While defense budgets may increase this year and next, there is still likely pent up demand for mergers or acquisitions among government contractors. The preceding multi-year period of stagnation has left many companies looking for a “what’s next?” strategy that could include growing market share via acquisition.  Specialized firms, too, may be looking for suitors as a way to become more stable by becoming part of a larger enterprise.  While some Defense officials have been largely silent on possible M&A activity, Air Force Secretary Heather Wilson was recently quoted in Defense News saying that she has no concerns “at this point” over the Northrop-Orbital action.  Further, Wilson went on to say, “There’s a lot happening in defense and space at the moment, so it’s not a surprise to me that companies would be looking to acquire other companies, position themselves for the future; and in some ways it’s an indication of the health of the sector that there’s a lot going on,…”  Contractors contemplating acquisitions of other companies should take note of these comments. They signal that at least some Pentagon leaders are open to the possibility of more M&A activity.  Additionally, the Northrop action could, itself, set off a round. The result could be not only a consolidated industry base, but companies with new, diverse capabilities.  Make sure you’re in step to stay competitive.