During the PE boom of 2021, The Carlyle Group (Nasdaq: CG), and many other shops decided to go upmarket and focus on mega-deals. Longtime Carlyle partners Adam Palmer and Brooke Coburn saw an opening in the middle market and left the PE titan to launch Capitol Meridian Partners. In March, the Washington D.C. firm announced its first fund to target middle-market defense contractors and other government-related businesses.
CMP closed its inaugural fund in March at $900 million exceeding its $650 million target. In addition, LPs have committed an additional $300 million for co-investments in the firm’s initial deals.
While some firms dabble in the space, Coburn says few are as narrowly focused at the lower end of the market for businesses that rely on government contracts or are heavily regulated. Government procurement is often esoteric and almost always Byzantine.
“The ability to understand and navigate the government is really important,” Coburn says. “To execute in this market you need to be a specialist.”
Palmer says the defense space is also non-cyclical. There’s always a need for national security. Current drivers include the Middle East war, the Ukraine invasion and rising tensions between the U.S. and China. LPs previously reluctant to get involved with defense contracting have gotten off the sidelines.
Dealogic data shows PE firms spent $8.5 billion to acquire U.S. defense companies from 2021 through 2023, almost triple the amount deployed over the preceding seven years.
Eight of CMP’s 11 full-time employees are Carlyle alums, including four partners.
Palmer ran Carlyle’s aerospace, defense and government-services investment team and Coburn served as Carlyle’s middle-market head. Meanwhile, two of the firm’s other partners are also Carlyle alum. CFO Andrea Pekala, who left Carlyle in 2017, joined CMP shortly after its launch. Mike Gozycki joined in 2022 after 15 years at Carlyle.
In addition, finance director Mark Allen, principals Henry Johnson and Lee Goehring and office manager Larissa Swetlitschnyj are all Carlyle refugees.
Palmer says that continuity and the Carlyle pedigree convinced skittish LPs to invest in an emerging manager during one of the worst fundraising droughts in recent memory.
“Questions about emerging managers were quickly put to bed,” Palmer says.
About 30 LPs committed capital to Fund I, including endowments and foundations, pension funds, fund-of-funds, insurance companies and family offices. CMP targets U.S. government contractors, aerospace and defense companies with Ebitda of between $5 million and $75 million.
Coburn also says it helped that the firm zeroed in on targets during the fundraising period, which gave LPs “something tangible” to examine before making their commitments. They could determine the quality of the proposed investment and get a feel for the firm’s investment thesis.
The firm invests between $50 million and $250 million for each target. CMP isn’t interested in taking over operations and typically leaves the management team in place.
It has made five acquisitions in the last two years, including two deals with Carlyle connections that included other PE partners. The Sterling Group and CMP jointly acquired aviation services provider PrimeFlight from Carlyle last year. PrimeFlight, in turn, acquired Aero Charter de Mexico and contracts to service 13 Mexican airports.
CMP also partnered with Carlyle co-founder David Rubenstein-backed Declaration Partners and 22C Capital.
| Company | Sector | Partners | Year |
| Altumint | Software and technology | N/A | 2022 |
| LMI | Tech-enabled logistics | Declaration Partners, 22C Capital | 2022 |
| Clarity | National security services | N/A | 2023 |
| PrimeFlight | Aviation Services | The Sterling Group | 2023 |
| Project Nimbus* | Defense technology | N/A | 2023 |
The name Capitol Meridian is derived from Pierre L’Enfant’s original design of Washington D.C. Enfant drew a north-south line from the planned Capitol as a “true north” and point of reference to guide his design.
Coburn and Palmer each joined Carlyle in 1996 when it was making bets out of its first closed-end fund, a sub-$1 billion vehicle aimed at government services. When the booming firm announced in 2021 that it would no longer raise funds dedicated to the middle market, the pair decided Carlyle was leaving behind a niche to fill.
“That was really the catalyst for going out,” Coburn says. “We wanted to get back to our roots.”
Contact Coburn at [email protected] or Palmer at [email protected].
