The Cybersecurity Maturity Model Certification (CMMC) is reshaping how private equity firms approach defense sector investments. With enforcement actions reaching $100 million and new M&A triggers requiring fresh assessments, PE firms can no longer treat cybersecurity compliance as an afterthought.
The Market Reality: Comply or Be Excluded
CMMC is now live—and will begin appearing in DoD contracts by mid-to-late 2025 via 48 CFR. The consequences are binary. As Michael Gruden, Government Contracts Cybersecurity Partner at Crowell & Moring and former Pentagon IT acquisition branch chief, warns:
“If you don’t possess the CMMC certifications for future contract awards, you will be entirely ineligible.”
Translation: No certification, no contract.
The M&A Trigger: When Deals Require New Assessments
CMMC isn’t just about technical controls—it’s about the structure and boundaries of the systems being assessed. According to Gruden:
“In the event of M&A activity that results in a significant architectural or boundary change to the contractor’s previous assessment, the contractor would likely need to undergo a new CMMC assessment.”
This means PE firms must now bake CMMC reassessment timelines and costs into deal models—especially when post-close integration will impact IT infrastructure or CUI handling.
Financial Stakes: Noncompliance Can Cost Millions
The enforcement landscape has dramatically escalated. Penalties stemming from the DoD’s Civil Cyber Fraud Initiative, which targets contractors who misrepresent their cybersecurity compliance, have been on the rise and represent a significant hit to a company’s bottom line.
“We represented clients where actually the opening kind of amounts for the fines were $100 million so these are not insignificant“
These fines not only hurt an organization’s pocketbook. they can have a profound impact on the organization’s reputation as well.
Due Diligence Implications
PE firms’ typical fast-paced transaction approach conflicts with the thoroughness required for proper CMMC due diligence. PE firms need to slow down and take the time to understand the requirements. As Gruden warns,
“If this is not that you’re planning at the forefront- if you’re sort of just finding these things out along the way- it can significantly add to the timeline with regards to a deal.“
PE firms should evaluate:
- Target company’s current CMMC certification status
- Network architecture and data handling practices
- Quality and completeness of cybersecurity documentation
- Potential need for post-acquisition assessments
Building Portfolio Value Through Standardization
Forward-thinking PE firms are viewing CMMC as a portfolio-wide value creation opportunity. Standardizing CMMC compliance across multiple defense investments can reduce costs by up to 75% compared to legacy solutions.
The key is moving from reactive compliance to proactive preparation—what Gruden calls “doing it the right way” and “building with intentionality.”
Actionable Steps for PE Firms to Achieve CMMC Compliance
- Early Assessment: Evaluate CMMC readiness during initial due diligence, not post-acquisition
- Documentation Review: Ensure that companies have all critical documentation complete- including their System Security Plan and Standard Operating Procedures.
- Legal Protection: Conduct assessments under attorney-client privilege to protect against discovery in potential enforcement actions
- Portfolio Strategy: Consider standardizing CMMC solutions across defense investments to achieve economies of scale
The Bottom Line
CMMC represents both significant risk and substantial opportunity for PE firms with defense exposure. The cost of non-compliance—measured in lost contracts, enforcement actions, and deal complications—far exceeds the investment required for proper preparation.
As the defense industrial base continues consolidating and cybersecurity requirements intensify, PE firms that master CMMC compliance will gain a decisive competitive advantage in defense sector investments.
For PE firms looking to navigate CMMC requirements across their defense portfolios, early preparation and standardized solutions offer the clearest path to compliance and value creation.