Dealmakers in the North American Industrials and Chemicals (I&C) sector are expecting a busy 2H26 on the heels of a record in deal volume and deal count in 1H26 despite geopolitical tensions.

North American I&C M&A roared in 1H26, with deal volume surging 75% YoY to a record USD 210bn across 1,288 deals, while deal count increased 9% from 1,185 deals in 1H25. Deal volume surpassed the previous record of USD 199.2bn set in 2H15.

Large-cap deals continued to drive the market’s growth in 1H26, with deal volume surging 84% YoY to a record USD 182.2bn from USD 99.2bn in 1H25. The performance marked the highest half-year deal volume ever recorded for the USD 1bn+ segment.

Strategic buyers dominated North American I&C M&A in 1H26, contributing USD 170.2bn across 740 deals and accounting for 81% of total deal volume, up 10 percentage points from 1H25.

Financial sponsor-backed deals accounted for the remaining 19% of market activity, generating USD 39.7bn across 548 deals. Although sponsor share declined by 10 percentage points YoY, deal volume still increased 13% from USD 34.9bn across 507 deals in 1H25.

KPMG principal Todd Dubner said the muted sponsor share reflects the strength of the strategic case rather than a retreat by financial buyers. “The industrial logic for these strategic deals is very strong,” he said, adding that the synergized view of a combination is often what brings deal value to a level where a transaction can clear, which is harder to match without an existing platform. He does not expect sponsors to stay on the sidelines long, noting a backlog of private equity-held companies that will need an exit.

Aerospace & Defense continues to fly

The aerospace and defense sector was a standout subsector within I&C. Deal volume skyrocketed almost by 16x, driven primarily by Honeywell International’s USD 84.6bn Aerospace spin-off, the largest I&C transaction of the period. KPMG’s Dubner noted a trend around the separation of diversified industrial companies, the category into which he placed this transaction. “There is a conglomerate discount that most of these large diversified industrials trade at,” he said, noting both the RemainCo and the SpinCo have tended to gain value through separation. As long as the market rewards that, the trend continues, he said, adding he expects a couple more years before those companies settle on their core.

Overall, A&D contributed about USD 99.6bn in deal volume in 1H26, according to Mergermarket data, up from around USD 6.3bn in 1H25. Meanwhile, deal count jumped over 43% from 67 in 1H25 to 96 in 1H26.

“We’re seeing a desire to bring technology to the warfighter for high priority missions, and the defense budget follows as a result,” said Ellis Chaplin, managing director of aerospace, defense & government services at DC Advisory.

“AI has so many applications, spanning virtually every market segment, from counter drone technology to cybersecurity,” Chaplin added.

“Everybody is using it and finding ways to incorporate it,” said Chris Oliver, managing director of aerospace, defense & government services at DC Advisory.

Drones also remain a hot area in the M&A market. “Recent overseas conflicts have been a wake-up call to get in on the counter drone space,” Scott Thompson, PwC’s global aerospace and defense leader. He noted there’s a need for a lower-cost counter drone capability and there’s a big focus on drones on both the offensive and counter side.

In the most recent example, on 29 July, CHAOS Industries, a defense-tech company that makes advanced radar, sensor, effector, and network systems, announced the acquisition of Atropos Group, an aerospace company developing autonomous air platforms.

The aerospace MRO sector has seen its share of M&A activity too. “As the average age of the commercial fleet gets older, demand in the sector is expected to continue to grow by double digits for many years to come,” Thompson said.

Mergermarket has recently reported on a couple of MRO related sale processes. It was reported in June that ATL Partners is trying to sell MRO services company Aero Accessories. This was followed by a report in July that JF Lehman & Company was aiming to sell MRO services company CTS Engines.

Construction/building products

The construction/building sector was the second-largest I&C sub-sector by deal volume in 1H26, generating USD 60.5bn and accounting for 29% of total activity, despite deal value declining 16% YoY from USD 72.4bn in 1H25.

According to Andrew Petryk, BGL’s co-CEO and head of the bank’s industrials vertical leading its building products arm, the commercial side of the building products segment is seeing strong buyer and seller interest as new projects serve new office buildings with return-to-office policies, a desire for US-based operations as a way to shield against potential tariff exposure, and construction to support infrastructure.

One of the biggest trends supporting M&A in the sector is a desire for companies to become one-stop shops. Builders are seeking a supplier that has everything in-house, according to Petryk, so consolidation is being driven by companies’ push to have “a broad enough product portfolio to cover the whole building envelope, so not just the siding, not just the windows, but the whole exterior package, and that’s the same thing moving inside the building.”

Among the active consolidators is QXO, a building products distributor that was formed with M&A in mind. It has purchased two building products companies this year, Kodiak Building Partners and TopBuild. Last year, it purchased Beacon Roofing.

Among other factors, tariffs have expedited foreign buyers’ desire to purchase operations in the US, Petryk said. “We’re seeing very strong interest from particularly European buyers that are looking at our transactions with great interest and strong valuations and terms to the transactions,” he said.

On the residential side of building products, there are more near-term economic issues impacting the overall sector, and therefore dealmaking, Petryk said.

“We’re getting real buyer feedback on both residential building products and commercial, both manufacturers and distributors, and we’re getting different feedback for residential than we are for commercial,” Petryk said.

Factors impacting the consumer, like interest rates and therefore mortgage rates, are making the market less ideal for buyers. But when conditions improve, there is significant pent-up demand for new home builds and repair & remodel in existing homes, and in turn, pent-up demand for companies in the residential building products sector to transact, Petryk said.

“When the market turns, we think it’s going to turn in a very meaningful way and be a rocket ship towards new construction and repair and remodel,” Petryk said, adding he believes the uptick will likely kick off in 1Q or 2Q of 2027.

According to Petryk, BGL has relationships with a number of residential building products companies that are considering going to market. These targets have already been holding for quite a while, but even if they will only be considering a launch in 12-18 months, BGL’s advice has been to start prepping now.

“We track 250 residential building products companies, both founder-owned and private equity, and 60% of those have been held for five years or more. … We know that the tsunami is coming,” Petryk said.