Dual-use: the capability hiding in plain sight

Many established Australian businesses make products that defence and government can also use. The demand and the capital to back them are there. The question is whether the business is ready, with a clear strategy, modern governance and a plan for succession.

A drone that inspects mine sites can inspect a runway. Software that secures a water utility can secure a defence network. A fabricator building for resources can build for naval programs.

The product stays the same. What changes is who can buy it, who will fund it, and the rules that apply. That is dual-use. It sounds like a defence term, and it applies to far more Australian businesses than that suggests. If you are thinking about growth, investment or an eventual sale, it is worth knowing whether it applies to you.

Could this be your business?

Your business may be dual-use if what you make or do:

• works in harsh, remote or extreme conditions
• senses, sees, tracks or maps
• runs without a person on board or on site
• protects systems, networks or data
• is built to unusual precision, strength or reliability

Why now

The market around this capability is moving quickly.

Defence is spending more. The government has committed around A$425 billion over the next decade, with drones, autonomous systems and counter-drone technology high on the list. Much of it has a commercial equivalent.

Defence is also buying faster. Recent global conflicts have shown what quick procurement looks like, with drone makers updating their products several times a year. Australia's new defence strategy draws on those lessons and funds faster adoption of new technology.

Capital is following. Government has offered up to A$500 million to invest alongside private investors in Australian dual-use companies, and specialist funds are now looking for them.

The industry is being reshaped. Government wants larger Australian-owned defence contractors, and those firms will need local suppliers.

Where SMEs fit

Most businesses enter defence as suppliers to larger contractors: components, engineering, software and services. Faster buying favours businesses with proven commercial products that can be adapted and supplied quickly. That describes many Australian SMEs.

The opportunity extends well beyond the United States. Trade with the UK is streamlined under AUKUS, Australia's new frigates are being built with Japan, and Korean and European programs are looking for capable suppliers. Exports outside AUKUS generally need a permit.

It also changes how the business is valued. Proven dual-use capability can attract investors and buyers from outside your traditional market, which widens your options when it comes time to raise capital or sell.

The rules, in brief

Dual-use is regulated. Whether your product is covered depends on its technical detail, measured against a list Defence publishes. If it is covered, three things matter:

• You may need a permit to export it.
• You may need a permit to share the technology with foreign nationals in Australia, including overseas staff or an investor's advisers.
• Foreign investors in your business may face extra review.

Get it checked early, before an investor or buyer checks it for you.

Five questions for owners and leadership teams

These are strategy questions first. Dual-use simply widens the answers. Businesses that can answer them clearly will set the terms of their next raise, partnership or sale.

1. Where else could our product or capability be used, and who would pay for it?
2. How would we reach those customers: direct, or through larger contractors and partners?
3. What would it take to deliver: capacity, quality systems and compliance, including export rules?
4. How would an investor or buyer value the business today, and what would lift that value?
5. Could the business keep running and growing without the founder in every decision?

Is your business ready?

The capital and the demand are there. What is scarce is businesses ready to take them. Investors back businesses that show a credible path to growth, and many Australian companies that made a breakthrough have moved offshore to find it.

Readiness usually comes down to three things:

• A clear strategy. Which markets, which customers, and how to reach them.
• Modern governance. Reporting, IP and decision-making an investor or buyer can rely on.
• A plan for succession. The Minister for Defence Industry has named it directly: many founders are approaching retirement, and the next generation sometimes chooses another path. In many founder-built businesses, much of the value still sits with the founder.

The businesses that benefit most will be those that recognise their position early and prepare. That work sits within your own control, and it can start now.

How Woodroyd helps

We help owners and leadership teams work through the questions above: which markets to pursue, how to reach them, what it takes to deliver, and how that shapes the value of the business.

We work alongside your team, drawing on a network of former chief executives and senior operators, including people with direct defence-industry experience. We also work with preferred partners across the defence sector and international markets, and bring in specialist legal, export or transaction advisers where needed, coordinating the work so your team works to one plan.

Recognising dual-use capability is about widening options. Many businesses keep their commercial focus and use the position to strengthen their value.

Investors are actively looking for businesses with this capability. If you think yours may be one of them and want to know where to start, it's worth a conversation.