From Shunned to Sought-After: Private Equity Eyes the Booming European Defence Sector
A significant shift is underway in the European investment landscape. Private equity firms, historically hesitant to engage with the defence sector, are now actively scouting for opportunities across the continent. This change in attitude is being fuelled by a confluence of factors: a historic military expansion across Europe and a fundamental reassessment of the sector's investment potential.
Once considered a less palatable option due to its capital-intensive nature, cyclical patterns, and ethical considerations surrounding the business of war, the European defence industry is experiencing a remarkable resurgence. Firms like Tikehau Capital, CVC Capital Partners, and Advent are either actively raising dedicated funds or assembling specialised teams to capitalise on this evolving environment. Data compiled by Bloomberg highlights the magnitude of this shift: private equity spending on European defence has only surpassed $1 billion in five of the last twenty years. In 2025 alone, private investors have already deployed approximately $790 million into the sector, signalling the potential for even more substantial deals on the horizon.
This newfound enthusiasm from private equity aligns with a broader strategic pivot across Europe. Governments are significantly increasing their military budgets, recognising the urgent need to bolster defence readiness. This commitment is further underscored by initiatives like the European Commission's "ReArm Europe" plan, an ambitious €800 billion proposal that explicitly includes strategies for attracting private capital to the defence industry.
As Frank Bretag, head of industrials advisory at UniCredit SpA, aptly notes, "The defence sector looks like it will prove to be an exception to the broader downturn we are experiencing in dealmaking. They are reliant on European government spending, which is only likely to tick upwards."
Why the Paradigm Shift?
Several key drivers are behind this dramatic change in investor sentiment:
Geopolitical Realities: The ongoing war in Ukraine and broader geopolitical instability have compelled European nations to reassess their defence capabilities and increase military spending. This commitment translates directly into increased demand for defence-related goods and services.
European Strategic Autonomy: There's a growing recognition in Europe of the need to reduce reliance on the US for critical defence capabilities, including missile defence, precision-guided munitions, and surveillance systems. This push for greater strategic autonomy necessitates significant investment in European defence industries.
Evolving Investor Perceptions: The geopolitical landscape has also influenced investor attitudes towards the defence sector. As Klaus Hommels, founder of European venture capital firm Lakestar, observes, "The perception of defence investments has shifted massively... High-net-worth individuals and the billionaires crowd in Europe are telling me it’s not just about returns; it’s for patriotic reasons too."
Government Initiatives: European governments and institutions are actively working to facilitate private investment in the defence sector. The "ReArm Europe" plan, for instance, explicitly aims to mobilise private capital, and discussions are underway to ease ESG-related restrictions that previously deterred some investors. Ursula von der Leyen, President of the European Commission, has stated that "nothing is off the table" when it comes to freeing up capital for the region's security.
Private Equity Firms Take Action
Several prominent private equity firms are already making significant moves in the European defence space:
Tikehau Capital: This Paris-based firm is raising an €800 million aerospace and defence fund, having already secured over half of its target. Notably, backers include European aerospace giants Airbus SE, Safran SA, and Thales SA.
CVC Capital Partners: CVC established a dedicated aviation, defence and space team last year, signalling its long-term commitment to the sector.
Advent: Advent is reportedly preparing to sell existing defence assets to capitalise on the increased buyer demand.
Weinberg Capital Partners: This French buyout firm successfully raised €215 million for its Eiréné fund, specifically focused on strategic security and defence, exceeding its initial target.
Veritas Capital and KKR & Co.: These firms, with existing experience in aerospace and defence, are actively seeking further investment opportunities in the European market.
NATO Innovation Fund: Chaired by Klaus Hommels, this €1 billion fund is targeting early-stage startups developing dual-use technologies relevant to defence, such as artificial intelligence, quantum computing, and advanced propulsion.
Furthermore, established financial institutions are also recognising the potential. Deutsche Bank AG Chief Executive Officer Christian Sewing recently advocated for the efficient combination of public and private capital to finance the defence sector, suggesting the potential role of state guarantees for bank loans.
Navigating Potential Headwinds
Despite the burgeoning interest, some challenges and considerations remain:
Government Sensitivity: Defence assets are inherently sensitive to national security concerns. This could lead to increased scrutiny and potentially more complex approval processes for private equity acquisitions. Recent reports of political interest in maintaining domestic ownership of key defence companies highlight this sensitivity.
US Foreign Policy: Potential shifts in US foreign policy could impact the profitability and relevance of certain European defence investments in the medium to long term.
ESG Considerations: While attitudes are evolving, some investors may still have reservations related to environmental, social, and governance factors associated with the defence industry. However, European authorities are actively working to clarify regulations and potentially remove roadblocks in this area.
A New Era for European Defence Investment
The European defence sector is experiencing a profound transformation, driven by geopolitical imperatives and a growing recognition of its strategic importance. This shift has created a fertile ground for private equity firms seeking long-term growth opportunities. With increasing government spending, a push for greater European defence autonomy, and an evolving investor mindset, the once-shunned sector is now firmly in the spotlight. While certain challenges remain, the momentum behind private capital entering the European defence market appears strong, ushering in a new era of investment and expansion for the industry.
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