8-K: FACT II SPAC to Merge with Precision Aerospace & Defense

FACT II Acquisition Corp. has entered into a definitive business combination agreement to merge with Precision Aerospace & Defense Group, creating a publicly traded entity focused on A&D manufacturing and services.

Summary

• FACT II Acquisition Corp. (SPAC) entered into a Business Combination Agreement with Precision Aerospace & Defense Group, Inc. (PAD) on November 26, 2025.
• The transaction involves FACT domesticating as a Delaware corporation, followed by Patriot Merger Subsidiary, Inc. (a FACT subsidiary) merging into PAD, with PAD surviving as a wholly-owned subsidiary of FACT (to be known as New PAD).
• Holders of PAD common stock will receive FACT common stock, calculated as 12,388,291 FACT shares divided by the number of PAD common shares outstanding.
• Holders of PAD preferred stock (Series A, B, C, D) will receive $5.00 cash per share plus FACT common stock (621,500 FACT shares for Series A-C combined, and 300,000 FACT shares for Series D).
• Outstanding PAD options will convert into options to purchase FACT Class A Common Stock upon the same terms and conditions, with adjusted share numbers and exercise prices.
• FACT's sponsor (FACT II Acquisition LLC) will receive 3,300,000 SPAC Shares (minus existing holdings) and up to 1,200,000 Sponsor Performance Bonus Shares based on triggering events (e.g., research coverage, stock price targets of $15.00, and Trust Account balance).
• The combined company requires a minimum of $75,000,000 in cash at closing from the Trust Account and other sources, after redemptions and SPAC transaction expenses.
• A Private Investment in Public Equity (PIPE Investment) is being pursued to raise additional capital, with an illustrative pro-forma capitalization assuming a $75.0M PIPE.
• Post-closing, the SPAC Board will have seven members, with PAD designating six and the Sponsor designating one independent director.
• The transaction is expected to close following shareholder approvals and regulatory conditions, with an Outside Date of March 31, 2026.

Sentiment

Score: 7

Explanation: The filing announces a significant business combination with strong strategic rationale and growth projections in a robust industry. The management team is experienced, and the company has a blue-chip customer base. However, the presence of identified material weaknesses in internal controls and the reliance on future acquisitions for projected growth introduce notable risks. The deal is still subject to various conditions and potential delays.

Positives

• PAD is a premier components manufacturer and services provider in the U.S. Aerospace & Defense industry, which is a $1+ Trillion economy poised for significant rebound and growth.
• The company has a diverse portfolio with three complementary segments: Engineering & Sustainment, Precision Manufacturing, and Advanced Non-Destructive Testing (NDT).
• PAD demonstrates proven M&A identification and integration capabilities, with several acquisitions already completed or pending.
• It provides direct service to the DoD, major OEMs, and Tier 1 suppliers, supported by a blue-chip customer base with long-term contracts (e.g., Boeing, GE Aerospace, Lockheed Martin, SpaceX).
• PAD is strategically positioned to capitalize on generational growth drivers in commercial aviation modernization, military sustainment, and the expanding space-based economy.
• The management team is highly experienced, with an average of 30+ years in the industry, and a track record of developing businesses.
• Projected FY26 Pro-Forma Revenue is $128.9M and Adjusted EBITDA is $25.1M (Management Case), indicating strong growth expectations.
• The company has a strong and diversified backlog, with Q1'25PF backlog at $63.2M, driven by key defense programs (B-1B Lancer, F-18, DC-9, CH53K King Stallion) and commercial platforms (Boeing 707, 747, 777).
• Significant backlog with GE Aerospace (~$15.7M in Q2'25, with ~$8.9M for 2026 sales) and increased NDT production capacity for SpaceX, NASA, and Boeing.
• The SPAC sponsor team (FACT II Acquisition Parent LLC) brings experienced de-SPAC execution, a deep institutional and family-office network, and flexible capital solutions.

Negatives

• PAD's auditors identified material weaknesses in internal controls and found that limited controls failed to detect material misstatements in financial statements, including issues with revenue, expense accruals, inventory, work in progress, depreciation expense, and lease liabilities accounts.
• The company relies on short-term orders from customers, which can introduce revenue volatility.
• The customer base is highly concentrated in some subsidiaries, and an inability to diversify could adversely affect the business.
• The business is dependent on the cyclical nature of the military's Request for Quotes.
• Customers may require a lengthy and expensive qualification process for products, with no assurance of sales.
• There is a risk of not achieving the intended benefits of the acquisitions, including anticipated operating cost and capital synergies, or successfully integrating acquired businesses.
• SPAC shareholders will experience a reduced ownership and voting interest after the Proposed Business Combination.
• The combined company will incur increased costs as a public company, and management will need to devote substantial time to new compliance initiatives and corporate governance practices.
• There is no assurance that the combined company's common stock will be approved for listing on Nasdaq or that it will comply with continued listing standards.

Risks

• Completion of PAD's acquisitions (Acquisition Targets and DSI) is subject to various closing conditions, including the completion of the Proposed Business Combination, with no assurance that all conditions will be satisfied or waived.
• One or more definitive acquisition agreements with Acquisition Targets contain a 'Long Stop Date,' after which the other party may terminate the agreement if the transaction is not closed or extended.
• PAD may not achieve the intended benefits of the acquisitions, including anticipated annual operating cost and capital synergies, or successfully integrate the acquired businesses.
• The Company's auditors identified material weaknesses in internal controls and found that limited controls failed to detect material misstatements in financial statements, including issues with revenue, expense accruals, inventory, work in progress, depreciation expense, and lease liabilities accounts.
• Geopolitical and economic events may adversely affect the business.
• The company is subject to a variety of risks associated with International Business and Export Compliance.
• PAD's business could suffer if it is unable to develop new products on a timely basis.
• The industries in which PAD operates are very competitive.
• PAD is vulnerable to disruptions and shortages in the supply of, and increases in the prices of, certain raw materials.
• The customer base is highly concentrated in some subsidiaries, and an inability to diversify could adversely affect the business.
• PAD's business is dependent on the cyclical nature of the military's Request for Quotes and relies on short-term orders from customers.
• Customers may require PAD to undergo a lengthy and expensive qualification process for its products, with no assurance of sales.
• Efforts to protect proprietary information may not be sufficient, potentially adversely affecting the company.
• PAD depends upon the experience and expertise of its management team, and the loss of any of these individuals may impair its ability to operate effectively.
• The company is subject to a variety of environmental regulations.
• There can be no assurance that the combined company's common stock will be approved for listing on Nasdaq or any other exchange or that it will be able to comply with the continued listing standards.
• Subsequent to the consummation of the Proposed Business Combination, the combined company may be required to take write-downs or write-offs, or be subject to restructuring, impairment, or other charges.
• If the Proposed Business Combination's benefits do not meet the expectations of investors or securities analysts, the market price of FACT's securities or, following the closing, the combined company's securities, may decline.
• The combined company will qualify as an emerging growth company as well as a smaller reporting company.
• The unaudited pro forma financial information included may not be indicative of what the combined company's actual financial position or results of operations would have been.
• FACT may not be able to consummate an initial business combination within the required time period, in which case it would cease all operations except for winding up and would redeem the shares of common stock and liquidate.
• FACT stockholders will have a reduced ownership and voting interest after the Proposed Business Combination and will exercise less influence over management.
• FACT does not have a specified maximum redemption threshold.
• The market price of the combined company's common stock may be volatile or decline, and investors may not be able to resell shares at or above the purchase price.
• There may not be an active trading market for shares of the combined company's common stock, which may cause shares to trade at a discount and make it difficult to sell.
• Insiders will continue to have substantial control over the combined company, which could limit the ability of other shareholders to influence key decisions.
• Sales of a substantial number of the combined company's common stock in the public market by existing shareholders could cause the price to decline.
• The combined company will incur increased costs as a result of operating as a public company, and its management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
• If securities or industry analysts do not publish research or reports about the combined company's business, or if they downgrade their recommendations, the stock price and trading volume could decline.

Future Outlook

The combined company anticipates sustainable growth through strategically identifiable acquisitions and additional cross-selling opportunities. It aims to capitalize on increasing spend in commercial aviation modernization, military sustainment, and the growing space-based economy. PAD plans to expand its capabilities by acquiring new technologies such as advanced sensors/materials, hypersonics, additive manufacturing, and space technologies, while also scaling its manufacturing and engineering services.

Management Comments

• The Company continues to experience steady growth driven by blue-chip relationships.
• PAD's capabilities include: commanding specialized government contracting, precision manufacturing across diverse airframes, cutting-edge NDT.
• PAD has positioned itself to capitalize on growth opportunities within the fragmented A&D industries through: strong underlying fundamentals, countercyclical nature of the industries, long-term contracts.

Industry Context

The U.S. Aerospace & Defense industry is a robust $1+ Trillion economy, poised for significant rebound and growth. Commercial aerospace is experiencing a recovery, with increasing demand for Maintenance, Repair, and Overhaul (MRO) services and substantial backlogs from major OEMs like Airbus and Boeing (over 15,000 orders through 2038). Defense spending is on an upward trend, evidenced by a $961.6B FY26 DoD budget request, focusing on critical technology and sustainment. The global space economy is also expanding rapidly, reaching $613.0B in 2024 with a record 149 space launches in H125. Precision Aerospace & Defense Group is strategically positioned to benefit from these tailwinds through its diversified offerings in engineering, manufacturing, and non-destructive testing.

Comparison to Industry Standards

• PAD's FY26PF Projected Pro-Forma Gross Margin (Management Case) is 42.4%, which is significantly higher than the median of 28.2% for selected public comparables.
• PAD's FY26PF Projected Pro-Forma EBITDA Margin (Management Case) is 19.4%, which is above the median of 17.8% for selected public comparables.
• PAD's EV / CY25E Revenue (Management Case) is 3.1x, which is below the median of 3.7x for selected public comparables, suggesting a potentially attractive valuation relative to revenue.
• PAD's EV / CY26E Revenue (Management Case) is 2.4x, which is slightly above the median of 2.3x for selected public comparables.
• PAD's EV / CY25E EBITDA (Management Case) is 15.7x, which is below the median of 21.6x for selected public comparables, indicating a potentially favorable valuation relative to EBITDA.
• PAD's EV / CY26E EBITDA (Management Case) is 12.5x, which is below the median of 18.5x for selected public comparables.
• Comparable companies in the analysis include major players and specialized firms in the Aerospace & Defense sector such as Boeing, GE Aerospace, Lockheed Martin, Blue Origin, Rolls-Royce, SpaceX, Honeywell, Triumph, Boneal Aerospace, Husqvarna Construction, Siemens Energy, Great Western Manufacturing, and Alstom.

Management Changes

Corporate Governance

Legal Proceedings

• No Actions are pending or, to the Knowledge of SPAC, threatened, against SPAC, Merger Sub, or their respective officers or directors or assets that question the validity of the Business Combination Agreement or would have a Material Adverse Effect on SPAC.
• Neither SPAC nor Merger Sub is a party or subject to the provisions of any material Order.
• No Action of any nature is currently pending or, to the Company's Knowledge, threatened against any Target Company, its current or former directors or officers in their capacity as such, or its business, equity securities or assets that would have a Material Adverse Effect on the Company.
• No Target Company is under investigation with respect to any violation or alleged violation of any Law or judgment, Order or decree of any Governmental Authority.
• No unsatisfied judgment or open injunction binding upon any Target Company that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Target Companies taken as a whole.
• No current or, to the Knowledge of the Company, former, officers, senior management or directors of any Target Company have been charged with, indicted for, arrested for, or convicted of any felony or any crime involving fraud as it relates to the business of such Target Company.
• No Target Company has been the subject of any action, proceeding, litigation, claim, or investigation, or received any notice from any Governmental Authority, with regard to any actual, alleged, or suspected violation of applicable Anti-Corruption Laws.
• No Action involving SPAC with respect to money laundering statutes or International Trade Laws is pending or, to the Knowledge of SPAC, threatened.
• No civil fraud or criminal investigation of the Target Companies by any Governmental Authority, suspension or debarment proceeding, or material request for contract price reduction or claim of defective pricing related to Government Contracts is pending or threatened.
• No dispute between the Target Companies and a Governmental Authority that resulted in a government contracting officer's final decision where the amount in controversy exceeds $500,000 since January 1, 2019.
• No certified claim or request for equitable adjustment by the Target Companies against a Governmental Authority in excess of $500,000.
• No written notice of termination for default, cure notice, stop work order, or show cause notice from any Governmental Authority or prime/higher-tier subcontractor with respect to a Government Contract that would reasonably be expected to be material.
• No Target Company has made any disclosure to a Governmental Authority under FAR Subpart 3.1003 or FAR 52.203-13, or made any voluntary disclosure with respect to any alleged irregularity, misstatement, or omission arising under or relating to any Government Contract or Government Bid.

Related Party Transactions

• Sponsor HoldCo entered into a voting and support agreement with FACT and PAD, agreeing to vote its shares in favor of the Business Combination and against alternative transactions, and restricting share transfers.
• PAD will deliver Voting and Support Agreements (PAD Support Agreements) from certain PAD shareholders, who will agree to vote their shares in favor of the Business Combination and restrict transfers.
• Lock-up agreements will be entered into by FACT, Sponsor HoldCo, certain FACT equity holders, and certain FACT Existing Investors with New PAD, restricting the transfer of certain SPAC Shares for 90 or 180 days post-closing, with an exception for 770,000 'Carved-Out Shares' for PAD shareholders.
• An Advisory Agreement was entered into between FACT and FACT's sponsor, FACT II Acquisition Parent LLC, for services related to the Business Combination, with a fee of up to $240,000 payable to the Sponsor.
• Certain Contracts and arrangements between SPAC/Merger Sub and their affiliates/related persons (as listed in SPAC Disclosure Schedules) are to be terminated prior to the Merger Effective Time without liability.
• The Company Disclosure Schedules list transactions with Related Persons of PAD, indicating existing or future liabilities or obligations between PAD/Target Companies and their affiliates/related persons.

Stakeholder Impact

• **Shareholders (FACT)**: Will have the opportunity to redeem their shares; certain shareholders will be subject to lock-up agreements; will have a reduced ownership and voting interest in the combined company post-merger.
• **Shareholders (PAD)**: Will receive a combination of cash and FACT common stock in exchange for their PAD shares; certain shareholders will be subject to lock-up agreements; will vote on the Company Shareholder Approvals.
• **Employees (PAD)**: Officers of PAD immediately prior to the merger will become the initial officers of SPAC; identified management personnel will enter into new employment agreements with SPAC; potential for participation in a new SPAC Equity Incentive Plan.
• **Customers and Suppliers**: The combined entity aims to maintain and expand relationships with blue-chip customers (e.g., DoD, Boeing, GE Aerospace, SpaceX) and suppliers, potentially offering expanded services and cross-selling opportunities.
• **Creditors**: Existing indebtedness of PAD and SPAC will be addressed as part of the transaction; a private credit facility and PIPE investment are planned to provide additional capital, impacting the capital structure.
• **Regulatory Bodies**: The transaction requires various regulatory approvals, including SEC effectiveness of the S-4 Registration Statement and expiration/termination of HSR Act waiting periods, ensuring compliance with legal and antitrust requirements.

Next Steps

• FACT will domesticate as a Delaware corporation in accordance with Section 388 of the DGCL and Part XII of the Cayman Companies Act.
• Merger Sub will merge with PAD, with PAD surviving as a wholly-owned subsidiary of FACT (New PAD).
• FACT and PAD will jointly prepare and file a Form S-4 Registration Statement with the SEC within 40 days of the Business Combination Agreement date (by approximately January 5, 2026).
• PAD will deliver duly executed PAD Support Agreements from certain shareholders within 45 days following the execution of the Business Combination Agreement (by approximately January 10, 2026).
• The Company will obtain and deliver the Company Shareholder Written Consent within 5 business days after the S-4 Registration Statement is declared effective by the SEC.
• SPAC will call a SPAC Shareholder Meeting no later than 30 days following the effectiveness of the Registration Statement to approve the Shareholder Approval Matters.
• SPAC and the Company will use commercially reasonable efforts to cause SPAC's initial listing application with Nasdaq to be conditionally approved and satisfy initial listing requirements.
• SPAC and the Company will continue to pursue a PIPE Investment.
• SPAC will prepare an equity incentive plan to be adopted by no later than the Closing.
• SPAC will enter into employment agreements with identified management personnel.
• SPAC will file a Form S-1 registration statement for resale of SPAC Shares issued to Company Shareholders who will be Affiliates of SPAC after the Closing.
• The Closing is expected to occur following the fulfillment or waiver of the closing conditions set forth in the Business Combination Agreement.

Key Dates

Recommendation

The proposed business combination presents a strategically sound move for FACT II Acquisition Corp. to merge with Precision Aerospace & Defense Group, a company with a strong market position in a growing industry, blue-chip customer relationships, and an experienced management team. The projected financial growth is attractive, and the deal structure includes a PIPE investment to bolster capital. However, the identified material weaknesses in PAD's internal controls and the inherent risks associated with integrating multiple acquisitions, coupled with the cyclical nature of some of its markets, warrant a cautious approach. While the long-term outlook appears positive, the execution risks and the need for improved financial controls suggest a 'hold' recommendation until further clarity on integration success and remediation of internal control issues is available.

Keywords

SPAC, Merger, Aerospace, Defense, Manufacturing, NDT, Engineering, Sustainment, Precision, Acquisition, FACTU, PAD, Nasdaq, Government Contracts, Private Equity, PIPE