Defense Contractors, Private Equity Firms, and US National Security

Abstract

AbstractPrivate equity firms have become important financial actors in the US defense industry in recent years—acquiring over 500 defense contractors since the early 2000s. This inquiry describes how increased capital flows into private equity funds, rising national security budgets, Pentagon policy, and rapid industry consolidation have spurred private equity investment in the businesses of American defense. Subsequently, the study demonstrates two ways private equity acquisitions of corporations in the defense industry affect US national security. First, because private equity firms often fund acquisitions through leveraged buyouts, the debt obligations of private equity–owned defense contractors are characterized by a relatively high risk of credit default. Second, the debt burden private equity firms place on defense contractors often reduces these companies’ free cash flow. As an increasing number of defense contractors are acquired by private equity firms, aggregate corporate reinvestment in the defense industry may well decline, thus diminishing the ability of contractors to perform their national security obligations.entreprises du secteur de la défense sociétés de capital-investissement et sécurité nationale aux états-unis