top of page

The Role of Private Equity in Defence Industry Mergers and Acquisitions: Implications for Business

Updated: Sep 15, 2023

The defence industry is a critical pillar of national security, and as the landscape evolves, mergers and acquisitions have become a common strategy for companies to enhance their capabilities and competitiveness.

In recent years, private equity has emerged as a significant player in defence industry M&A, reshaping the landscape and presenting unique implications for business leaders.

But what exactly is the role of private equity in defence industry M&A, and what implications does it hold for business leaders?

In this blog, we will delve into this topic, exploring the trends, motivations, and potential benefits and challenges of private equity's involvement in defence industry M&A, and providing valuable insights for business leaders navigating this complex landscape. From data-driven analysis to expert perspectives, we will shed light on the ever-evolving role of private equity in defence industry M&A and its implications for business leaders looking to make strategic decisions in this dynamic sector.

1. Private equity involvement in the defence industry M&A is the potential for increased capital and financial resources.

Private equity firms typically have substantial financial firepower, which can be used to facilitate M&A transactions. This can result in increased liquidity and capital infusion for businesses in the defence industry, allowing them to pursue growth strategies, invest in research and development, and expand their capabilities. Private equity can provide access to new markets and customers, as well as the opportunity to leverage their expertise in operational efficiency and strategic planning.

2. Private equity involvement in defence industry M&A is the focus on short-term returns and exit strategies.

Private equity firms typically have a shorter investment horizon compared to traditional investors, with a goal of realising returns within a few years. This can create pressure on businesses to deliver immediate results and prioritise short-term financial performance over long-term strategic planning. The emphasis on exit strategies can also lead to increased turnover of assets and personnel, as private equity firms may seek to optimise their investment and exit at the right time, potentially disrupting established business operations and cultures.

3. Private equity firms often seek to add value to their portfolio companies through operational improvements and cost optimisation.

While this can result in increased efficiency and profitability, it can also involve significant changes to the management structure, processes, and workforce of the acquired businesses. For businesses in the defence industry, which often operate in a highly regulated and complex environment, managing these changes can be challenging and require careful coordination to ensure compliance with relevant regulations and maintain operational readiness.

4. Private equity involvement in defence industry M&A is the potential for increased scrutiny and regulatory oversight.

Defence industry M&A transactions are subject to stringent regulatory requirements, including national security concerns, export controls, and antitrust regulations. The involvement of private equity firms, which may have different ownership structures and investment strategies, can raise additional regulatory considerations and due diligence requirements. Businesses involved in defence industry M&A transactions need to carefully navigate these regulatory challenges and ensure compliance to avoid potential legal and reputational risks.

The role of private equity in the defence industry mergers and acquisitions (M&A) landscape is complex and multifaceted. Private equity firms, which are known for their ability to provide capital and operational expertise to businesses, have been actively involved in the defense industry M&A activities, with several notable implications for businesses.

  1. Capital infusion for innovation and expansion: Private equity firms can provide a significant capital infusion to defence industry companies through M&A transactions, which can be used for innovation, research and development, and expansion into new markets. For example, in 2017, private equity firm Veritas Capital acquired Harris Corporation's government IT services business and merged it with another portfolio company, Computer Sciences Corporation, to create a new entity called Perspecta Inc. The new company was capitalized with $2.4 billion from Veritas Capital, enabling it to pursue new growth opportunities in the defence and intelligence sectors.

  2. Operational expertise and efficiency improvement: Private equity firms often bring operational expertise to defense industry companies, helping them improve their operational efficiency and profitability. For instance, in 2016, private equity firm Cerberus Capital Management acquired DynCorp International, a provider of aviation and logistics support to the U.S. military, and implemented operational improvements, including cost optimisation measures and process enhancements, which resulted in significant operational efficiencies and increased profitability for the company.

  3. Consolidation and synergies: Private equity firms can drive consolidation in the defence industry through M&A activities, resulting in synergies and cost savings. For example, in 2018, private equity firm Advent International acquired Cobham plc, a UK-based defence and aerospace company, and subsequently facilitated the merger of Cobham with another portfolio company, AeroConnectivity, to create a leading global defence technology company. The merger resulted in synergies through cost savings and operational efficiencies, creating value for the stakeholders.

  4. Strategic partnerships and market access: Private equity firms can leverage their industry expertise and networks to facilitate strategic partnerships and provide market access to defense industry companies. For instance, in 2015, private equity firm The Carlyle Group acquired Novetta Solutions, a provider of advanced analytics and data solutions to the defense and intelligence community. Carlyle's global network and expertise in the defense industry enabled Novetta Solutions to access new markets and expand its customer base.

  5. Exit strategies and value creation: Private equity firms are known for their focus on creating value and maximising returns on their investments. They typically have exit strategies in mind when entering into defense industry M&A transactions, which can include IPOs, secondary offerings, or selling the company to strategic buyers. For example, in 2019, private equity firm Thoma Bravo acquired cybersecurity company Imperva, which provides solutions for protecting critical data and applications in the defence industry. Thoma Bravo successfully took Imperva public through an IPO in 2020, creating value for its investors.

In conclusion, private equity's role in defence industry mergers and acquisitions has significant implications for businesses in this sector. While it can provide access to capital and expertise, it can also bring pressure for short-term returns, operational changes, and increased regulatory scrutiny.

Businesses need to carefully consider the implications of private equity involvement in defence industry M&A transactions and develop strategies to effectively manage the opportunities and challenges that it presents. This may involve proactive engagement with private equity firms, thorough due diligence, and robust risk management to ensure successful outcomes in the dynamic and complex world of defence industry M&A.


bottom of page