Shifting Landscape: AUSA 2022 Provides Window Into Priorities

Evolving threats, advancing technology, and new global dynamics are driving growth and innovation in the defense industry. Recently returned from the Association of the U.S. Army’s Annual Meeting, senior bankers from the Harris Williams Aerospace, Defense & Government Services Group discuss the latest trends in the space and the role being played by private equity.

Building the Army of 2030

The threats of today and tomorrow are starkly different from those faced by the Army in Afghanistan and Iraq, says Rogers: "The Army of 2030 will be less focused on counterinsurgency and more focused on all facets of 21st-century conventional deterrence in Eastern Europe and the Indo Pacific.” 

New technology will be at the core of this shift, says Rogers. He notes that the conflict in Ukraine is a case study of a numerically inferior force outperforming due to decentralized decision-making and innovative applications of technology, such as drones and long-range missile strikes. Both are examples of new capabilities on which the Army is focused. “Many of these capabilities are either dual-use or are significantly enhanced by commercial sector technology,” adds Kinard.  

The Army’s approach to organization is also being reevaluated, with a focus on recruiting and retaining the talent needed for the specialized units and geographically distributed force that will be key to the Army’s future priorities. 

The Army’s Role in Integrated Deterrence

As its role evolves, tomorrow’s Army will also use a shifting blend of tactics. “In the Indo Pacific, the Army is looking to strike the right balance between strategic basing, expeditionary capabilities, and long-range strike alternatives,” says Smith. “Winning is convincing any potential adversary that escalation will be a lose-lose course of action.” 

In an increasingly complex geopolitical environment, the Army is recognizing the value of close coordination with the State Department and the U.S. intelligence community. “This ‘whole-of-government’ approach is another way the Army is looking at alternatives to full combat,” says Rohman. 

Another alternative, says Rogers, is the Army’s active role in operationalizing international alliances: "While certain interests might be different, it's far more effective for us to find common ground and goals with our allies – and then to invest real time and talent into training, planning, and operating together. The Army must continue making this a priority.” 

The Role of the U.S. Industrial Base and Private Capital

With a generational set of challenges and opportunities ahead, it’s essential for the Army to actively and productively engage with both traditional and non-traditional defense companies, many of whom had a very visible presence at AUSA this year. 

“As we discussed in SHARPE Focus: Emerging Growth Opportunities in Defense Industry, defense technology start-ups have raised record capital at record valuations in the last two years,” notes Smith. “We expect that these companies are going to play an increasingly important role in the Army of 2030.” 

Rogers points out that the established defense primes should be open to teaming with new entrants where it makes sense, citing the Anduril-Rheinmetall venture to design a new Army vehicle as a good example. “In other cases, creative collaborations, such as L3Harris’s announced strategic partnership with Shield Capital, a new national security-focused venture capital firm, are great ways to tap into outside streams of new tech and unconventional thinking.” 

“It's a historically significant window for private capital to be investing into defense,” says Rogers. “Strategic capital is needed more than ever – and across the full spectrum of deal profiles – from early stage and growth equity to traditional scaled private equity buyouts for divestitures and platform build-outs.” 

Conclusion

As the Army and other military branches accelerate innovation and embrace evolving missions, they will look to a new breed of partners to turn plans into reality. Private equity is poised to play an increasingly important role in this evolution. 

Please contact our senior bankers to learn more.​ 

Fragmented, diverse, and tied to essential end-markets, the aerospace, defense, and government services industry provides a wealth of opportunities for investors. Our Aerospace, Defense & Government Services Group, led by professionals with robust experience in the industry, works with investors and high-growth companies worldwide to realize growth potential in a complex space. Our clients depend on our deep understanding of the M&A market in their industry to unlock value in their businesses. 

We have a strong track record advising companies in sectors across the industry, including maintenance, repair, and overhaul; aviation services and support; defense electronics; logistics services; and more. 

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