You know an industry is blowing up when the private equity (PE) guys are coming for it.
Yesterday, New York and Florida-based PE fund OceanSound Partners closed a $3.4B Fund II to invest in “technology and technology-enabled services companies serving aerospace, defense, government and highly regulated enterprise end markets.” The oversubscribed fund (goal was $2B) brings AUM to $8B. Pocket change, really.
Joe Benavides, CEO and founder of OceanSound, told Tectonic that the fund is targeting “12 majority investments out of the new fund in companies valued at up to $750 million including debt.” Their valuation sweet spot, he added, is around $150-$300M.
“We’re excited about companies which help to modernize the infrastructure and improve the productivity of aerospace, defense, government, and highly-regulated end markets,” he said via email. “[That includes but is not limited] to digital and analog microelectronics, embedded computing, materials technologies, autonomous systems, workflow management software (including AI) and space technologies.”
Let the defense tech land-grab begin.
Finance bros: First, a bit of a primer on what a PE fund like this coming into defense tech actually means for the uninitiated. Basically, PE is really good at coming to industries when they’re valuable but kind of fragmented and buying stuff up.
- The bread and butter for PE is the picks-and-shovels stuff—the stuff that makes the defense tech industry, like, run, but maybe isn’t as sexy.
- Think: components, integration, manufacturing, gov IT—the unglamorous layer that everything else depends on.
- The playbook is simple: roll up a bunch of subscale players, cut costs, centralize ops—consolidation, baby.
Buy it up: OceanSound has made a name for itself doing this specifically in tech and A&D—it was founded back in 2019, but has ramped up quickly over three funds:
- Fund I (2022): ~$780M
- Fund II (2024): ~$1.5B
- Fund III (2026): $3.4B
Plus, their investors seem to be pretty happy. OS (we’re making up our own abbreviations here) said in a statement that Fund III was “significantly oversubscribed with OceanSound’s existing investors increasing their commitments by approximately 125% from the predecessor fund and nearly all of the predecessor fund investors returned as investors in the Fund.”
Happy investors, happy life.
Grown-ups: Benavides sees this fund as a way to actually scale the defense tech sector up to, like, real defense company status and make sure solutions are being deployed at scale—especially with the whole multiple wars thing going on.
“While venture-backed startups like Anduril have been making the headlines, private equity firms like ours can provide much-needed capital to growing technology companies looking to modernize and advance our defense sector,” he said.
“Current hostilities in the Middle East between the US, Israel, and Iran, and potential conflicts in Asia between China & Taiwan, underscore the need for the US to develop and deploy cutting-edge technology as fast as possible, as inexpensively as possible,” Benavides added. He sees PE as the engine to make that happen.
Chronically online: We asked Benavides if there were any tech areas he sees as particularly ripe for buy-up with this fund. Hint: It doesn’t go boom.
“One area we’d note that’s ripe for investment is cyberdefense,” he said. “This is a new front of warfare. We see that sluggish procurement processes have left federal agencies stuck with outdated software and hardware that’s vulnerable to cyber threats.”
Big day for the unsexy side of defense.