Senators urge Pentagon to reform approach to defense industry mergers, acquisitions

Building on findings by the Government Accountability Office (GAO), U.S. Sens. Elizabeth Warren (D-MA) and Mike Rounds (R-SD) called on the Department of Defense (DoD) to change how it handles defense industry consolidations to protect taxpayer funding and national security alike.

Back in October 2023, a National Defense Authorization Act-required GAO report found current DoD practices for tracking, monitoring and understanding risks from M&A deficient. The watchdog dinged DoD for lack of criteria to prioritize M&A that pose the highest risks, insufficient resources for reviewing those transactions, a lack of data on transactions within the defense space at large and failure to monitor the impacts of most transactions after completion. That, the senators argued, left the door open to harmful mergers.

“DoD plays an important role in reviewing proposed transactions that may adversely affect competition in the defense industry,” the Armed Services Committee members said. “The GAO found, however, that DoD’s processes are ‘not proactive’ and do not ‘analyze the full range of risks that defense-related M&A pose to the defense industrial base.’ These inadequacies can increase supply chain fragility and costs to the Department for products and services provided by an increasingly consolidated defense supply chain,” wrote the senators.

GAO cited lack of clear direction from DoD policies leading the department to focus on high-dollar value transactions that antitrust agencies refer to it, rather than scanning for smaller transactions and actively monitoring for M&A that could induce risks. That neglects many companies supplying other critical products to DoD – including many that are the sole source for those products.

As a result, the senators called on DoD to update its M&A policy to specify the transactions to review, increasing M&A review staffing levels, proactively track and monitor transactions, and consistently undertake post-merger analysis.