Senators Target PE Investment In Defense Contractors

On May 27, 2026, Democratic Senators Elizabeth Warren and Richard Blumenthal, joined by Democratic Representative Ro Khanna, sent a letter to Secretary of Defense Pete Hegseth formally raising concerns with the increasing role of private equity ownership within the Defense Industrial Base. The stated concerns included increased risk of bankruptcy, increased costs to taxpayers, supply chain instability, reduced competition and innovation, and potential national security risks stemming from foreign investments. These lawmakers requested detailed information from the Department of Defense (DoD) by June 10, 2026, including its oversight of recent private equity–driven M&A activity and the extent of the DoD’s contracting with private equity–owned defense firms since early 2025. Any response by the DoD has not yet been made public.

On the heels of that deadline, Senators Warren and Blumenthal introduced the Critical Defense Ownership Review Act (the Act) on June 10. This proposed legislation would require the DoD to conduct a mandatory premerger review for any transactions in which private equity funds, or similar investment vehicles, acquire direct or indirect control of 25% or greater equity interest in a major defense supplier. If enacted, the Act would overlay a distinct pre-closing DoD-led review process onto existing Hart-Scott-Rodino and CFIUS regimes, materially expanding the regulatory framework governing private equity investment into the Defense Industrial Base.

In the proposed bill, “Major Defense Suppliers” is given a relatively broad definition and means “any prime contractor or subcontractor that supplies or could supply goods or services directly or indirectly to the Department of Defense or any company with technology potentially significant to defense capabilities.” The definition specifically includes prime contractors of a “major system,” which is defined as “a combination of elements [hardware, equipment, software or any combination thereof] that will function together to produce the capabilities required to fulfill a mission need,” but it is not limited to those categories. 10 U.S.C. § 3041. Specific to DoD contracts, a system is considered a major system when its total research and development expenditures are estimated to exceed USD275M, or the eventual total expenditure is expected to be more than USD1.3B. Finally, the definition of “Major Defense Suppliers” also specifically includes prime contractors whose contracts were awarded on a sole-source basis.

The Act seeks to enhance the current DoD guidance implementing section 857 of the 2024 National Defense Authorization Act, which requires notification to the DoD of certain categories of proposed mergers that “will require a review by the Department of Defense” and are already subject to FTC review under the HSR Act. While the DoD has issued criteria for transactions that “may require” DoD review, those criteria are not binding, and DoD review is not mandatory. The DoD also issued Directive 5000.62, which provides internal guidance on conducting such reviews but does not identify when or if a DoD review is mandatory. By contrast, under the new Act, the premerger notification would be expanded to all private equity transactions resulting in 25% or greater investment, and such transactions would require DoD review.

If the Act were enacted in its current form, DoD review would encompass six mandatory assessment factors:

• the impact on national security, the Defense Industrial Base, and the Defense Technological Base, including whether the transaction is in the public interest
• the effect on competition for DoD contracts and subcontracts, including future programs and technologies
• the potential that the transaction would result in restrictions of a supplier, good, or service that is crucial to the Defense Industrial Base, critical technologies, or national security
• the risks to the financial stability of the target and its continued stewardship of critical military capabilities, including anticipated cost increases to the DoD
• any other factor that may adversely affect current or future DoD programs or operations
• the financial stability of the acquiror and whether its projected financial plan impairs the target’s ability to maintain its defense supply or services. This factor warrants particular attention from private equity sponsors, as it would subject a fund’s leverage strategy, hold period, and operational plan for the target to direct government scrutiny.

In addition, within 30 days of receiving a premerger notification, the Secretary of Defense would be required to submit a written report on its findings to the FTC or the Antitrust Division of the DOJ, as applicable.

Notably, the current draft of the Act does not provide for a direct mechanism for the DoD itself to block a covered transaction; it only requires the DoD to review the transaction. However, implementing guidance by the DoD would likely detail the conditions for obtaining DoD approval of the transaction. Such premerger reviews could likely delay the timeline to close covered transactions.

Key takeaways for private equity sponsors

White House support for the legislation appears questionable. Within the current DoD, including the Deputy Secretary of Defense and the Office of Strategic Capital, led by former executives from Cerberus Capital Management, there is a strong push to increase private-sector investment in the Defense Industrial Base. The DoD’s 2025 Acquisition Strategy expressly stated that “The Department will regularly collaborate with leading private equity and venture capital firms to communicate operational challenges, demand signals, critical issues, and opportunities for strategic investments, building upon the Office of Strategic Capital’s (OSC) Fiscal Year (FY) 2025 Investment Strategy.” Through this strategy, the DoD expressly “will seek to incentivize increased private capital investments focused on warfighting priorities while providing the Department with greater insights into market intelligence and current and emerging industry offerings.”

It is further telling that the Act is proposed only by Democratic lawmakers, and therefore, it is unlikely to gain significant traction absent some bipartisan support. However, the Act reflects a growing congressional appetite for scrutinizing private equity’s role across various sectors, including in the defense sector. The Act’s deliberately expansive definitions ensure that the full spectrum of private equity deal activity, including majority buyouts, significant minority investments, joint ventures, and platform acquisitions, could fall within its reach. Even if not passable in its current form, it is of course possible that another version of this legislation will resurface if the Democrats regain control of either the House or the Senate after the next election.

Summer associate Mina Kassim also contributed to this blog post.