This bill requires the Department of Defense to review acquisitions by investment companies that result in a controlling interest in major defense suppliers to safeguard national security and the defense industrial base.
Ro Khanna
Representative
CA-17
This bill, the Critical Defense Ownership Review Act, requires investment companies to notify the Department of Defense before acquiring a controlling interest in a major defense supplier. The DoD must then review the transaction's impact on national security and report findings to antitrust authorities. Additionally, the bill mandates a triennial review of merger and acquisition activity involving defense suppliers to assess the health of the defense industrial base.
Defense Ownership Review Act Mandates DoD Approval for Investment Firms Buying 25% Stake in Military Suppliers
The Critical Defense Ownership Review Act aims to put a 'speed bump' in the way of investment firms looking to buy up the companies that build our military’s hardware and software. Under this bill, any investment company—think private equity or hedge funds—must notify the Department of Defense (DoD) before closing a deal that gives them 25% or more of a 'major defense supplier.' This isn't just about the big names making fighter jets; the definition is broad enough to include tech startups working on software or subcontractors making specialized parts. The goal is to ensure that when a company changes hands, the new owners have a solid financial plan that won’t tank the supplier’s ability to deliver critical gear.
Checking the Receipts
When a deal is flagged, the DoD has to dig into the details. They’ll look at whether the purchase is in the 'public interest' and if it might hurt competition for future military contracts. For a worker at a mid-sized tech firm in Virginia that just landed a defense contract, this means their company’s potential sale to a private equity group could be scrutinized to ensure the new owners won't slash R&D budgets just to turn a quick profit. The bill specifically asks the DoD to check if the investment firm’s financial plan 'impairs' the supplier’s ability to keep the lights on and the assembly lines moving. Within 30 days of the notification, the DoD has to hand a report over to federal antitrust authorities at the FTC or DOJ, effectively adding a national security lens to standard merger reviews.
The Fine Print and Future Proofing
One of the trickier parts of this bill is how it defines 'control.' It’s not just about owning a certain number of shares; it includes the power to 'determine, direct, or decide important matters.' This could lead to some legal head-scratching for investment groups trying to figure out if their seat on a board triggers a full federal review. Beyond individual deals, the bill also mandates a 'check-up' every three years. Starting in 2027, the Assistant Secretary of Defense for Industrial Base Policy must report to Congress on how all these mergers and acquisitions are affecting the overall health of the defense industry. It’s essentially a recurring audit to see if the consolidation of defense companies is making our national supply chain more fragile or more expensive for taxpayers.