The gov-con M&A market is reopening—but not for everyone.
After several sluggish years, activity is ticking higher as shelved deals return and buyers regain confidence. Yet beneath the surface, a more selective and structurally different market is taking shape—one where regulatory changes, tighter underwriting and a growing divide between top-tier and average assets are redefining who gets deals done.
Buyers remain active, but more disciplined, and a mix of regulatory clarity and pent-up demand is helping bring previously stalled processes back to market.
“Deal activity has been down for about the last three years, but has seen a modest uptick so far in the first half of this year,” says Ervin Terwilliger, CEO and managing director of Tower Partners. “There are lots of buyers, but they are being more selective than ever. Also, there has been a lot of uncertainty, which is bad for everything. Part of what we are seeing now is some deals being revived that had not been completed.”
One catalyst has been greater clarity around a recent Small Business Administration rule change affecting how larger acquirers can retain contracts originally awarded to smaller firms. The shift forced buyers to reassess valuation frameworks, but has since helped unlock deal activity as the market adjusts.
Activity remains bifurcated across subsectors. Defense and intelligence-related M&A has held up relatively well, while the civil side lagged in the past year before showing early signs of recovery.
“M&A within defense and intelligence has been robust and very steady,” says Zachary Schultz, co-leader of the corporate, securities and tax practice group at Miles & Stockbridge. “The civil subsector was down last year, mostly tied to DOGE activity. Since then, things have been coming back slowly.”
Higher interest rates continue to weigh on larger transactions and private equity exits, while momentum is building in more specialized, technology-oriented segments. By contrast, undifferentiated services businesses are facing continued pressure on valuation.
Even as deal flow improves, execution timelines are stretching. Buyers are taking a more deliberate approach to diligence and underwriting, particularly outside the top tier of assets.
“Grade-A assets are still strong, but a valuation gap persists for B and C assets,” Schultz says. “In the lower middle market, we are seeing more structured solutions such as earn-outs and seller financing. Where it used to take 30 to 60 days from letter of intent to closing, it is often taking 15 to 30 days longer.”
Private Equity Firms Focused on Gov-Con
Enlightenment Capital
Arlington Capital
Blue Delta
Carlyle
DC Capital Partners
Godspeed
Razors Edge
Geographic Focus
While gov-con activity is national in scope, dealmaking remains heavily concentrated in the Mid-Atlantic corridor, where proximity to federal agencies and access to cleared talent continue to shape competitive dynamics.
“For serious gov-con with any scale, you need to be in the D.C. area,” says one dealmaker. “It’s just the proximity to the agencies. There is still a lot of remote work, but the community transcends that. The real concentration runs through the corridor anchored by BWI Airport, Fort Meade and Columbia, Maryland.”
Schultz notes that other clusters—including Colorado Springs, Tampa, Dayton and Huntsville—remain active, but secondary to the region stretching from Aberdeen Proving Ground through Northern Virginia along the I-95 corridor.
