ArcMap convert mm to m

Unfortunately it is very common situation, especially for some multi-disciplinary corporations. They even call GIS a new technology... Solution is simple.

Draw rectangle around you inflated drawing and extract vertices to point shapefile. Add geometry attributes to resulting 5 points. Apply this expression in field calculator on field Shape:

arcpy.Point( !POINT_X!/1000, !POINT_Y!/1000)

with Python as parser.

Save points, lines and polygons from CAD into new folder as shapefiles and start editing. Use spatial adjustment tools to match 3 corners of large rectangle and deflated points. Apply affine transformation, save edits.

Unfortunately it is trickier with annotations, because they are stored in database and working with feature classes might not work at all. Chances are you'll hit a wall with "out of bounds" message.

Create a new projection, where the units are millimetres instead of meters. Then use this when you georeference the DXF.