Capitol Meridian Partners Raises $1.2 Billion for Defense Investments

In March 2021, Adam Palmer and Brooke Coburn embarked on a bold venture, leaving the established Carlyle Group to launch their own private equity firm, Capitol Meridian Partners, amidst the challenges posed by the Covid-19 pandemic. Their vision was to invest in companies and products that support the U.S. military and national security, a sector they believed held significant potential. Despite the daunting circumstances, their initial meetings with potential investors, employees, and advisors took place around Palmer’s dining room table, with the windows open to the mild weather outside.

Capitol Meridian Partners officially opened its doors in March 2022 on K Street in downtown Washington D.C., with a team of 14 employees, many of whom had previously worked at Carlyle Group. The firm focuses on the defense and government services sector, investing in companies that provide hardware, software, and services for national security and the aerospace market. This sector has seen substantial growth, with public aerospace and defense companies outperforming the broader market over the past three years. The shift in sentiment, driven by geopolitical issues such as Russia’s invasion of Ukraine and recent U.S. military actions, has further benefited defense companies and their investors.

Capitol Meridian’s strategy is to invest in businesses that support the nation and U.S. servicemen and women, avoiding products that could be misused, such as handguns. The firm has already raised $900 million for its first pool, plus $300 million in co-investments, with Palmer and Coburn being the third largest investors. They have taken stakes in six portfolio companies and completed 20 add-on deals, although they have yet to achieve an exit. The firm’s oldest investment is turning three, indicating that it is still early in its life cycle.

Palmer’s extensive experience in defense and aerospace investing spans over 25 years. His career began at Lehman Brothers, where he worked on deals for Carlyle Group. Bill Conway, one of Carlyle’s cofounders, recruited Palmer over breakfast, and he joined the firm at the age of 22. Palmer’s first PE deal at Carlyle was the acquisition of United Defense Industries, which Carlyle took public in 2001 and fully exited in 2004, making more than $1 billion in profit. This deal solidified Palmer’s ambition to invest in businesses that support the nation and U.S. servicemen and women.

Despite Palmer’s successes, Carlyle’s focus shifted from its middle-market roots to larger deals and diverse sectors, including consumer, healthcare, industrial, and technology. Palmer and Coburn, who was named deputy CIO for real assets in 2018, preferred Carlyle’s original middle-market approach and decided to leave in early 2021. They launched Capitol Meridian Partners to return to their middle-market roots, defining the middle market as deals below $1 billion. Palmer believes that the best returns in the defense and national security sector are found in the middle market.

Capitol Meridian is expected to return to the fundraising market for its second pool soon, as roughly 60% of its first fund is already invested. The firm aims to seek over $1 billion for its next pool, although Palmer declined to comment on the specifics. Despite the challenging fundraising environment, Capitol Meridian remains focused on its mission to support U.S. servicepeople and continue its growth in the defense sector.