A lower-middle-market PE firm in the defense and government sector rapidly secured hundreds of millions of dollars for its latest buyout fund.
The swift fundraising haul underscores substantial investor interest in the industry, driven in part by the US government’s increased reliance on the private sector for digital transformation of its operations and technological update of US military forces.
Washington, DC-based Godspeed Capital Management, which invests in defense and government services, solutions, and tech companies, raised $675 million in capital commitments within two months for its third buyout fund.
The vehicle closed above its hard cap and is 1.7 times the size of the $250 million raised for its predecessor in 2023. The second fund was closed in less than six months, with backing from US institutional investors, including its strategic partner East Rock Capital.
Investments in the government and defense sector benefit from a few tailwinds, including increased government spending on defense and the modernization of government infrastructure, according to Jim Corridore, PitchBook’s senior industrials analyst.
The US is pushing to modernize government technology and military readiness, which leads to high-margin tech contracts for private companies, Corridore said.
Several areas are seeing strong investment now, including government IT; air, land and sea defense; and space systems.
Meanwhile, he added, the government is spending more on missile systems, jets, ships and ground vehicles in the face of geopolitical risks.
Additionally, government contracts can promise contracting companies highly visible recurring revenue streams.
PE dealmaking has been sluggish since 2022 and only recently sprung back to life, driven by interest rate cuts and expectations of lower borrowing costs. Exit activity has also been tepid, partly due to the difficulty of bridging the valuation gap between buyers and sellers.
Godspeed, however, bucked the trend, making 33 investments since its inception in 2021. This year, it nabbed two exits.
The firm typically targets founder and management-owned companies generating $3 million to $30 million in EBITDA, spanning sectors including cybersecurity, cloud computing, defense tech, space and healthcare IT.
Its portfolio includes SilverEdge, a cybersecurity company serving the defense and intelligence communities, and Crimson Phoenix, a data and intelligence analysis platform.
Godspeed exited MoreGroup to Wind Point Partners in January and sold Stratus Team to Brightstar Capital Partners in July. Both companies were backed by Godspeed’s first fund, raised in 2021.
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