The Silent Succession Crisis
Thousands of small manufacturers underpin the U.S. defense industrial base. With limited succession planning, critical industrial capabilities will soon deteriorate — or disappear altogether.
This recommendation is part of BENS's Mobilizing Private Capital campaign, which translates private-sector experience into actionable national security insights. The piece was co-authored by Chad Strader, BENS Member and Co-CEO and Managing Partner at Red Arts Capital, and Ned Sandlin, Operating Partner at Red Arts Capital. The views expressed are those of the authors. Read the full recommendation on our website.
Right now, a 62-year-old machinist-owner is thinking about retirement. His shop of 30 employees, tucked into an unassuming industrial park in the Midwest, makes a highly specialized component you’d never be able to pick out from a lineup of machine parts. But this component is critical to a defense system you’ve definitely heard of, and his is the only shop in the U.S. that makes it.
He doesn’t have a succession plan, and he’s having trouble finding a buyer.
This scenario is playing out across thousands of shops across the country, and it represents one of the most underappreciated vulnerabilities in the U.S. defense industrial base. There’s no adversary, no cyberattack, and no dramatic supply chain rupture that will bring this challenge to the headlines. There is just an aging owner locking the door for the last time, and a critical defense capability retiring with him.
Chad Strader and Ned Sandlin of Red Arts Capital have spent years acquiring and operating lower-middle-market manufacturing businesses. With 25 years of Air Force supply chain experience and deep investment expertise, they’ve talked to more than 100 precision machine shops and industrial suppliers. What they’ve seen should concern anyone paying attention to U.S. defense readiness.
Recommendations in Brief
Forestall the loss of critical defense suppliers as owner-operators retire through three interconnected actions:
Unlock supplier-held data on demand and capacity: Create voluntary, confidentiality-protected pathways for lower-tier suppliers to share capacity, order history, and production data upward — helping the Pentagon and prospective buyers illuminate, and act on, supply chain fragility.
Delegate communication authority to the right level: Push clear, unclassified engagement guidance down to the contracting and program-management level so routine dialogue with private investors can occur without senior-level intervention.
Streamline the path for domestic succession investment: Reduce the transaction and compliance frictions that disproportionately stall small continuity deals, and ensure that small-business designation rules do not inadvertently block private capital from preserving lower-tier suppliers during ownership transition.
What You Need to Know
The U.S. has roughly 16,600 machine shops, and that number has been dropping by roughly one percent per year over the last five years. As of 2023, small businesses collectively account for more than $85 billion in annual DoD prime contracts, with precision component manufacturers — the tier-2 and tier-3 backbone of every major weapons program — representing tens of billions of that spend.
While perhaps appearing as marginal players to the untrained eye, these manufacturers represent a niche group of owners and operators with specialized know-how, long-standing program relationships, and — in some cases — represent the only domestic source for a specific critical component.
These shops don’t stand out, and you won’t see them at the next gathering of defense primes. Nearly all of these businesses generate less than $10 million in annual revenue. The average owner is around 60; the average worker is around 55. A wave of imminent retirements is a question of when, not if.
Even more troubling: the problem may affect the market years before this wave of retirements starts to crest because deterioration of the underlying business often starts before the owner formally exits.
Investment slows, equipment upgrades get deferred, and the 62-year-old machinist-owner — who is frequently the primary sales representative, on top of his other duties — starts winding down operations. By the time a buyer shows up, the business may already be carrying years of underinvestment and a shrinking pipeline.
Key Takeaways
Three Barriers Standing Between Capital and Continuity
Capable investors and strategically important suppliers often fail to connect not because capital is unavailable, but because three concrete barriers make succession deals hard to underwrite and harder to close.
Investors can’t see the supply chain clearly enough. A small shop often can’t explain whether its underlying demand is durable, or whether a revenue dip signals a temporary funding gap (including disruptions caused by appropriations delays) or a structural problem. The Pentagon understands macro demand; the supplier understands its own production constraints. Neither holds the complete picture. Without it, buyers price in more uncertainty, which means lower offers, or no deal at all.
There is no clear channel for government-investor dialogue. The information investors need is rarely classified, but it’s still not consistently shareable. Guidance on what can be discussed, even when information is technically unclassified, varies across the system. When routine conversations require escalating to a senior official, capital moves cautiously. In small transactions, that friction is often enough to kill the deal.
Ownership change can blow up a supplier’s regulatory status. Many lower-tier suppliers depend on small-business set-aside programs. When a private equity platform acquires them, that status (and the revenue tied to it) can suddenly be at risk. Despite the business keeping the same workers, machines, and parts, this can cause the bid-ask gap between buyer and seller to become unbridgeable when a meaningful chunk of earnings might not survive closing.
The Path Forward
Strader and Sandlin’s recommendations build on mechanisms already in motion.
Enhance visibility of the supply chain: Create structured, voluntary pathways for suppliers to share what they already know (e.g., production records, repeat order history, capacity constraints). Importantly, suppliers will participate only if they have credible assurance that shared data will be protected and not used in ways that undermine their competitive position. In parallel, the Manufacturing Extension Partnership network should function as an early-warning system for ownership-transition risk. The FY2026 NDAA’s working group on supply chain fragility is the right venue to develop and test these mechanisms.
Improve communication between procurers and suppliers: The Pentagon should establish clear, unclassified engagement protocols and push delegated authority down to the contracting and program-management level. The collaborative forum established under Section 1844 of the FY2026 NDAA is a natural venue. Used well, it can surface the transaction-level frictions that currently play out case by case and remain invisible to policymakers until it’s too late.
Reduce investment friction: For qualified domestic buyers, DoD should pilot a more workable path built around buyer prequalification and parallel processing of reviews. Succession-driven acquisitions of program-relevant suppliers should be treated as a legitimate use case for Office of Strategic Capital tools — loan guarantees and subordinated debt that lower financing costs without displacing private buyers. And reforms to 8(a) and related set-aside frameworks should be evaluated not just for program integrity, but for their downstream effects on succession capital.
The succession crisis might be silent now, but the consequences won’t be if policymakers and private capital fail to act.
Compiled from the BENS Practitioner Recommendation, “The Silent Succession Crisis: Mobilizing Private Capital to Preserve Critical Defense Suppliers,” by Chad Strader and Ned Sandlin.
Chad Strader is Co-CEO and Managing Partner of Red Arts, which he co-founded in 2015, and has spent more than a decade acquiring and operating lower-middle-market supply chain and manufacturing businesses. Ned Sandlin is an Operating Partner at Red Arts and a retired U.S. Air Force Colonel with 25 years of service, a PhD in Logistics, and deep expertise in defense supply chain operations.
Disclaimer: The ideas and proposed solutions presented do not reflect official views or positions of BENS, its members, or event participants. They are offered as an aggregate of perspectives intended to inform and advance the conversation.