Defense and Government Contractor M&A-Special Concerns for Private Equity Buyers

Private equity (PE) buyers account for a great deal of merger and acquisition activity involving aerospace, defense, and technology services firms that contract with the U.S. government. This industry is highly regulated, and some of its regulations are complex and counterintuitive. The article addresses the affiliation issues that can arise from holding government contractor portfolio companies. First is the affiliation among a PE buyer, its portfolio companies, and the acquired company for purposes of the U.S. Small Business Administration rules on small business "set aside" contracts. Second is the affiliation between PE firms and their foreign investors when acquiring a government contractor that holds security clearances. Finally is the affiliation between and among portfolio companies for purposes of contract competitions, including the conflict of interest and suspension/debarment regimes.