Leonardo DRS to acquire Raft for $450m as defence AI software demand accelerates

Leonardo DRS, Inc., listed on Nasdaq as DRS, has agreed to acquire Raft LLC in a $450 million all-cash transaction to expand its mission software, data fusion and artificial intelligence capabilities for defence customers. The acquisition gives Leonardo DRS a McLean, Virginia-based software company focused on open-architecture platforms that integrate data from distributed sensors and operational systems. The transaction is expected to close in the fourth quarter of 2026, subject to regulatory approvals and customary conditions, and is expected to be accretive to adjusted diluted earnings per share in the first full year of ownership. Leonardo DRS plans to fund the deal through cash on hand and borrowings under its revolving credit facility, while also expecting a tax benefit with a present value of about $50 million over 15 years. With Leonardo DRS shares trading around $44.69 on July 30 after Q2 results and the stock still within sight of a 52-week high of $50.59, investors are being asked to judge whether the company can turn strong demand for sensors, computing and electric power systems into a more software-driven defence technology model.

The transaction is small compared with the largest defence mergers, but it is strategically important because it targets the layer where militaries increasingly struggle: turning data into decisions fast enough to matter. Leonardo DRS already sells tactical radars, infrared sensing systems, naval network computing, force-protection technologies and electric power systems. Raft adds the software layer intended to connect such systems into common operating pictures, planning tools and AI assisted mission workflows.

Why is Leonardo DRS buying Raft as defence customers shift from hardware to decision speed?

The Raft acquisition reflects a clear change in defence procurement priorities. Militaries still need sensors, vehicles, ships, radars and weapons, but those assets create less advantage if operators cannot fuse their data, understand the battlespace and act faster than adversaries.

Leonardo DRS has strong positions in sensing and computing, especially in tactical radars, infrared systems, naval network computing and electric power. Those areas remain central to its growth. The problem is that hardware increasingly needs mission software sitting above it, connecting data from many sources and helping operators decide what to do next.

Raft is designed to address that problem. Its software focuses on open-architecture mission systems, multi-domain data fusion and AI based workflows. This means the acquisition is not simply a bolt-on purchase of a small software contractor. It gives Leonardo DRS a path to move higher in the defence value chain, from supplying important components to helping shape how information is used across missions.

The timing also matters. Defence customers are trying to avoid vendor lock-in while still modernising quickly. Open-architecture software can be attractive because it can connect existing systems rather than forcing militaries to rip out legacy infrastructure. That is important in defence, where installed systems can remain in service for decades and replacement cycles are slow.

Leonardo DRS is effectively buying speed. Building a comparable software organisation internally would take time, talent and customer wins. Raft brings an existing team, products, customer relationships and credibility in U.S. national-security software markets.

The risk is that software businesses do not always behave like hardware businesses. They require different product cycles, employee incentives, engineering culture, customer engagement and integration discipline. Leonardo DRS must preserve the agility that made Raft valuable while still fitting the company into a public defence contractor with compliance, security and reporting obligations.

What does Raft add to Leonardo DRS beyond the headline phrase defence AI?

The phrase defence AI can become vague very quickly, so the more useful question is what Raft actually adds to Leonardo DRS. The answer is software that connects data, systems and operators across domains.

Raft’s focus is on mission software, data platforms and AI mission systems. Its products are designed to ingest data from disparate sources, preserve connections with existing systems and turn operational information into usable workflows. That gives Leonardo DRS a capability that complements its hardware portfolio.

This matters because modern defence operations generate enormous amounts of information from satellites, aircraft, drones, radars, ships, ground sensors, cyber systems and command networks. Without software that cleans, prioritises and presents that information, operators can be overloaded rather than empowered.

Raft’s recent work on the U.S. Space Force Kronos programme is a useful example of its positioning. That effort is focused on dynamic planning and battle management, supporting space operations, command and control, battle management and space intelligence. The technical significance is that Raft is not merely building dashboards. It is working on mission workflows where data integration, planning, execution monitoring and re-planning need to happen in contested environments.

For Leonardo DRS, this can strengthen multiple parts of the business. Tactical radars can feed fused pictures. Infrared sensing can become part of broader detection and targeting workflows. Naval network computing can be paired with mission software. Electric power and propulsion systems can be positioned within platforms that increasingly require onboard computing, sensors and autonomy.

The acquisition also gives Leonardo DRS more exposure to software margins and recurring upgrade potential. However, the company has not disclosed Raft’s revenue, profitability, backlog or growth rate, so investors cannot yet judge whether the $450 million valuation is financially conservative or aggressive.

How large is the $450 million Raft acquisition relative to Leonardo DRS’s financial base?

The transaction is meaningful but not balance-sheet threatening. Leonardo DRS reported $270 million of cash at the end of the second quarter and no outstanding borrowings under its credit facility. Because the acquisition price exceeds cash on hand, the company expects to use a combination of existing cash and revolving-credit borrowings.

The $450 million price equals about 11% of the midpoint of Leonardo DRS’s unchanged 2026 revenue guidance range of $3.9 billion to $3.975 billion. It also equals roughly 8.8% of the company’s record funded backlog of $5.1 billion. Relative to market capitalisation of about $11.9 billion at the latest trading price, the deal represents less than 4% of equity value.

That sizing is important. Leonardo DRS is not betting the company on Raft, but the acquisition is large enough to require management attention and clear integration priorities. A small software acquisition can be absorbed quietly. A $450 million acquisition needs to contribute to strategy, revenue quality and investor confidence.

The tax benefit also improves the economic framing. Leonardo DRS expects to realise a tax benefit over 15 years with a present value of approximately $50 million. That does not reduce the cash paid at closing, but it lowers the effective economic cost when viewed across the transaction’s life.

The deal is expected to be accretive to adjusted diluted earnings per share in the first full year of ownership. That is positive, but investors should treat it carefully because adjusted accretion can exclude amortisation, transaction costs and other items. The stronger test will be whether Raft improves organic growth, margins, bookings and customer relevance over several years.

The biggest missing variable is Raft’s standalone financial profile. Without disclosed revenue and EBITDA, the acquisition multiple cannot be calculated. Investors must therefore evaluate the deal mainly through strategic fit, growth optionality and management’s track record on capital deployment.

Why does the deal matter after Leonardo DRS reported strong Q2 2026 results?

The acquisition landed just before Leonardo DRS reported a strong second quarter. Revenue rose 10% year over year to $913 million, net earnings increased 59% to $86 million and adjusted EBITDA rose 33% to $128 million. Adjusted diluted earnings per share increased 52% to $0.35.

The company also reported $1.1 billion of bookings in the quarter, a 1.2 times book-to-bill ratio and record funded backlog of $5.1 billion, up 17% year over year. Those numbers matter because they show that the Raft acquisition is being announced from a position of operating momentum rather than weakness.

Advanced Sensing and Computing generated $587 million of second-quarter revenue, up 8%, while operating earnings rose 32% to $49 million. Integrated Mission Systems generated $333 million of revenue, up 15%, with operating earnings rising 61% to $53 million. Both segments are relevant to the Raft deal because both increasingly depend on software, integration and rapid data movement.

Leonardo DRS also raised 2026 guidance for adjusted EBITDA and adjusted diluted earnings per share. Adjusted EBITDA guidance increased to $525 million to $540 million, while adjusted diluted EPS guidance rose to $1.34 to $1.39. Revenue guidance remained unchanged at $3.9 billion to $3.975 billion, and the company noted that guidance excludes the pending Raft acquisition.

That last point is important. If Raft closes in Q4, investors will watch whether management provides a clearer 2027 contribution. The current guidance increase reflects core-business performance rather than acquired revenue from Raft.

The acquisition therefore extends a stronger operating story rather than repairing a broken one. Leonardo DRS is already benefiting from tactical radars, electric power and propulsion, infrared sensing and naval network computing. Raft gives the company a way to add mission software to those hardware-driven demand lanes.

How does Raft strengthen Leonardo DRS’s position in space, cyber and multi-domain operations?

Raft’s relevance is strongest in missions where operators must coordinate many systems quickly. Space operations, missile warning, battle management, command and control, and joint-force targeting are all data-heavy environments where latency, fragmentation and poor integration can reduce operational value.

The U.S. Space Force Kronos selection highlights that positioning. Kronos is focused on modernising space operations, command and control, battle management and space intelligence. Raft’s role involves dynamic planning and battle management, using a data layer and AI mission system to support planning, course-of-action development, execution monitoring, deviation detection and re-planning.

For Leonardo DRS, this expands the company’s addressable market beyond traditional hardware supply. It creates a stronger claim to participate in decision-support layers tied to space, cyber, autonomous systems and joint all-domain operations.

This is where the defence market is moving. Sensors are becoming more numerous, platforms are becoming more connected and decision cycles are shrinking. The company that owns or influences the software layer can sometimes become more strategically important than the company that supplies one sensor.

Raft’s open-architecture positioning also supports a practical customer need. Defence ministries do not want every new software tool to create another closed silo. They need software that can connect to existing systems and adapt as missions change.

The integration challenge is that software credibility depends on users. Operators will judge Raft’s tools by whether they reduce workload, improve situational awareness and produce trusted outputs in contested conditions. AI features that are hard to explain or difficult to trust can become more distracting than useful.

Leonardo DRS must therefore ensure that Raft remains operator-focused, not merely technology-focused. Defence AI will be judged by mission effect, not by how many times the word autonomy appears in a slide deck.

What does the acquisition reveal about competition in defence AI and mission software?

The Raft deal shows that mid-sized defence technology companies are racing to acquire software capability before the largest primes and venture-backed defence startups dominate the field. Leonardo DRS is not trying to become a pure software company. It is trying to prevent its sensing and computing franchises from being pushed down the value chain.

Competition is intensifying from several directions. Traditional defence primes are investing in command-and-control, autonomy, electronic warfare and data fusion. Newer defence technology companies are building software-first platforms for targeting, battle management, drone operations and intelligence workflows. Cloud, cybersecurity and AI companies are also entering national-security markets.

In that environment, Leonardo DRS needs software that makes its hardware more valuable. A radar, infrared sensor or naval computing system becomes stickier when it is part of a broader mission architecture. Without that software layer, the company risks being treated as a component supplier in systems integrated by someone else.

Raft can help Leonardo DRS compete for programmes requiring open systems, rapid fielding and AI assisted decision support. It can also make Leonardo DRS more relevant to customers seeking smaller, faster, modular defence technologies instead of traditional decade-long development programmes.

However, competition will remain intense. Companies such as Palantir Technologies Inc., Anduril Industries, Booz Allen Hamilton Holding Corporation, CACI International Inc., Leidos Holdings Inc. and several private defence software companies are already pursuing overlapping mission-software opportunities.

Leonardo DRS’s differentiator will be the combination of software with hardware already deployed or trusted in defence environments. That is a credible advantage if the integration is real. If Raft remains a separate software island inside the group, the acquisition will have less strategic impact.

How should investors interpret $DRS stock after the Raft deal and Q2 results?

Leonardo DRS shares traded around $44.69 on July 30, down from the prior close, with a market capitalisation near $11.9 billion. The stock remained above its late-June level but below recent highs, with a 52-week range of approximately $32.43 to $50.59.

The immediate share-price movement should not be over-interpreted. The stock had already moved strongly before the Q2 release, closing at $48.10 on July 24 after rising from $44.41 on July 20. A pullback after earnings and acquisition news can reflect profit-taking, valuation discipline or questions about integration rather than a rejection of the strategy.

The valuation context matters. Leonardo DRS trades at a price-to-earnings ratio above 40 on current data, which means investors are already pricing in strong execution and growth. At that valuation, even positive news can fail to lift the stock if expectations were already high.

The acquisition gives investors a new growth vector, but also a new area to monitor. Software acquisitions can improve margins and strategic relevance, but they can also introduce integration costs, employee-retention risk and cultural friction.

Q2 performance provides support. Revenue growth, margin expansion, strong bookings and record funded backlog show that the core business is healthy. The raised adjusted EBITDA and adjusted diluted EPS guidance also gives management credibility as it adds Raft.

The stock question is therefore not whether the Raft deal is strategically sensible. It is whether the transaction can produce enough financial contribution to justify a premium valuation. Investors will need more disclosure on Raft revenue, customer concentration, growth rate and integration milestones.

Could the Raft acquisition change Leonardo DRS’s long-term margin profile?

Software can improve a defence company’s margin profile when it produces recurring upgrades, scalable deployments and lower manufacturing intensity. Raft gives Leonardo DRS a chance to add that kind of revenue to a portfolio still heavily tied to engineered hardware and systems.

The potential upside is clear. Mission software can be updated more frequently than hardware. Data platforms can expand across programmes once they prove useful. AI mission systems can become embedded in workflows, making them difficult to replace.

That creates possible recurring revenue and higher customer stickiness. If Raft’s software becomes tied to Leonardo DRS sensors, network computing and mission systems, the combined offering may carry stronger margins than hardware-only contracts.

However, defence software is not automatically high margin. Customers may require customisation, cybersecurity certification, classified integration, field support, testing and continuous compliance. Software built for national-security environments often requires more services intensity than commercial software investors expect.

There is also the issue of contract type. If mission software is sold through fixed-price development contracts, margin risk can increase. If it is sold through productised platforms, sustainment agreements or scalable deployments, the economics can be more attractive.

Leonardo DRS must therefore show that Raft’s products are repeatable rather than purely project-based. The most valuable software businesses are not collections of custom development teams. They are platforms that can be adapted across missions without being rebuilt each time.

The acquisition’s margin impact will also depend on retention. Software value sits in people, product architecture and customer relationships. Losing key engineers or mission experts after closing would weaken the deal’s economics.

What integration risks could affect Leonardo DRS after the Raft acquisition closes?

The first risk is cultural. Raft was founded in 2018 and built as a defence technology software company. Leonardo DRS is a public, regulated defence contractor controlled indirectly by Leonardo S.p.A. Those operating environments are different.

The second risk is speed. Software customers increasingly expect rapid deployment, iteration and user feedback. A slower corporate process could reduce Raft’s competitive edge if decision-making becomes too layered.

The third risk is customer trust. Raft’s open-architecture promise depends on being seen as a connector across systems, not as a tool designed only to channel customers into one vendor ecosystem. Leonardo DRS must avoid making Raft look closed or captive.

The fourth risk is regulatory approval. The transaction is subject to approvals and closing conditions. Given the defence customer base and national-security software focus, review processes must be treated seriously, although the company expects closing in Q4 2026.

The fifth risk is financing. Leonardo DRS ended Q2 with $270 million of cash and no outstanding borrowings under its credit facility, but the all-cash purchase price means the company will likely use borrowings. The balance sheet can handle that, but higher debt reduces some flexibility.

The sixth risk is financial transparency. Investors need to understand whether Raft is a fast-growing platform business, a services-heavy contractor or something in between. Without that information, the market will keep applying a strategy discount to the deal.

The seventh risk is integration into sales channels. Leonardo DRS must train its business-development teams to sell software outcomes, not just products. That can be harder than it sounds.

What should executives and investors watch after Leonardo DRS closes the Raft deal?

The first signal will be regulatory clearance and closing timing. A Q4 2026 close would allow Leonardo DRS to begin integrating Raft into 2027 planning.

The second signal will be financial disclosure. Investors should watch whether Leonardo DRS provides Raft revenue, backlog, margin, customer concentration and expected 2027 contribution after closing.

The third signal will be employee retention. The acquisition’s value depends heavily on engineers, product managers, mission experts and customer-facing teams. Retaining Raft’s founder-led culture will be important.

The fourth signal will be programme wins that combine Raft software with Leonardo DRS hardware. The deal becomes more powerful if tactical radars, infrared sensors, naval computing and electric-power systems are sold with mission-software layers.

The fifth signal will be Space Force and joint-force traction. Raft’s Kronos work provides a visible entry point into battle management and space command-and-control modernisation. Follow-on awards would strengthen the deal thesis.

The sixth signal will be margins. If Raft improves adjusted earnings while supporting growth, the acquisition will look disciplined. If integration costs rise or custom software work absorbs too much labour, the financial case will look weaker.

The seventh signal will be competitive positioning against software-led defence firms. Leonardo DRS needs to prove it can move quickly enough to compete with venture-backed companies while still meeting defence compliance requirements.

Leonardo DRS is not buying Raft because defence hardware has lost importance. It is buying Raft because hardware now needs software to remain strategically valuable. The company already has sensors, computing systems and power technologies in high-demand defence lanes. The acquisition is a bet that the next layer of growth will come from connecting those systems into faster, more intelligent mission decisions.

Key takeaways on Leonardo DRS’s $450 million Raft acquisition

• Leonardo DRS has agreed to acquire Raft in a $450 million all-cash transaction.
• Raft adds open-architecture mission software, multi-domain data fusion and AI capabilities for national-security customers.
• The transaction is expected to close in Q4 2026, subject to regulatory approvals and customary conditions.
• Leonardo DRS expects the deal to be accretive to adjusted diluted earnings per share in the first full year of ownership.
• The company expects a tax benefit with a present value of about $50 million over 15 years.
• Leonardo DRS plans to fund the acquisition through cash on hand and borrowings under its revolving credit facility.
• The acquisition complements Leonardo DRS’s tactical radar, infrared sensing, naval network computing, electric power and force-protection businesses.
• Raft’s recent U.S. Space Force Kronos selection strengthens the strategic logic around dynamic planning, battle management and space command-and-control software.
• Leonardo DRS reported Q2 revenue of $913 million, adjusted EBITDA of $128 million and record funded backlog of $5.1 billion shortly after announcing the deal.
• The main risks are integration, employee retention, software-business culture, regulatory timing, financing and the need to prove that Raft can scale beyond custom defence projects.