persistent skilled labour shortages are elevating the importance of differentiated technical expertise. In Japan, succession-driven transactions and labour-constrained consolidation are driving increased M&A activity in HVAC, specialised civil engineering, and energy-efficiency upgrades, while a gradual shift away from purely project-based business models is supporting interest in overseas expansion and value chain integration.

Broad-based end-market demand in engineering and construction drives M&A

Demand fundamentals remain robust across multiple end markets, including power and energy, infrastructure, water, healthcare facilities, data centres, nuclear energy, and grid modernisation. This breadth of demand is supporting continued deal activity globally, particularly for platforms with deep technical and programme management capabilities. WSP Global’s proposed $3.3bn acquisition of engineering, consulting, and construction management firm TRC highlights growing investor focus on scaling power and energy platforms with complementary infrastructure, environmental and advisory capabilities. In Europe, policy direction is expected to support infrastructure investment, with proposed data centre energy-efficiency and energy omnibus packages providing additional tailwinds through 2026.

Looking ahead, 2026 is expected to be a growth year for global engineering and construction M&A. Clean energy remains a central area of momentum, with increased activity across nuclear and water projects, including growing interest in small modular reactors. Data centre development tied to the AI build-out continues to drive incremental demand for power, cooling, and related infrastructure. In the US, increased federal and state funding for transportation, water, and energy infrastructure is supporting backlogs and improving investment visibility. Despite this constructive demand backdrop, labour availability and evolving policy dynamics will remain critical variables to monitor, with direct implications for execution risk, margin durability, and long-term profitability.

Manufacturing M&A in 2026 is increasingly shaped by alignment with national security and infrastructure priorities. Industrial manufacturers are pursuing vertical integration, portfolio realignment, and targeted investments in defence, clean energy, and AI-driven infrastructure, while cross-border activity remains selective as reshoring and regionalisation influence deal strategy.

Stabilising expectations support renewed manufacturing dealmaking

The global manufacturing sector is expected to move through 2026 on a balanced footing. Valuation gaps and policy uncertainty continue to slow negotiations in some areas, but expectations are stabilising, and deal activity is beginning to re-engage. Business leaders appear less focused on overall macro strength and more on clear line-of-sight on regulation, demand visibility, and tariff policy consistency. Where that visibility exists, transactions are returning, particularly in HVAC, air purification, battery storage, and life sciences-adjacent manufacturing. In parallel, ageing private equity portfolio assets are expected to contribute to a higher volume of exits, adding incremental deal flow.

Scale deals and divestitures reshape industrial portfolios

Large-scale M&A is also re-emerging as corporates and financial sponsors selectively re-engage in transactions of more than $1bn. Strong performers with resilient valuations are using this environment to double down on core platforms and make decisive strategic moves. Nippon Steel’s approximately $14.9bn acquisition of US Steel illustrates renewed willingness to pursue transformative deals aligned with industrial policy and strategic supply chain considerations. At the same time, portfolio reshaping is accelerating as companies divest non-core assets to free up capital for reinvestment. CommScope’s agreement to sell its Connectivity and Cable Solutions business to Amphenol for approximately $10.5bn underscores this approach, reflecting management’s stated aim to unlock equity value and strengthen the remaining businesses.

AI-driven infrastructure demand accelerates manufacturing M&A

AI-related infrastructure will continue to act as a powerful M&A catalyst, with manufacturers supporting data centre construction and associated power, thermal, and equipment needs reporting strong order backlogs and high confidence. Unlike sectors facing near-term AI disruption, many industrial manufacturers are benefiting directly from AI-driven demand and productivity gains. As a result, M&A activity is increasingly focused on acquiring automation, controls, and software-enabled capabilities that enhance productivity, improve execution, and support scalable growth across AI-linked end markets.

Supply chain reconfiguration reshapes cross-border M&A

Cross-border activity is expected to accelerate as companies reconfigure supply chains and rebalance geographic exposure. North American reshoring, Europe’s stability agenda, and rising interest in India, Latin America, and the Middle East are shaping bolt-on priorities. In Europe, sustainability disclosure mandates are expected to continue driving M&A in energy metering, controls, and efficiency-enabling technologies. In Japan and South Korea, outbound investment and non-core divestitures are likely to remain central as conglomerates simplify portfolios and expand internationally. Across Asia Pacific, interest is rising in productivity and automation plays, including robotics, factory automation, and shipbuilding.

Overall, manufacturing M&A in 2026 is expected to be selective but meaningful as companies balance macro caution with strategic repositioning. Deal activity will likely concentrate in subsectors with durable end-market visibility and clearer regulatory and trade frameworks. Four themes are likely to drive transactions: supply chain realignment through localisation, redundancy, and bolt-ons; AI-infrastructure enablement across power, electrification, thermal management, controls, and automation; sustainability-driven investment in metering and efficiency solutions tied to disclosure and performance requirements; and portfolio reshaping through conglomerate simplification, carve-outs, and sponsor exits. Buyers will prioritise assets that deliver measurable improvements in resilience, productivity, and compliance readiness.