How to Sell an Aerospace & Defense Manufacturing Company

If someone tells you the value of your aerospace or defense manufacturing company is simply EBITDA multiplied by the going rate for machine shops, they are missing most of what you've built.

A high-precision aerospace and defense manufacturer is not an ordinary machine shop with better customers.

You may have spent decades developing AS9100 quality systems, Nadcap-accredited processes, ITAR compliance, customer approvals, specialized tooling, difficult-to-replicate manufacturing knowledge, long-term agreements, sole-source positions, program history and a workforce capable of producing parts that cannot fail.

Those things matter.

They create barriers to entry. They make customers reluctant to change suppliers. They can make your company far more difficult to replace than a general commercial manufacturer producing similar revenue and EBITDA.

And if the person representing your sale doesn't understand those differences, there is a very real possibility that buyers won't be shown the full value of what you've built.

Accelerated Manufacturing M&A specializes in selling aerospace, defense and space manufacturing companies because selling these businesses requires more than financial knowledge. It requires understanding the manufacturing operation buyers are actually acquiring.

What is the short answer to selling an aerospace manufacturing company?

Selling an aerospace or defense manufacturer means proving that the company's earnings are durable, difficult to replace and transferable to a new owner. That takes preparation, a valuation built on more than EBITDA, the right buyers and a deal structure that keeps approvals and programs intact.

The seller's job is not simply to prove what the company earned last year.

The seller must demonstrate why a buyer should believe those earnings will continue after ownership changes.

That is where a specialized manufacturing M&A process begins.

Sophisticated buyers will evaluate much more than EBITDA. They may examine:

• AS9100 certification and quality history
• Nadcap accreditations and special processes
• ITAR and export-control requirements
• CMMC and cybersecurity requirements where applicable
• Customer and prime-contractor approvals
• Long-Term Agreements (LTAs)
• Sole-source and dual-source positions
• Program backlog and program lifecycle
• Customer and program concentration
• Supplier scorecards
• First-article and qualification history
• Specialized equipment and available capacity
• Automation and lights-out manufacturing capabilities
• Engineering and programming expertise
• Management depth
• Skilled workforce availability
• Capital expenditure requirements
• The amount of institutional knowledge tied to the owner

Why is selling an aerospace and defense manufacturer different from selling a general machine shop?

Because a buyer is acquiring much more than machines, inventory and customers.

Consider two manufacturers generating the same adjusted EBITDA.

One is a well-run commercial CNC shop producing industrial components for customers that could reasonably move their work to several competing suppliers.

The other manufactures difficult aerospace or defense components, has established customer approvals, operates under AS9100, performs Nadcap-accredited processes, holds long-standing program positions and produces parts that have already been qualified into sophisticated aerospace or defense supply chains.

Their EBITDA may be identical.

Their businesses are not.

The second company may possess something extraordinarily valuable:

a position in the supply chain that another manufacturer cannot easily recreate.

That distinction is one of the biggest reasons a qualified aerospace and defense manufacturer can command a preferential valuation compared with a general metalworking company.

Why can aerospace and defense manufacturers receive higher M&A multiples?

The words “aerospace and defense” do not automatically create a premium.

The premium comes from what specialization has created around the company.

A buyer may be willing to pay more because acquiring your company can provide access to customers, programs, processes, capacity or qualifications that would otherwise take years to develop.

AS9100 can create a meaningful barrier to entry

AS9100 establishes quality-management-system requirements specifically for aviation, space and defense organizations and builds additional industry requirements around the quality-management framework.

But the value isn't the certificate hanging on the wall.

The value lies in the organization behind it:

• documented processes
• disciplined quality systems
• audit history
• traceability
• risk management
• corrective-action discipline
• trained employees
• customer confidence
• and the work the company is qualified to perform

An inexperienced advisor may see a certificate.

A knowledgeable buyer may see years of work required to build a qualified competitor.

Nadcap can narrow the competitive field even further

For manufacturers performing critical aerospace processes, Nadcap accreditation can represent another substantial hurdle.

PRI describes Nadcap as an aerospace-industry-managed accreditation covering critical processes and products and notes that it is recognized or required by leading aerospace, defense and space companies.

That can matter enormously in M&A.

If only a limited number of suppliers possess the correct combination of equipment, technical capability, customer approvals and accredited processes, the buyer isn't merely purchasing a manufacturer.

The buyer may be purchasing scarcity.

ITAR compliance and defense work can create additional barriers

ITAR should not be treated as a marketing badge.

It is a regulatory framework governing defense articles, technical data and defense services. Subject to applicable requirements and exemptions, U.S. manufacturers of defense articles may have DDTC registration and compliance obligations even if they are not themselves exporting.

For an acquisition, the relevant question is not simply:

“Are you ITAR registered?”

The better question is:

“What defense work depends on the company's regulatory status, systems, people and customer relationships, and what must be done to preserve that work through a change in ownership?”

That is a transaction question as much as a compliance question.

Customer qualification makes aerospace revenue harder to displace

If a commercial customer can move a part to a new supplier with a purchase order and a drawing, switching is relatively easy.

Qualified aerospace work may be different.

Changing suppliers can involve:

• engineering reviews
• first-article inspection
• process validation
• tooling movement
• quality approval
• customer audits
• material and process traceability
• supplier qualification
• program risk
• and production disruption

That doesn't mean every aerospace customer is permanent.

It means the buyer needs to understand how difficult it would be for that customer to replace you.

That difficulty can have tremendous value.

How do Long-Term Agreements and sole-source work affect the sale price?

Potentially a great deal, depending on what the agreements actually say.

But I would never tell an owner that simply having an LTA automatically increases the company's multiple.

We need to understand the agreement.

A knowledgeable buyer will ask:

• How much time remains?
• Is pricing fixed?
• Are escalation provisions included?
• Are volumes guaranteed or forecast?
• Can the customer terminate for convenience?
• Does the agreement survive a change of control?
• How profitable is the work?
• Is the company sole-source, dual-source or one of several suppliers?
• What program supports the agreement?
• Where is that program in its lifecycle?

The same analysis applies to sole-source work.

Being the only approved supplier for a difficult, highly qualified component can be exceptionally attractive.

But being sole-source on a declining program with poor margins is not the same thing.

The label doesn't create value. The economics and durability behind the label do.

This is why a real valuation goes far beyond applying an EBITDA multiple.

How is an aerospace manufacturing company really valued?

There is no responsible answer based on EBITDA alone.

The multiple matters, but only after we understand what is driving the quality and durability of the earnings. Our guide to what drives an aerospace manufacturing multiple explains the factors buyers use to justify a higher—or lower—multiple.

At Accelerated Manufacturing M&A, our valuation process examines more than 175 financial, operational and strategic data points.

Why?

Because two companies with $3 million in EBITDA can have dramatically different values.

Among the factors we evaluate are:

• historical revenue and earnings
• gross margins
• adjusted EBITDA
• customer concentration
• program concentration
• backlog quality
• LTA structure
• sole-source status
• customer tenure
• program lifecycle
• supplier scorecards
• pricing power
• quality performance
• AS9100 and Nadcap status
• difficult-to-replicate processes
• equipment capabilities
• available capacity
• automation
• lights-out production
• capital expenditure requirements
• labor availability
• workforce age and tenure
• management depth
• owner dependency
• engineering expertise
• intellectual property
• proprietary products or processes
• and the number and quality of buyers that may have a strategic reason to own the company

For a broader explanation of the financial, operational and market factors that affect manufacturing company value, see our guide to valuing your manufacturing business.

We've seen firsthand what happens when these factors are missed.

In one engagement, a manufacturer of braking-system components for military aircraft came to Accelerated holding several conflicting valuations. Ours was higher because we understood the difficulty of the manufacturing, the customers being served and how hard the company would be to replace, and competition among qualified buyers then pushed the offers higher still.

That didn't happen because we found a more aggressive spreadsheet formula. It happened because the company had value that generic valuations failed to recognize. We walk through the details in our guide to how aerospace manufacturers are valued.

You can see additional examples of how industry knowledge affected buyer selection, valuation and transaction outcomes in our aerospace and defense manufacturing M&A case studies.

Is customer concentration always bad for an aerospace manufacturer?

No.

And this is an area where generalists can get aerospace valuations very wrong.

Suppose 40% of your revenue comes from one aerospace customer.

A generalist may immediately label that concentration as a major weakness.

I want to know more.

Is the 40% tied to one part number or 80?

One program or seven?

Have you served the customer for two years or twenty?

Are you sole-source?

Are margins strong?

Are there long-term agreements?

How are your supplier scorecards?

How difficult would supplier replacement be?

What approvals would another manufacturer need?

How long would requalification take?

We represented an aerospace and medical instrument component manufacturer with 65% customer concentration. Twelve acquisition lenders declined the transaction before we connected the buyer with a lender that understood the dynamics of aerospace manufacturing.

That's a perfect example of why concentration cannot be analyzed in isolation.

The better question is:

How durable, profitable and transferable is the concentrated revenue?

We've written a separate guide explaining how buyers evaluate customer concentration in manufacturing M&A, including contracts, repeat revenue, margins, qualification burden, switching costs and backlog.

Why does backlog matter so much when selling an aerospace company?

Because “we have $20 million in backlog” isn't enough.

I want to know what that $20 million represents.

Is the backlog firm?

Can it be cancelled?

Is it profitable?

Is pricing current?

Are material increases recoverable?

Does it come from one customer?

One aircraft platform?

Several programs?

Are those programs ramping up or winding down?

Does the company have enough people and equipment to deliver it?

Will fulfillment require major capital expenditure?

How much of it is sole-source?

Is it supported by LTAs, releases or customer forecasts?

Backlog is valuable when it provides credible visibility into future profitable revenue.

Poorly understood backlog can just as easily become a liability.

How will buyers evaluate your machines and manufacturing capabilities?

They aren't merely going to count machine tools.

They are going to ask what the equipment lets the business accomplish.

A sophisticated buyer may evaluate:

• 3-, 4- and 5-axis machining capacity
• spindle utilization
• machine age and condition
• automation
• robotic loading
• pallet pools
• probing
• tool monitoring
• unattended production
• lights-out capability
• inspection technology
• CMM capacity
• redundancy
• preventative maintenance
• setup time
• programming systems
• CAD/CAM capabilities
• available floor space
• bottlenecks
• and remaining production capacity

A business capable of materially increasing revenue with its existing plant may present a very different opportunity from one that requires several million dollars of equipment immediately after closing.

Again:

Same EBITDA.

Different value.

How important is the workforce when selling an A&D manufacturer?

Extremely important, because the capability lives in people as much as in machines.

You can purchase another five-axis machining center.

Finding another five-axis programmer with aerospace experience may be considerably harder.

Buyers may look closely at:

• experienced machinists
• CNC programmers
• manufacturing engineers
• quality engineers
• CMM programmers
• inspectors
• special-process personnel
• estimators
• program managers
• security personnel
• export-control personnel
• management depth
• employee tenure
• workforce age
• turnover
• recruiting difficulty
• apprenticeship programs
• and cross-training

They will also determine how much knowledge lives inside the owner's head.

If you personally quote every difficult job, solve the hardest production problems, maintain every major customer relationship and approve every purchasing decision, that's risk.

A capable management team tells the buyer:

The company can continue without the founder.

That improves transferability.

And transferability influences value.

Who buys aerospace and defense manufacturing companies?

There isn't one universal aerospace buyer.

Potential acquirers can include:

• strategic aerospace and defense manufacturers
• larger Tier 1 or Tier 2 suppliers
• adjacent manufacturers seeking aerospace capabilities
• private-equity-backed manufacturing platforms
• independent private equity firms
• family offices
• defense-industry consolidators
• companies seeking geographic expansion
• companies looking for qualified capacity
• and acquirers seeking a particular customer, program, certification, technology or manufacturing capability

Different buyer types bring very different objectives, deal structures and post-closing expectations. Our guide to family offices, private equity firms and strategic buyers explains those differences in more detail.

The right buyer for a Nadcap-accredited special-process company may be completely different from the right buyer for a five-axis aerospace machining operation.

A cleared defense contractor is different again.

A proprietary aerospace product manufacturer is different again.

That's why sending the same teaser to a generic database of “manufacturing buyers” is not a strategy.

We represented an aerospace high-pressure-valve manufacturer with AS9100 and Nadcap credentials and more than 3,000 DOD-QML/QPL-qualified products. We evaluated more than 300 potential acquirers, granted visits to only five, and all five submitted offers.

That's what specialization should accomplish:

Not the most buyers.

The right buyers.

Should you take the highest offer?

Not automatically.

The headline purchase price gets everyone's attention, but the structure determines how much of that number you actually receive and how much risk remains after closing.

Compare:

• cash at closing
• seller financing
• earnouts
• rollover equity
• working-capital targets
• escrow
• indemnification
• financing contingencies
• employment requirements
• real-estate arrangements
• customer-consent requirements
• and closing certainty

Then consider something manufacturing founders often care about just as much:

What will happen to the company after I leave?

Will the buyer invest in the operation?

Will employees have opportunities?

Will the facility remain open?

Does the buyer understand the customers?

Does the buyer have the technical ability to operate the company?

Will your management team stay?

Is the buyer acquiring your company because they genuinely value what you've built?

Accelerated represented an 80-year-old, second-generation Tier I defense contractor serving major aerospace and defense customers. Finding someone with enough money wasn't the challenge. The buyer also needed the manufacturing experience to handle difficult tolerances and hard-to-cut materials—and enough credibility to preserve important customer relationships and LTAs.

That's the difference between finding a buyer and finding the right strategic partner.

What will buyers examine during aerospace manufacturing due diligence?

Expect serious buyers to look deeply into the business.

They may request information concerning:

Financials

• historical statements
• monthly P&Ls
• adjusted EBITDA
• working capital
• inventory
• WIP
• capex
• AR/AP
• and EBITDA adjustments

Customers and programs

• revenue by customer
• margin by customer
• revenue by program
• backlog
• LTAs
• open POs
• source status
• program lifecycle
• customer scorecards
• and change-of-control provisions

Quality and compliance

• AS9100 audit history
• Nadcap findings where applicable
• corrective actions
• quality escapes
• scrap and rework
• ITAR/export-control practices
• cybersecurity requirements
• and customer-specific approvals

Operations

• machine lists
• maintenance history
• utilization
• capacity
• bottlenecks
• automation
• inspection
• subcontractors
• material flow
• ERP/MES systems
• and production scheduling

People

• organization chart
• management depth
• key employees
• compensation
• retirement risk
• retention
• cross-training
• and owner dependency

We maintain a separate Lower-Middle-Market Manufacturing M&A Due Diligence Guide because preparing these materials properly deserves more than a paragraph in an aerospace selling article.

The important point is simple:

Do not wait until a buyer asks before organizing this information.

Uncertainty creates risk.

Risk reduces confidence.

And reduced confidence can affect both valuation and closing certainty.

Can AS9100, Nadcap and customer approvals be disrupted by a sale?

Potentially, which is why transaction structure needs to be discussed early.

Aerospace and defense manufacturers can have certifications, approvals, registrations and contracts connected to the existing legal entity, facility, quality system, responsible personnel or customer program.

You should never assume everything simply “transfers.”

Nor should you assume an asset sale is automatically the best structure merely because it is common in lower-middle-market M&A.

For certification-sensitive businesses, preserving continuity can be part of preserving value.

Our industry guide explains how approvals, programs and compliance carry through a sale, and what has to be in place on each side of the closing.

We've addressed that subject separately in Preserving Certifications Through an LLC Partnership Reorganization, including issues surrounding AS9100, Nadcap, ITAR, customer approvals and the operating entity.

One structure often used to keep the operating company's legal identity and EIN through a sale is the F-reorganization; our article on why F-reorganizations rule the lower-middle market explains how it works. Whether it preserves a particular certification or customer approval still has to be confirmed with the certification body and the customer.

The key lesson for an owner considering a sale is:

Identify these issues before the LOI—not two weeks before closing.

How long before selling should an aerospace manufacturer begin preparing?

Ideally, before you're tired of running the company.

One of the worst times to begin exit planning is when you've reached the point where you'll accept almost anything just to be done.

Preparation gives you options.

If we discover that too much revenue depends on one declining program, there may be time to diversify.

If your strongest machinists are nearing retirement, there may be time to transfer knowledge.

If margins are being damaged by legacy pricing, there may be time to renegotiate.

If capital equipment is becoming obsolete, there may be time to create a sensible investment plan.

If every important customer calls you personally, there may be time to broaden those relationships.

If quality documentation is weak, there may be time to clean it up.

If your management team cannot operate independently, there may be time to develop leadership.

Some issues can be fixed in six months.

Others may take several years.

A buyer is likely to discover them either way.

I would rather find them while you still have time to do something about them.

Our guide to preparing an aerospace manufacturer for sale walks through that process step by step.

What are the biggest mistakes aerospace manufacturing owners make when selling?

Using a generic EBITDA multiple

Your business is not more valuable simply because the word “aerospace” appears on your customer list.

It becomes more valuable when aerospace specialization has created durable earnings, switching costs, scarce capabilities, qualifications and competitive barriers.

Those advantages need to be identified and proven.

Waiting until you're ready to retire

Preparing the company and selling the company are two different things.

The first should normally happen before the second.

Focusing only on revenue

Buyers don't purchase historical revenue.

They purchase a reasonable expectation of future cash flow.

Margin quality, transferability, program life, source position and customer durability matter.

Failing to document program exposure

“We make parts for Boeing,” “we do defense work” or “Lockheed is one of our customers” tells a buyer very little.

A much better analysis looks like:

Customer → Program → Part Family → Revenue → Margin → Backlog → LTA → Source Position → Program Lifecycle

That is something a sophisticated buyer can actually underwrite.

Treating certifications as paperwork

Certifications and approvals can be part of the company's competitive moat.

Treat them that way.

Assuming every buyer values the company equally

They don't.

A buyer that already owns the capabilities you provide may see one value.

A strategic buyer that urgently needs your approved capacity, customer access or technical expertise may see another.

Finding that strategic reason to acquire your company is part of the M&A professional's job.

Hiring an advisor who has to learn aerospace manufacturing during the engagement

The time to learn what Nadcap is should not be during your management meeting.

The time to learn why customer concentration behaves differently in aerospace should not be while defending the company to a lender.

The time to learn what sole-source means should not be after the buyer discovers it.

And the time to understand five-axis machining, program backlog, LTAs, AS9100 or difficult-to-machine materials is not while establishing your company's valuation.

Why does industry-specific M&A experience matter so much?

Because specialized manufacturing value is often hiding in plain sight.

A generalist may see:

• customer concentration.

We may see:

• a deeply embedded approved supplier across multiple programs.

A generalist may see:

• expensive machine tools.

We may see:

• capacity that would take a competitor years and millions of dollars to recreate.

A generalist may see:

• AS9100 and Nadcap certifications.

We may see:

• qualification barriers that sharply restrict the buyer's competitive alternatives.

A generalist may see:

• $3 million of EBITDA.

We want to understand why that $3 million exists and how difficult it would be for someone else to take it away.

That is the real valuation question.

What is the most important thing to understand before selling an aerospace manufacturing company?

Your aerospace or defense manufacturing company should not be treated as interchangeable with every other metalworking business in America.

You may have spent 20, 30 or 40 years building:

• qualification history
• customer trust
• program positions
• manufacturing know-how
• a skilled workforce
• certifications
• inspection systems
• specialized capacity
• supplier relationships
• intellectual property
• and a reputation for making parts other companies cannot

Do not reduce all of that to:

EBITDA × Generic Multiple = Value.

The buyers who pay preferential valuations are buying much more than yesterday's earnings.

They may be buying:

access to programs.

Access to qualified customers.

Access to approved supply chains.

Access to scarce people.

Access to specialized manufacturing capabilities.

Access to certifications and processes.

Access to capacity.

Access to work that could take years to win organically.

So don't begin by asking:

“What multiple are aerospace companies selling for?”

Begin with:

What makes my company difficult to replace?

Then:

Which buyers would benefit most from owning those advantages?

And finally:

How do we prove that value before asking someone to pay for it?

That's how you sell a specialized aerospace and defense manufacturing company without allowing decades of hard-earned value to disappear inside a generic M&A formula.

If you're considering the sale of an aerospace, defense or space manufacturing company, Accelerated Manufacturing M&A can begin with a confidential conversation about value, timing and the options available to you.