Over the years, the Defense News Top 100 list has highlighted fundamental changes in the defense industry. Comparing lists from 2010 to 2023, one can see a rise of Chinese, Turkish and South Korean firms. They show the increasing prominence of services and information technology sectors as major components of the industry.

But one of the most salient features of the global defense industry mostly eludes visibility in the Top 100 list: the rise of private capital as critical players in the defense sector.

Click here to see the Top 100, a ranking of the largest defense companies in the world.

Whether controlled by private equity firms or families, privately owned firms play an increasingly prominent role across numerous defense market sectors. Privately owned defense firms — as opposed to those that are publicly traded or government-owned — used to be a rarity in the defense sector.

The Washington, D.C.-based Carlyle Group was an early pioneer among private equity firms, having acquired defense-related properties in the 1980s. But it was in the 2000s that private equity firms started their rapid expansion into many sectors of the global economy, including defense, aerospace and government services.

(Source: Oliver Wyman)

Why are many of these players missing from the Defense News Top 100 list? Privately owned firms are not required by government regulators to disclose financial information, like revenue, margin or capital investment.

Open-source information is one of the principal means, along with a voluntary survey, by which Defense News compiles the annual Top 100 list. Many private firms choose to keep their financial indicators private. Those that do show up on the list — like Sierra Nevada Corp., ranked 57th in this year’s edition — do so for their own reasons, such as brand awareness. The presence of companies like ManTech, Amentum and Peraton show some private equity owners are willing to share at least some details about the size of their defense operations.

This means many increasingly prominent players in the global defense sector are absent from the Top 100 list. Publicly available U.S. Defense Department contract data suggests the scale of some of these missing companies (a contract value can be a proxy for revenue, but the two metrics are not equal):

  • Atlantic Diving Supply: Family-owned ADS is a distributor of tactical equipment to military, law enforcement and emergency services customers. ADS generated more than $3 billion in contract value from DoD agencies in the U.S. government’s fiscal 2022, suggesting it could be in the top half of the Top 100.
  • General Atomics: The maker of the Reaper drone rarely discloses its financial information. But in FY22, General Atomics was awarded DoD contracts valued at more than $2 billion. That does not count potential classified contracts. Further, General Atomics has exported the Reaper to international customers, which would add international sales to its defense revenue.
  • SpaceX: The firm is a critical space launch provider to the DoD and NASA. In FY22, SpaceX generated nearly $760 million in contract value from the DoD alone. It is hard to know where this would put them on this year’s Top 100 list, in part due to international defense revenue.
  • Cubic Corp.: Cubic was ranked 98th in the 2021 version of the Top 100 list, with about $635 million in FY20 defense revenue. But after Veritas acquired it in May 2021, the firm stopped publicly reporting financial information. In FY22, Cubic gained more than $568 million in prime contract value from DoD customers. Adding international and subcontract revenue, Cubic would likely take a position in this year’s Top 100 list, too.

Why are private investors drawn to defense? Defense firms usually do not generate margins much greater than low single digits, a fraction of those seen among, say, commercial technology firms like Apple (43.3% gross margin in 2022) or Microsoft (68.4%).

But defense companies can be valuable in other ways. Defense (and broader government) markets offer limited risk: Government customers generally pay on time, they cover most research and development costs, and they provide steady cash flow. This predictability and low risk can lead to a total shareholder value that is highly attractive.

The role of defense in private investors’ motivations can vary. Many private equity firms maintain a broad portfolio, even if, like Veritas Capital, Arlington Capital Partners and others, they pursue defense as a specialty.

Individual investors may be drawn to defense for patriotic reasons. Palmer Luckey, a founder of defense software integrator Anduril, told The New York Times in 2017 that “we need a new kind of defense company, one that will save taxpayer dollars while creating superior technology to keep our troops and citizens safer.”

Looking to the future, some firms may disappear from the Top 100 list. Cobham Advanced Electronic Solutions was acquired by the global private equity firm Advent International in 2020, but continues to feature on this year’s list (in 75th place). That rank is due in part to its absorption of Ultra Electronics, which Advent acquired in March 2023. Similarly, Advent acquired Maxar Technologies (77th on the list) in May 2023. These firms’ continued presence on the Top 100 list may have as much to do with Advent’s appetite for publicity as it does with these companies’ commercial success.

Doug Berenson is a partner at the consultancy Oliver Wyman, where he focuses on the aerospace and defense markets.

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