Brooke Coburn, Co-founder, Partner at Capitol Meridian Partners, joined Giovanni Amodeo for a fireside chat to discuss how to identify opportunities in the defence sector. Here’s a summary of their conversation:

Background and Investment Thesis: Capitol Meridian Partners focuses on middle-market opportunities in the aerospace, defence, government, technology, and government services sectors. The firm’s investment thesis revolves around building companies that can help the government solve its biggest problems, generating sustainable long-term growth.

Navigating the Government Ecosystem: The government is not one customer, but rather 400 different agencies and purchasing authorities. Understanding the government’s priorities and navigating its complexity requires a deep understanding of the sector and a strong network.

Supporting Founders and Companies: Capitol Meridian Partners works closely with founders to identify their needs, whether it’s access to capital, managerial expertise, or connections within the government. The firm’s value proposition lies in its ability to bring specialized capabilities, including business development, team building, and strategic guidance, to help companies grow.

Exit Strategies and Strategic Partners: The most common exit route for Capitol Meridian Partners’ portfolio companies is a strategic sale to a larger company. The firm’s operating partners play a crucial role in building companies up to a scale and capability set that’s relevant and valuable to strategic buyers.

Role of Intermediaries and Industry Trends: Intermediaries, such as bankers, play an important role in the defence sector, but Capitol Meridian Partners focuses on proprietary deals and working directly with founders. The industry is shifting towards more national security-focused priorities, which provides a stable and attractive environment for investment.

LP Concerns and Sector Attractiveness: LPs are concerned about the impact of elections and government shutdowns on the defence sector, but Capitol Meridian Partners believes that national security priorities provide a stable foundation for investment. The sector’s barriers to entry, lack of competition, and potential for value creation make it an attractive place to invest.

Investment Allocation: If given $1,000 to invest, Coburn would allocate it to private equity over private credit or public equity, citing the potential for 3x cash on cash returns and better duration.

Key Takeaways

1. The defence sector offers a unique opportunity set, driven by national security priorities and a stable government budget.
2. Identifying opportunities in the sector requires a deep understanding of the government ecosystem and a strong network.
3. Private equity investments in the defence sector can provide attractive returns, driven by the potential for value creation and strategic sales to larger companies.

Key timestamps:

00:09: Introduction to ION Influencers’ Fireside Chats
00:35: Background and Formation of Capitol Meridian Partners
01:53: Focus on Defense and Aerospace Sector
04:29: Understanding Government Agencies and Information Access
06:04: Supporting Founders and Growth Strategies
09:05: Assessing Needs for Equity and Private Credit Solutions
10:23: Founder Needs: Access to Information, Contacts, and Capital
13:06.33 Identifying Fast Running Currents within the Government
14:31.35 Exit Strategies for Investments
15:08.42 Market Fragmentation and Consolidation
19:12.22 Role of Operating Partners
21:08.04 Value Creation and Strategy Optimization
22:28.84 Relationship with Founders and Reputation
23:18.37 Concerns and Considerations in the Defense Sector
24:45.42 National Security and Government Impact
25:38.29 Investment Focus and Market Competition
26:30.46 Trends in Government Infrastructure Modernization