Private Markets on Portfolio Play Offensive with Defense Investments

The private markets have their investment sights set on defense companies and the technology firms that support that industry as countries, especially in North America and Europe, increase their focus on border control and national security interests.

Recent defense spending estimates back this up. Last month, for example, the countries within NATO agreed to allocate at least 5% of their GDP on  defense over the next 10 years. In addition, the Trump administration budget has earmarked some $960 billion toward defense in its recent budget, which includes plans for a Golden Dome shield estimated to take a big chunk at around $175 billion.

The big numbers come with big opportunities for private markets. Governments need to close the investment gap as they rush to modernize their weapons with more emphasis on technology and less on “soldiering.” Simply put: Boots on the ground are slowly being overshadowed by drones in the skies.

And it is happening pretty quickly. According to S&P Global Market Intelligence, the announced value of PE- and VC-backed investments in aerospace and defense between Jan 1 and March 16 this year has already totaled some $4.27 billion globally, compared with approximately $4.31 billion for all of 2024.

It’s no surprise that North America accounts for most of the investments with 83% of all PE- and VC-backed deals in aerospace and defense since 2020, followed by 12% from Europe, according to the S&P data. One of the behemoths? Berkshire Partners LLC and Warburg Pincus LLC’s $2.9 billion investment to take Triumph Global Group, the aircraft systems and components business private in February. But no doubt there are more big deals to come.

For the PE industry, investors remained focus on companies with “high barriers to entry, defensible intellectual property and supplier differentiation on technical capabilities,” according to a Bain & Co. report called “Rethinking Defense: The Role of Private Capital.” That means investments that support cash flow and growth and offer more opportunity to “build share and develop economies of scale” are high on the list.

And how does that translate? Think companies focused on the new age of electronic warfare: defense electronics, cybersecurity, space technology and aerospace repairs and products, industry experts say.

Firms such as AE Industrials, Arcline Investment Management and Arlington Capital Partners are a few that have been dominating this space for some time. Others such as  the Caryle Group, CVC Capital and Tikehau Capital are increasing their participation.

What’s becoming clear is that the defense sector is gaining more acceptance as an attractive investment, an area that was once ignored because of its cyclical nature and simply on moral grounds. That thinking has changed and defense may in fact be an area not tied to a downturn. Keep sights set on what may become a boom.

Mark Kollar
Partner, Prosek Partners

Mark Kollar’s monthly Letter from America can be read at The Alternative Investor.