Military Technology M&A Experts: How to Work with the Complexities of Defense Acquisitions

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Vlad Zghurskyi

29.08.2024

5 Min Read

Global tensions are rising, fueling the M&A Military sector. Investors are flocking to this market, but the sector is unique. Learn about its complexities and how to navigate them.

In the wake of russia’s invasion of Ukraine, the world has been thrust into a new era of geopolitical instability. This has raised conversations around defence strategies, military preparedness, and, perhaps most notably, the acquisition of military technology. What was once the domain of specialists and niche industry players has suddenly become a topic of global concern. Defence acquisition once considered a slow-moving and highly bureaucratic process, has evolved into a critical arena for national security.

There were two key drivers behind recent defence sector M&A activity: the modernization of military forces, exemplified by Bullseye Acquisitions’ £175 million purchase of Sierra Bullets and Barnes Bullets. The second was a surge in interest in counter-drone technologies, with total deal value reaching $139 million. Overall, the defence sector M&A deal value increased by 55% in the first quarter of 2024 compared to the same period in 2023, reaching a total of $8 billion. Here are the main drivers number-wise:

What Are the Complexities of Military M&A?

Military M&A is often referred to as Aerospace and Defense M&A. Working with these acquisitions is no simple task: it is a highly nuanced, and extremely unusual sphere. The military technology sector is governed by a unique set of rules, regulations, and challenges that can make the M&A process particularly intricate. Here’s a closer look at some of the complexities that M&A experts must navigate in this field:

Regulatory Hurdles

Defence acquisitions are heavily regulated by governments, both for national security reasons and to ensure compliance with international arms treaties. If it is not like that, you are probably dealing with some black market companies, which is not good. Navigating these regulations requires an in-depth understanding of the legal landscape as well as the ability to work closely with government agencies.

Classified Information

Many military technologies involve classified information, which adds another layer of complexity to the M&A process. Handling sensitive data requires specialized knowledge and security clearances as well as strict adherence to confidentiality agreements.

Due Diligence

Due diligence in defence acquisitions is a minefield — both literally and figuratively. Traditional financial and legal evaluations are just the tip of the iceberg. In the defence sector, due diligence involves a thorough assessment of the target company’s compliance with government regulations, export controls, and security clearances. Any misstep here can lead to severe penalties, loss of contracts, or even a national security crisis.

Moreover, understanding the target’s technological capabilities and intellectual property portfolio is critical. In many cases, the value of a defence acquisition lies in its cutting-edge technology, which might be the key to future military dominance. Experts need to ensure that the target’s IP is not only robust but also free from any legal encumbrances that could derail the deal.

Supply Chain Security

With the global supply chain under constant threat, providing the security of military technology components is paramount. We saw a lot of news and speculation about its unsafe conditions during the last gears. What should M&A experts do? They must evaluate the robustness of the target company’s supply chain and consider the implications of any vulnerabilities.

Integration Challenges

Post-acquisition integration in the defence sector can be particularly challenging due to the complex nature of military technology. Making sure the acquired technology is seamlessly integrated into the buyer’s existing systems requires careful planning and coordination.

Strategic Fit and Integration

Once the deal is approved, the real work begins. Integrating a defence acquisition is a complex task that requires careful planning and execution. The goal is to ensure that the acquired company’s technology and capabilities are seamlessly integrated into the parent company’s operations without disrupting ongoing defence contracts or jeopardizing national security.

Cultural fit is also crucial. Defence companies often have a unique corporate culture, shaped by their close relationship with government clients and their role in national security. Ensuring that the acquired company’s culture aligns with the parent company’s values and mission is key to a successful integration.

How M&A Experts Can Assist?

Stepping into the world of military technology M&A requires more than just a strong balance sheet and a risk appetite. The stakes are far higher, and the potential pitfalls are numerous.

Here’s how M&A experts can navigate these challenges and offer guidance to those looking to enter this high-stakes arena:

M&A experts can help identify potential acquisition targets that align with your strategic goals, whether you're looking to enhance your technology portfolio, enter new markets, or secure key government contracts. Experts can also provide a detailed analysis of market trends, helping you to anticipate shifts in defence spending and technological advancements;
M&A experts are skilled negotiators who can structure deals that protect your interests while satisfying all parties involved, including government stakeholders. They can advise on the best payment structures, earnouts, and contingencies that align with the unique risks of the defence sector;
The success of any acquisition ultimately hinges on effective integration. M&A experts can guide you through the integration process, ensuring that the acquired company’s operations, technologies, and cultures mesh smoothly with your own. They also help manage the often-delicate task of aligning the target’s existing defence contracts with your strategic objectives without disrupting ongoing operations.

Stepping into Military M&A: What You Need to Know

Build a Knowledgeable Team

If you’re considering entering the military M&A space, your first step should be assembling a team of experts with experience in defence acquisitions.

This includes:

Having the right team in place will provide you with the necessary expertise to work in this complex environment.

Develop Relationships with Government Stakeholders

Successful military M&A requires strong relationships with government agencies, regulators, and defence contractors. These relationships can provide you with valuable insights into government priorities, potential regulatory challenges, and upcoming opportunities in the defence sector. Building and maintaining these relationships is crucial for navigating the complex regulatory landscape and securing the necessary approvals for your acquisitions.

Focus on Compliance and Security

Given the sensitive nature of military technology, compliance and security are essential. Ensure that you have robust systems in place to comply with all relevant regulations, including export controls, ITAR, and cybersecurity requirements. This includes conducting regular audits and staying up-to-date with the latest regulatory developments. In the defence sector, a breach of compliance can have far-reaching consequences, including the loss of government contracts and severe financial penalties.

Be Prepared for a Long-Term Commitment

Defence acquisitions are not quick wins. They require a long-term commitment to integrating and growing the acquired assets within the framework of your existing operations. This means investing in the acquired company’s technology, workforce, and relationships with government clients. It also means being prepared for the ongoing scrutiny that comes with operating in the defence sector.

Conclusion

As geopolitical tensions escalate, global military spending continues to climb. The defence sector, increasingly seen as a critical battlefield of the future, is attracting significant investment from defence companies seeking to adapt to evolving geopolitical realities.

If you are looking for a legal and M&A team that can help you to work with businesses in the defence sphere, you can contact us.

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