Carlyle's Regime-Change Warning: Why the Golden Era of SaaS Is Over and the Hard Power Supercycle Has Begun

At the SuperReturn conference in Berlin on June 10, 2026, John Redett, Co-President of Global Private Equity at Carlyle Group, eulogized the past decade of capital markets: "The old world is the new world—and what LPs want to talk about are industrial businesses, defense, national security, supply chain resilience, and energy."

He did not mince words. Limited partners are aggressively demanding a pivot away from software. This is not a cyclical rotation. It is a public declaration that the reigning investment paradigm has fractured. The golden era of B2B SaaS multiples is dead; the new premium is on physical resilience.

How We Got Here: A 40-Year Pendulum Snaps Back

The scaffolding for this moment was built over decades. From the 1990s defense drawdowns through the zero-interest-rate fever dream of the 2010s, institutional capital systematically migrated toward intangibles. Software offered high margins and recurring revenue that commanded exit multiples making factories look like archaic liabilities.

Three shocks violently dismantled that logic. First, the Ukraine war laid bare a chilling reality: Western defense systems remain technologically supreme, yet entirely production-fragile. Second, Indo-Pacific tensions mapped deep vulnerabilities regarding Asian electronics, rare earths, and precision manufacturing.

Finally, artificial intelligence perversely attacked software from within. If features can be instantly replicated and traditional seat-based pricing undercut by AI agents, the scarcity value of many SaaS businesses evaporates. The result is a total regime change.

Carlyle's Move: The "Unlimited" Industrial Mandate

Carlyle’s rhetoric is backed by formidable action. On May 27, 2026, the firm launched a dedicated middle-market platform targeting Aerospace, Defense & Government, and Industrials across the U.S. and Europe. Led by Aaron Hurwitz and Wes Bieligk, the mandate targets national security and supply chain transformation.

CEO Harvey Schwartz has publicly characterized the defense opportunity as "unlimited." Global military expenditure surged to $2.887 trillion in 2025—the 11th consecutive annual increase, per SIPRI. Europe spiked 14%, while approved 2026 U.S. spending breached $1 trillion. Drawing on $11 billion committed to the sector over decades, Schwartz termed Carlyle's historical defense returns "outrageous."

The pivot's timing is immaculate. Public SaaS multiples have brutally compressed to roughly 2.4x forward revenue. Conversely, private aerospace, defense, and government contracting assets traded at a median 18.87x TEV/EBITDA and 3.74x TEV/Revenue through Q1 2026—the highest trailing four-year multiple on record.

The Market's Verdict: Pricing Scarcity Over Spending

The most instructive signal is found where public markets assign hyper-premium multiples: the actual bottleneck components. Howmet trades at an eye-watering 58.7x P/E, while Curtiss-Wright commands 53.7x. By comparison, giants like Northrop Grumman and Lockheed Martin languish between 17x and 26x. The market is aggressively buying scarcity in propulsion, actuation, and advanced materials neglected during the financialization era.

Private markets echo this aggression. In May 2026, Anduril commanded a $61 billion valuation on a $5 billion Series H raise. Generating $2.2 billion in 2025 revenue, the hardware-forward defense tech firm fetched a SaaS-like 27.7x trailing revenue multiple. Meanwhile, Parker-Hannifin's $2.55 billion acquisition of KKR-owned CIRCOR’s aerospace business has crystallized the private-equity-to-strategic exit path the entire industry is rushing to underwrite.

The Honest Risk: Tourists vs. Operators in the Hard Power Era

The "Hard Tech & Hard Power" supercycle is real, but the most obvious trades are perilously crowded. Paying 18.9x EBITDA for private A&D assets is late-cycle thematic underwriting wrapped in a patriotic flag.

Over the next 12 to 24 months, a violent dispersion will occur between authentic bottleneck assets and narrative-wrapped industrial mediocrity. The most dangerous trap lies in venture-backed defense hardware commanding software-revenue multiples. Ultimately, the Pentagon may increasingly demand Walmart economics for expendable systems, not premium venture-backed gross margins.

Conversely, the most mispriced opportunity remains industrial and mission software. Currently sitting at SaaS-discount multiples, these systems are quietly becoming the indispensable operating layer for the entire hard-power cycle.

Carlyle has correctly called the capital rotation. Yet, the tidal wave of capital arriving now is chasing a public market that has already repriced the cleanest assets. The first wave of exits, echoing CIRCOR, will appear brilliant. The second wave will see tourists overpaying for capex-heavy machine shops, mistakenly believing they've acquired strategic national-security platforms. In this supercycle, specialist operators will thrive; tourists fleeing SaaS will be slaughtered.

not investment advice