Blackstone is rolling two portfolio companies, Applied Systems Engineering Inc. and Technology Service Corp., into a new venture called Falcata. The firm said the platform is designed for a world where cheap drones and other widely deployed weapons are rising, and it plans to add more businesses over time. The name nods to a pre-Roman Iberian sword.
People familiar with the transactions, who requested anonymity because the details are confidential, said Blackstone provided more than $1 billion across debt and equity to complete the acquisitions. David Kaden, who leads Blackstone's defense investing effort, said he would not discuss the exact size of the capital commitment.
Falcata will zero in on technologies used in interceptors designed to counter missiles, drones, and other threats. Kaden said the goal is to integrate the two companies' capabilities to deliver lower cost navigation and guidance systems. As he put it: "One of the choke points in the defense industrial base has been the availability of interceptors, and some of the highest costs are for its 'brains' for navigation and guidance."
Kaden also said Blackstone expects to buy additional companies for the platform.
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Private money has been moving faster into U.S. defense as geopolitics heat up and Republican lawmakers push to give the Pentagon a record budget. Earlier this year, Carlyle Group said it would launch a middle market aerospace, defense and industrials investing unit to pursue deals in the U.S. and Europe. Recent fundraising and strategy moves in the space include Warburg Pincus reportedly targeting up to €1.5 billion for a defense fund, Gulf spending on anti-drone systems spurring competition among defense firms, and Cerberus seeking $4 billion for a second supply chain fund.
Blackstone President Jon Gray said in July that over the past five years the firm has put $20 billion into defense and aerospace. "We expect the scale and pace of that investment to increase meaningfully from here," Gray said at the Pennsylvania Defense & Innovation Summit. "We see national security as a compelling place to deploy capital on behalf of our investors that also supports a core American interest."
Someone with direct knowledge, who requested anonymity, said Blackstone's defense bets include a stake in Anduril held through a private equity vehicle for wealthy investors. In the latter part of last year, the firm agreed to divest ARKA, a technology company that serves the U.S. military, selling it to CACI International for $2.6 billion, a transaction that people said would return more than five times the invested capital. Blackstone has also supported no fewer than five additional companies in the sector during the past two years.
Defense is drawing more capital for a reason: steady demand, government budgets that tend to ratchet up rather than down, and newer categories like drone defense that need scale. Falcata is Blackstone's bet on the "brains" inside interceptors, and it is signaling there may be more buying to come. If you are watching where long term money is flowing, the lane between national security and advanced industrial tech just got another heavyweight entrant.
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