The U.S. Government Accountability Office (GAO) released a report on October 17, 2023, focusing on mergers and acquisitions (M&A) within the defense industrial base. The report highlights the existing M&A review process within the Department of Defense (DOD) and provides recommendations for enhancing the assessment of M&A competition risks. Currently, the DOD’s Industrial Base Policy (IBP) office, in collaboration with DOD stakeholders, offers recommendations on transactions that could impact the defense industrial base, especially when requested by the Department of Justice or the Federal Trade Commission (the Antitrust Agencies). Although the DOD does not have a formal role in determining the outcome of antitrust reviews, it contributes insights into the competitive effects of these transactions.
The GAO report concludes that the DOD has historically played a reactive role in the review of M&A in the defense industry. This reactive stance has resulted in missed opportunities to identify transactions that could harm the defense industrial base and overlook potential risks for DOD programs. The report attributes this reactive posture to a lack of clear guidance and insufficient resources for those responsible for providing DOD’s views to the Antitrust Agencies. The DOD’s M&A policy, outlined in DOD Directive 5000.62, offers guidelines for assessing M&A in the defense industrial base but lacks a structured methodology for conducting assessments.
Moreover, the GAO report notes that the IBP office has limited resources, reducing its capacity to monitor transactions that may be subject to reporting under the HSR Act but lack an apparent defense connection. It also limits the ability to analyze defense-related M&A beyond the HSR Act’s scope or perform macro-level trend analyses. As a result, IBP officials tend to prioritize large transactions for their attention, using the Antitrust Agencies’ inquiries as a proxy for identifying high-risk M&A deals. The report reveals that, between fiscal years 2018 and 2022, DOD assessed about 40 M&A transactions annually, primarily exceeding the HSR Act’s size of transaction threshold. It also highlights that DOD monitored only two completed M&A transactions in the past decade, both initiated at the Antitrust Agencies’ request…