Defense Acquisition Reform In the U.S. and Europe

How Mergers and Acquisitions Can Play a Part

The defense acquisition environment has entered a clear inflection point for the U.S. and European defense industrial base (DIB). What had been years of discussion around acquisition reform and supply-chain readiness has now moved decisively into execution. Ongoing conflicts, rising geopolitical risk, and shrinking response times forced governments to move faster and expect more from defense suppliers. The most important drivers in the current security environment are speed, deployment of new technologies, and resilience of supply. Active conflicts on the borders of Eastern Europe and around the world and rising global tensions have shortened planning horizons. Governments now prioritize near-term readiness over long-term optimization.

This favors suppliers that can deliver usable systems and components quickly. The following paragraphs will highlight recent defense acquisition reforms that underscore this transition toward supply-chain readiness.

In November 2025, the US Department of War issued a memorandum titled “Transforming the Defense Acquisition System into the Warfighting Acquisition System to Accelerate Fielding of Urgently Needed Capabilities to Our Warriors.” The purpose of this was to redefine how the Department develops requirements, manages programs, and engages industry to ensure America’s warfighters receive critical capabilities at the speed of relevance. During the same period, Europe adopted the European Defense Industrial Strategy (EDIS) – the EU’s first comprehensive, long-term plan to shift from crisis response to structural, collaborative defense readiness. It aims to strengthen the European Defense Technological and Industrial Base (EDTIB) through increased joint investment, targeting 40% collaborative procurement by 2030 and 50% procurement from EU-based companies by 2035. This represents Europe’s most coordinated attempt in decades to strengthen its defense manufacturing base. Its goals are straightforward: increasing production capacity inside Europe, reducing reliance on outside suppliers, and speeding up procurement.

European governments have concluded that fragmented purchasing and limited domestic capacity slow response times and increase risk. As a result, they are investing more heavily in factories, tooling, and suppliers that can reliably deliver under tighter schedules. An example of this is the recent 38 billion Euro Safe Action for Europe (SAFE) funding round, approved by the European Commission to support the national defense plans of Belgium, Bulgaria, Denmark, Spain, Croatia, Cyprus, Portugal, and Romania. For European defense suppliers, EDIS reinforces trends that are also visible in the U.S. – Companies that can show successful deployment of new technologies, production readiness, repeatable performance, and program success are becoming far more valuable than their legacy peers who are still doing things “the old way”. The practical results on both sides of the Atlantic are: shorter timelines to deploy new technologies, higher delivery expectations, and less tolerance for cost overruns and execution risk.

The FY2026 U.S. Defense budget is $839 B, and the President is asking Congress to increase that to well over $1T in the year ahead. EU member states’ defense spending climbed to 343 billion euros in 2024 (1.9% of GDP) and 381 billion euros in 2025 (2.1% of GDP). In light of the conflicts to the east, European nations are lifting budgets towards or above NATO’s 2% of GDP target. Alliance leaders in June agreed to strive for an impressive 5% of GDP by 2035, split into 3.5% for core and 1.5% for wider security-related spending. That’s more than a 100% increase in defense spending.

In addition to the rapid increase in spending, defense leaders on both sides of the Atlantic are pushing suppliers to move faster, think smarter, and deploy new technologies to the battlefield faster and cheaper.

The Role of Mergers & Acquisitions in Reform
The defense acquisition reforms noted above have a direct impact on suppliers at all levels: Tier 1, Tier 2 and Tier 3. Technology development, production readiness, supply-chain stability, cybersecurity, and program execution are all central to winning and keeping work for all tiers of suppliers. In this environment, expertise matters. Companies that have advanced technology skills and capabilities are becoming more important to the DIB in the US and Europe.

The speed of development is increasingly becoming a matter of critical national defense. Acquisition reform, coupled with rapidly rising defense budgets, is not a fad that will pass quickly. These are deep structural changes that must be taken seriously by all who operate in the defense industrial base, on both sides of the Atlantic.

This rapid evolution in the defense supply chain is causing buyers to look toward mergers and acquisitions to accelerate change and meet the quickly changing technological demands of their ultimate customers – the militaries of the US and Europe. Recent mergers and acquisitions in the defense industries on both sides of the Atlantic show that large defense companies are using M&A to enable them to obtain capabilities quickly so they can move faster and deploy new technologies into the battlefield more quickly. Examples over the past year make this clear.

• AeroVironment / BlueHalo ($4B autonomous systems)
• BAE Systems / Ball Aerospace (€ 4.4B enhanced payloads)
• Lockheed Martin / Terran Orbital ($450M small satellites)
• Leonardo / Iveco Defence Vehicles ($2 billion autonomous ground vehicles)
• Redwire / Edge Autonomy ($925M autonomous orbital drone capabilities)
• SAIC / SilverEdge ($205M generative AI platform for national security data)
• Safran / Preligens (€220 million AI capabilities for defense)

In the small sample above, it is clear that defense companies are investing considerable capital into a similar theme – that they are best served by acquiring these capabilities rather than building these capabilities organically, which would take much longer. Traditionally, large defense companies relied on in-house research and development to bring new systems to their customers, usually on a customer-designed developmental program over many years. That model is being replaced by a plethora of M&A activity that is enabling these defense companies to bring new technology capabilities in–house rapily and thereby bring those new systems to the customer and battlefield faster. Much faster.

Conclusion
For owners of aerospace and defense companies in the third tier (a/k/a the middle market), which is the core market for Alderman & Company, these shifts in defense customer demands and in the pace of defense M&A landscape should not go unnoticed. These changes are dramatic and may present impacts in the near term for the middle market, if they have not already. These changes will directly affect who middle-market end customers are, how customers award contracts, how they choose their suppliers, how they structure (or rather re-structure) their supply chains, and where strategic and financial buyers are willing to deploy capital. For middle-market aerospace and defense company owners, this environment has tremendous opportunities. Successful middle market defense companies during this period will be those who adopt new technologies rapidly, lean forward into the new acquisition regime, pay attention to the M&A landscape, and focus on bringing new capabilities to the battlefield faster and with less cost than traditional legacy suppliers of the past.

By Troy Medeiros, Vice President, Alderman & Company