Geopolitics is now a deciding factor behind defense deal structures, Alexandrine Armstrong-Cerfontaine, partner in law firm Goodwin’s Private Equity group, told me. It also dictates who can be admitted into funds and where those funds should be located. “It’s no longer about tax optimization – it’s about being in the country where you can make the investment,” she added. While Armstrong-Cerfontaine has noted LPs looking for the “next wave” of PE- and VC-backed disruptive defense companies, complexities cloud dealmaking to some degree. “A lower offer might be more strategically acceptable if the higher offer causes more execution risk,” she said. “The risk isn’t mispricing, it’s execution complexity. “Once you’re in, is there scalability in terms of procurement? Will you continue to have regulatory approvals? What are your exit options?” Despite difficulties in transacting in the sector, private markets are well-suited to take up the challenge. “I’m lucky enough to have met a couple of American, German and French generals,” said Armstrong-Cerfontaine. “They all say speed is now a strategic asset. That’s something private equity and venture capital have understood well.”
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