Global M&A trends in industrials and services

Defence budgets give buyers greater visibility. Aerospace and defence M&A is expected to remain one of the stronger areas of industrials and services dealmaking in the second half of 2026. Rising defence budgets and long-term modernisation programmes are giving buyers greater visibility into demand, while the rapid adoption of AI-enabled systems is attracting investor interest in this subsector. 

Defence tech and tactical systems open new M&A lanes. Defence modernisation is creating two distinct but connected M&A lanes. The first is defence tech and govtech: platforms that use software, data, AI, secure cloud, and automation to improve government and defence missions. These assets sit at the intersection of digital modernisation, and faster decision-making. The second is low-cost, scalable tactical systems that can be deployed quickly in live-conflict environments. Drones, counter-drone systems, electronic warfare, munitions, and related mission-critical components are attracting buyer interest as militaries look for affordable capabilities that can be produced and adapted at speed. 

AI expands the buyer universe beyond traditional primes. Across both lanes, AI is becoming a core enabler of digitally enabled defence capabilities, including targeting and secure decision-making. That is expanding the deal universe in aerospace and defence beyond traditional primes and large platforms, bringing specialised suppliers, software companies, and adjacent industrial manufacturers into focus. Sponsors are showing greater interest in maintenance, repair, and overhaul (MRO); government services; and defence-adjacent infrastructure, especially where assets offer cash flow, and long-duration government spending.

Geopolitics reshapes deal structures and regional priorities. Geopolitics is also influencing where and how deals get done. In Europe, higher defence spending and the push for industrial sovereignty are supporting consolidation and regional partnerships. Leonardo’s acquisition of Iveco Group’s defence business highlights the focus on scale, integrated land systems and European industrial depth. In Asia Pacific, rising military expenditure, AUKUS-related defence-modernisation programmes, and India’s self-reliance agenda are expected to support selective M&A in shipbuilding, electronics, autonomous and undersea systems, and MRO.  

Across regions, national security and localisation requirements may favour partnerships and joint ventures over outright acquisitions, particularly where buyers are seeking access to sensitive technologies or controlled defence capabilities. Sponsor activity in Europe is likely to remain more measured because of regulatory complexity, while US sponsor appetite is expected to be more resilient. 

Commercial aerospace supports aftermarket deal activity. Commercial aerospace and aftermarket services remain an important part of the story. Industry forecasts point to further growth in air travel, supporting aircraft production and maintenance services. Aircraft backlogs, ageing fleets, and supply constraints should continue to create opportunities for MRO, parts distribution, and specialised engineering capabilities. TransDigm’s $2.2bn acquisition of Jet Parts Engineering and Victor Sierra Aviation Holdings highlights sustained buyer appetite for aftermarket assets with recurring cash flows and technical differentiation.

Space deals: scale or stall. The space deal outlook is constructive but highly selective, with near-term activity likely anchored in defence, AI-enabled geospatial intelligence, and consolidation of sub-scale players. Scale remains the central challenge: in the UK, only 1.6% of space firms have scaled over the last decade, while 60% generate less than £260,000 in annual revenue. That fragmentation suggests the next wave of space deals may be driven less by “new space” formation and more by consolidation into commercially credible platforms. Investors and buyers will favour space businesses with credible commercial traction, defensible data or technology, recurring revenue, and clear routes to enterprise or government customers.

Speed, sovereignty, and a technological edge define dealmaking’s next phase. In aerospace and defence, M&A is increasingly about speed, sovereignty, and technological edge. Dealmakers that can secure scarce capabilities and embed digital advantage into mission-critical platforms will be better positioned for the next phase of growth.

Business services M&A is expected to remain active through the second half of 2026, but buyers are likely to apply greater scrutiny to how AI may reshape service delivery models and valuation. The sector remains highly fragmented. Traditional value drivers such as recurring revenue, scalable delivery, and defensible client relationships remain important. What is changing is the diligence lens: investors are increasingly assessing whether AI enhances a company’s business model or exposes it to pricing pressure, margin compression, and delivery disruption.  

AI is redrawing the line between resilient and exposed business models. Investor appetite is likely to be strongest for businesses where technology enhances specialist delivery rather than replaces it. IT managed services, cybersecurity, infrastructure services, certification and audit-related services, maintenance, physical technology, and AI implementation are expected to remain attractive, particularly where they help clients improve productivity and compliance. By contrast, professional services, including accounting, legal, and advisory models, may face greater scrutiny as buyers assess labour intensity, billing models, automation exposure, and margin durability. 

Accounting and legal services enter a more disciplined phase. AI is expected to reshape parts of the professional services sector, including accounting, advisory, and legal services, and that is changing how buyers assess new investments. After an active stretch in which many mid-tier accounting firms consolidated or received private equity backing, the pool of available targets is smaller, the bar for new platform investments is higher, and exit strategies for existing platforms are under closer review. Some recent failed or paused sale processes suggest buyers are reassessing the accounting services sector’s attractiveness as AI changes delivery models, putting valuation expectations under greater scrutiny.

Legal services are also becoming a more actionable M&A market as regulatory and structural pathways evolve. However, buyers will need to assess the same AI-related questions around automation, pricing, and partner-led economics. The UK remains more mature, supported by external ownership frameworks, while parts of the US are beginning to open through alternative business structures and management services organisation models. Recent activity, including large law firm combinations and investor-backed legal services platforms, suggests deal activity may build where buyers can see a path to scale, technology-enabled delivery, and compliant ownership structures. 

Outsourcing shifts from labour arbitrage to technology-enabled delivery. Providers are moving towards higher-value service delivery focused on automation and operational transformation. Late-2025 transactions, including PERSOL’s 85% investment in French AI-driven staffing platform Gojob SAS point to where buyer appetite may build next: platforms that combine delivery scale with AI-enabled productivity and intelligent operations. More recent activity, including NTT DATA’s announced acquisition of WinWire, suggests buyers are continuing to target assets that can help clients move AI from experimentation to enterprise-wide deployment.  

Further sizeable transactions could emerge where assets offer differentiated AI capabilities, global delivery reach, and visible value creation potential, although buyers are likely to remain disciplined on valuation and integration risk. Asia Pacific should remain central to this shift, with India, Southeast Asia, and the Philippines supporting global delivery as clients seek multilingual and higher-skill operating hubs. Buyers are also likely to scrutinise wage inflation, data security, geopolitical volatility, and AI readiness when assessing offshore platforms. 

For the remainder of 2026, business services M&A should remain active but targeted. Where an asset sits on the growth curve will determine whether the opportunity remains a scale play or has developed into an AI advantage. Assets that combine recurring revenue, technology enablement, specialist delivery, and a well-defined AI strategy should continue to attract premium interest. Labour-intensive models with unclear AI positioning may face greater valuation pressure. The strongest opportunities are likely to sit where AI improves productivity, reinforces the client value proposition, and strengthens margins, not simply where it reduces headcount. 

Engineering and construction M&A is expected to remain resilient in the second half of 2026, though the market is becoming increasingly two-speed: assets linked to energy, digital infrastructure, technical services, and public infrastructure are attracting strong buyer interest and premium valuations, while more interest rate-sensitive areas of commercial and residential construction remain subdued.  

Power, grids, and digital infrastructure anchor deal activity. Buyers are expected to remain focused on platforms exposed to grid modernisation and data centre-led infrastructure needs. These assets offer long-duration backlog visibility and exposure to critical capacity needs. Leidos’s $2.4bn acquisition of ENTRUST Solutions Group, completed in March 2026, illustrates ongoing investor interest in utility engineering and grid infrastructure capabilities, while WSP Global’s $3.3bn acquisition of TRC Companies, completed in February 2026, points to similar momentum in energy, environmental, and advisory services.

Long-term infrastructure needs broaden the opportunity. The AI data centre buildout is an important driver, but it is not the only one. PwC’s Global Infrastructure Outlook 2025–50 forecasts cumulative global infrastructure investment of $151tn by 2050, spanning roads and bridges, power, water, rail, airports, ports, healthcare, and data centres. For engineering and construction M&A, that scale of investment is expected to support demand for platforms that can manage multiple aspects of complex public and private infrastructure projects. 

Regional interests shape where buyers look next. The same PwC outlook forecasts Asia Pacific will account for more than half of global infrastructure investment through 2050, with spending rising from $2.3tn in 2024 to $3.6tn by 2050, while Europe will enter a renewal-led cycle focused on an ageing infrastructure network. Colliers’ $700m acquisition of Ayesa Engineering, based in Spain, highlights buyer interest in engineering platforms with exposure to transport, water, energy, and complex infrastructure programmes across multiple regions. 

Execution capacity becomes a deal catalyst. Labour availability is becoming one of the most important variables in engineering and construction M&A, extending beyond construction trades into specialised engineering and project management. Buyers are likely to place a premium on assets with scarce technical talent and delivery models that improve project outcomes. Interest in prefabrication and workforce technology should continue where these capabilities can improve labour efficiency, reduce execution risk, and protect margins. 

Specialty services remain attractive to sponsors. Private equity appetite is expected to remain strongest for asset-light engineering, technical services, maintenance, and programme management platforms with recurring client relationships and exposure to infrastructure end markets. Construction businesses with greater project execution and bonding risk are likely to face a higher bar, with buyers focusing on assets where the risks and related returns can be assessed with greater confidence. Blackstone’s $2.5bn proposed acquisition of Champions Group highlights sponsor appetite for scaled services platforms with operational depth and defensible growth. 

For the remainder of 2026, dealmakers in engineering and construction should focus on resilient, infrastructure-linked platforms where demand is underpinned by long-duration public and private investment rather than cyclical construction activity. The most attractive assets are likely to combine deep technical expertise, proven execution capacity, and exposure to infrastructure segments with durable, policy-supported growth. 

Manufacturing M&A is expected to remain selective in the second half of 2026, with activity focused on assets linked to long-term investment priorities. Buyers are likely to focus on businesses that improve productivity; strengthen supply chains; and provide exposure to AI infrastructure and automation. 

AI infrastructure and electrification anchor buyer interest. Growth from data centres, grid modernisation, and energy transition investment is supporting interest in manufacturers of power equipment, testing and measurement platforms, thermal management, controls, and connected industrial systems. ESCO Technologies’ agreement to acquire Megger Group for approximately $2.35bn highlights continued buyer appetite for electrification and power infrastructure platforms tied to rising energy demand and grid resilience. 

Automation becomes a productivity and resilience play. Labour constraints, cost pressure, and the need for more flexible production are likely to keep automation high on the manufacturing M&A agenda. Buyers are expected to target assets that support the rise of ‘physical AI,’ including robotics, industrial software, sensors, inspection technologies, and connected systems that can improve operations. PwC’s Global Industrial Manufacturing Sector Outlook 2026 finds that the median share of industrial manufacturers with highly automated processes is expected to more than double by 2030, rising from 18% to 50%. This reinforces the importance of automation-led investment strategies. 

Portfolio reviews and regionalisation shape deal flow. Corporates are expected to continue reviewing non-core assets and reallocating capital towards higher-growth, strategically aligned businesses. This will create opportunities for buyers with clear sector priorities. At the same time, geopolitical uncertainty, tariffs and shifting industrial policy are likely to keep cross-border M&A uneven. Companies are localising production and reconfiguring supply chains to reduce tariff exposure and protect access to key markets. The US should continue to benefit from digital infrastructure expansion and supply-chain localisation, while Europe’s higher energy costs and policy uncertainty may lengthen deal timelines. In Asia Pacific, India, and Southeast Asia should continue to attract investment as manufacturers diversify beyond China, with Japan and Korea seeing activity in automation, battery technologies, and electronics. 

Dealmakers should focus on assets tied to AI infrastructure, grid resilience and automation, especially businesses that improve productivity, reduce labour intensity and strengthen supply chains. Corporate carve-outs and targets benefiting from localisation in the US, India and Southeast Asia may offer attractive opportunities, while Europe warrants closer scrutiny given energy costs and policy uncertainty. 

Overcapacity pushes portfolio reviews higher up the agenda. Automotive M&A in the second half of 2026 is expected to be shaped by a harder sector reality: the industry remains structurally overbuilt in some areas, particularly where EV adoption has not kept pace with investment. Overcapacity, margin pressure, affordability constraints, and uneven regional demand are likely to keep pushing OEMs and suppliers to reassess manufacturing footprints, supplier networks, and non-core assets.

Divestitures become a funding tool for future growth. We expect divestitures to remain a central part of the automotive M&A story. Ongoing portfolio reviews are expected to help companies free up capital, restructure debt, and fund investments in electrification, software-defined vehicles, autonomy, and powertrain flexibility. Shell’s $1.3bn sale of Jiffy Lube to Monomoy Capital Partners illustrates how sellers are separating businesses that no longer fit core priorities while buyers find value in assets that may perform better outside corporate portfolios. 

Targeted investments reshape software-led mobility. Looking forward, buyers are also expected to favour targeted capability access over full ownership. Software architecture, AI-enabled driver assistance, autonomy, customer data, and electrification remain priority areas as technology increasingly shapes differentiation and life cycle monetisation. SMB Holding Corporation’s $300m equity investment in Rivian as well as Uber’s planned investment of up to $1.25bn through 2031 to support deployment of Rivian’s autonomous robotaxis illustrate how capital is being directed towards EV platforms and software-enabled mobility without requiring control acquisitions.

Regional factors influence automotive deal strategy. Regional positioning is also becoming a direct transaction rationale as tariffs and supply chain volatility reshape how buyers assess manufacturing assets and retail footprints. In China, weaker domestic demand, intense price competition, and EV overcapacity are prompting OEMs and suppliers to consider outbound expansion, local production models, and partnerships. Chery South Africa’s acquisition of Nissan South Africa’s manufacturing assets in Pretoria highlights the value of localised production and market access. India and Southeast Asia should continue to attract interest as buyers pursue lower-cost manufacturing and supply chain diversification. Japanese and Korean groups may also reassess non-core assets and seek partnerships in batteries and advanced mobility.

Optionality matters more than a pure EV bet. The strongest automotive strategies are likely to preserve optionality rather than betting on EVs alone. Regulation, charging readiness, and consumer adoption curves are diverging. As a result, buyers are likely to favour assets that can flex across internal combustion engines, hybrid, electric, and autonomous pathways while also prioritising transactions that help right size manufacturing footprints, supplier networks, and capital intensity. Automotive M&A should therefore remain disciplined and thesis-led, with activity concentrated around transactions that improve commercial focus, expand access to critical capabilities, improve capital efficiency, or strengthen resilience to regional volatility. 

The implication for automotive M&A is that dealmakers should be selective, pragmatic and forward-looking. Winning transactions will not simply add scale; they will improve the quality, flexibility and resilience of the portfolio. The priority should be deals that release capital, access critical capabilities, strengthen regional positioning, and create optionality across an uneven EV transition.