On the outskirts of Stuttgart, just south of Wichita, or along the M6 corridor in England, there is a specific type of industrial park where all the buildings appear to have been created by the same architect in 1987. Steel painted cream, low ceilings, and a single flag in front. Brackets, fasteners, harnesses, and precision-machined housings that are used in both a Ford F-150 transmission and a Boeing 737 landing gear assembly are among the parts made inside by machinists that are nearly impossible for anyone outside the industry to identify. Families owned these businesses for many years, followed by larger families and occasionally a strategic buyer. Nearly all of them have received calls from private equity lately.
Once you start looking for it, it’s difficult to miss the pattern. The same funds that have been stealthily expanding automotive Tier 2 suppliers for the past three years are now placing bids on aerospace machine shops. Occasionally, the same target produces components for both. At its most recent peak, K&L Gates tracked 53 PE deals totaling $20 billion in the US supply chain industry, up from $7.9 billion in 2020 and just $5.1 billion the previous year. The story isn’t the growth per se. It’s the crossover. Some industrial bankers believe that the distinction between auto and aerospace investing, which was once clearly defined in deal memos, has started to intentionally blur.
Why both now and simultaneously? The carve-out cycle is the cleanest solution. OEMs on both sides—the Boeings and Airbuses of aerospace, the Stellantises and Fords of automotive—are simultaneously under pressure to divest non-core assets. The auto majors have been affected by profit warnings. After ten years of supply chain disruption and quality scandals, aircraft manufacturers are still recovering. When CFOs at companies such as these choose to divest, the assets that become available are typically of the exact type that PE firms are interested in: mid-sized, cash-generating, deeply embedded with long-term contracts that are difficult to switch.
Beneath, a more intriguing strategic logic is at work. Many of these supplier companies share machinery, customers, and even some labor skills. With the appropriate equipment and certifications, a precision casting facility that produces diesel engine turbocharger housings can also produce parts for jet auxiliary power units. Purchasing both sides of that capability on a single platform gives you negotiating power with clients and protects you from the cyclicality of either end market. Demand for automobiles and aircraft seldom moves in tandem. Spreadsheets adore that part. Unlike a single-sector roll-up, it smoothes the cash flow curve.
It’s difficult to ignore the fact that this surge of activity is occurring at the same time that the EV transition is rearranging the rankings of automotive suppliers and that Boeing and Airbus’ post-pandemic order books span nearly ten years. Underinvested ERP systems, succession problems at family-owned businesses, and fragmentation are all perceived by PE firms as constant opportunities. These days, the difference is that they have the patience to do it simultaneously across two industries, frequently using the same operating partners.
The success of all of this depends on factors beyond the funds’ control. The next aerospace certification scandal, tariff policy, and the rate of EV adoption. Although it’s still unclear whether the buy-and-build math holds when the next downturn occurs, investors appear to think the convergence thesis is resilient. But for the time being, the calls continue. A founder in his late sixties is examining a term sheet and determining the ultimate value of twenty years of labor somewhere in a quiet machine shop.