U.S. Senate Committee on Banking, Housing and Urban Affairs ranking member introduces bill to require Department of Defense review of private equity control or 25% stakes in defense contractors

The ranking member of the U.S. Senate Committee on Banking, Housing and Urban Affairs, together with Senator Richard Blumenthal and Representative Ro Khanna, introduced the Critical Defense Ownership Review Act, a bill that would expand Department of Defense oversight of mergers and acquisitions involving private equity firms and defense contractors. The proposal would require Department of Defense review when a private equity firm would gain direct or indirect control of, or a 25% stake in, a defense contractor. The bill would write existing Department of Defense merger review factors into law, including effects on national security, the industrial base, competition among Department of Defense contractors and subcontractors, and sourcing risk. It would also require the Department of Defense to assess the financial stability of the acquiring investment manager and the contractor after the deal, and to conduct a triennial review of mergers and acquisitions involving defense contractors, with findings reported to the congressional defense committees. The release cites more than 1,500 private equity deals involving defense contractors and USD 15 billion invested in nearly 140 defense-related deals in 2021 alone, alongside research indicating higher bankruptcy and credit downgrade risk for private-equity-owned contractors and a 2023 Government Accountability Office report that found the Department of Defense has not routinely assessed competition threats in merger reviews.