Key Takeaways
- • A&O Shearman identifies the defense sector as an emerging investment thesis for private equity, driven by European defense spending increases and geopolitical momentum, creating structured deal opportunities for fund managers seeking sector exposure.
- • Dual-use technologies—commercial applications with defense applications—represent a primary investment vector for private capital, attracting sponsors seeking regulatory clarity and managed exposure to defense supply chains without direct government contracting complexity.
- • The U.S. Department of Defense established the Office of Strategic Capital (OSC) in December 2022 to catalyze private capital deployment into defense technologies, signaling institutional acceptance of private equity participation in defense infrastructure and innovation.
- • Private equity dealmaking in defense requires sophisticated legal and regulatory navigation across jurisdictional, export control, and national security frameworks, positioning specialized counsel as critical to transaction execution and deal structure optimization.
- • A&O Shearman's multidisciplinary global platform—spanning M&A, fund formation, regulatory compliance, and capital markets—addresses the full investment lifecycle for defense-focused sponsors, from fund structuring through portfolio company acquisition and financing.
Summary
The defense sector has emerged as a material opportunity for private capital deployment, driven by sustained European defense spending increases and heightened geopolitical attention to military-industrial capacity. A&O Shearman identifies this trend as a defining investment thesis for private equity sponsors seeking differentiated sector exposure with structural tailwinds. The firm's insights indicate that private equity has actively pursued mechanisms to gain concentrated exposure to defense while navigating regulatory and national security constraints that traditionally limited institutional investor participation.
Dual-use technologies—products and systems with both commercial and military applications—serve as the primary entry point for private capital into the defense ecosystem. These technologies allow sponsors to achieve defense sector exposure through commercial innovation narratives while maintaining regulatory compliance across export controls and foreign direct investment frameworks. This bifurcated approach has become strategically important as European countries accelerate defense procurement and modernization, creating acquisition targets and infrastructure development opportunities across allied jurisdictions.
The U.S. Department of Defense's establishment of the Office of Strategic Capital in December 2022 represents an institutional inflection point, signaling governmental intent to mobilize private capital for defense technology development and scaling. This initiative addresses capacity constraints within traditional defense procurement channels and leverages private sector operational discipline and capital efficiency. The OSC framework creates structured pathways for fund managers and institutional investors to participate in defense innovation without assuming direct government contract risk.
Transaction execution in the defense sector demands specialized legal and regulatory expertise spanning multiple jurisdictions, export control regimes, Committee on Foreign Investment in the United States (CFIUS) review processes, and national security clearance requirements. A&O Shearman's global private capital team addresses this complexity through integrated counsel covering fund formation, M&A structuring, portfolio company financing, and cross-border transaction management. The firm's 2024 formation via merger of Allen & Overy and Shearman & Sterling consolidated nearly 4,000 lawyers globally, positioning the platform to advise sponsors, fund investors, and management teams across the complete investment lifecycle in defense and defense-adjacent opportunities.
Dual-use technologies—products and systems with both commercial and military applications—serve as the primary entry point for private capital into the defense ecosystem. These technologies allow sponsors to achieve defense sector exposure through commercial innovation narratives while maintaining regulatory compliance across export controls and foreign direct investment frameworks. This bifurcated approach has become strategically important as European countries accelerate defense procurement and modernization, creating acquisition targets and infrastructure development opportunities across allied jurisdictions.
The U.S. Department of Defense's establishment of the Office of Strategic Capital in December 2022 represents an institutional inflection point, signaling governmental intent to mobilize private capital for defense technology development and scaling. This initiative addresses capacity constraints within traditional defense procurement channels and leverages private sector operational discipline and capital efficiency. The OSC framework creates structured pathways for fund managers and institutional investors to participate in defense innovation without assuming direct government contract risk.
Transaction execution in the defense sector demands specialized legal and regulatory expertise spanning multiple jurisdictions, export control regimes, Committee on Foreign Investment in the United States (CFIUS) review processes, and national security clearance requirements. A&O Shearman's global private capital team addresses this complexity through integrated counsel covering fund formation, M&A structuring, portfolio company financing, and cross-border transaction management. The firm's 2024 formation via merger of Allen & Overy and Shearman & Sterling consolidated nearly 4,000 lawyers globally, positioning the platform to advise sponsors, fund investors, and management teams across the complete investment lifecycle in defense and defense-adjacent opportunities.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.