Private investors and venture capital are poised to play a significant role in Europe\u2019s rearmament, providing much-needed capital to help grow the defense industry and boost the region\u2019s industrial resilience.<\/p>\n
More than three years after the war in Ukraine began, European capitals have pledged billions of euros to invest in defense and new technologies, according to a report by the Financial Times<\/em> (FT). Private equity and venture capital managers see a funding gap they believe they can help fill.<\/p>\n \u201cGovernments cannot be 100% successful on their own in rebuilding defense capabilities,\u201d said Thomas Friedberger, deputy chief executive of Tikehau Capital, adding that the private sector would be essential to encourage investment in \u201cdefense, resilience, and sovereignty.\u201d<\/p>\n The private equity group, which has raised nearly \u20ac450 million for a fund that will invest in companies focused on technologies used in both civilian and military applications, is one of dozens of firms pursuing opportunities in this sector.<\/p>\n Investments in European startups working on defense and related technologies reached $5.2 billion last year, a 24% increase despite a general decline in European venture capital funding, driven by investor interest in companies like software AI group Helsing and drone maker Tekever.<\/p>\n While private equity investment in the aerospace and defense sector has existed for decades, the sector has long been dominated by large buyout funds capable of operating in a highly regulated industry.<\/p>\n However, following the war in Ukraine and as governments seek to strengthen defense industry infrastructure, investor interest, including from venture capital funds, has rapidly increased.<\/p>\n US President Donald Trump\u2019s cool stance towards NATO and calls for Europe to spend more on its own security have further accelerated these efforts. Many European venture capital firms, in particular, had previously been cautious about backing arms manufacturers due to the risk of violating environmental, social, and governance rules.<\/p>\n Managers believe they can play a role by investing in capital-hungry startups and also by helping larger players increase production capacity, thereby lowering unit costs.<\/p>\n \u201cPrivate markets will play a significant role in bridging the defense funding gap in Europe,\u201d said Ali Floyd, co-head of European private equity fund raising at advisory firm Campbell Lutyens. Floyd added that governments are \u201cunwilling to spend more taxpayer money to finance defense investments, and there are a limited number of companies like Rheinmetall and BAE Systems that public markets can support.\u201d<\/p>\n Michael Sion, a partner at consulting firm Bain & Co and author of a recent report showing the value of venture capital deals in the defense sector has increased 18-fold over the past decade, said the funding gap in Europe is \u201cgrowing due to current questions about America\u2019s commitments to NATO and Europe\u2019s desire to provide more funding for Ukraine\u2019s defense.\u201d<\/p>\n The war in Ukraine has highlighted the increasing role that defense technology will play on the battlefield, from unmanned aerial vehicles and other autonomous systems to robotics and artificial intelligence.<\/p>\n Managers noted that private equity and venture capital funds can foster innovation by investing in early-stage technologies.<\/p>\n \u201cWe need private capital to build companies, take risks, innovate, and invest in research and development before production,\u201d said Sten Tamkivi, co-founder of Plural, an early-stage technology fund with approximately \u20ac800 million in assets under management and an early backer of Helsing.<\/p>\n Many investors are seeking opportunities to capitalize on companies with broad portfolios that are underperforming or suitable for restructuring.<\/p>\n According to recent data from PitchBook, the number of deals in the global aerospace and defense sector rose to 274 last year, reaching the highest figure in the past decade. The total value of deals in the sector reached $36.8 billion in 2024, an increase of $10 billion or 37% compared to 2023.<\/p>\n \u201cHistorically, there is more interest from significant private equity firms in the defense sector now than there has been,\u201d said James Dawson, a partner at boutique investment bank Gleacher Shacklock.<\/p>\n Dawson points to the successes achieved by US buyout group Advent International with its acquisitions of British companies Cobham and Ultra Electronics. Ultra Electronics produces submarine hunting equipment, as well as control systems for the Trident submarine fleet, which forms the UK\u2019s nuclear deterrent.<\/p>\n Although the London government intervened to secure binding commitments from Advent regarding both acquisitions, the deals were approved.<\/p>\n \u201cEveryone has seen Advent\u2019s success and the success they\u2019ve had with the government,\u201d Dawson said.<\/p>\n Whether there will be more high-profile mergers and acquisitions in the sector remains unclear. British-listed explosives manufacturer Chemring received a \u00a31.1 billion bid from US-based Bain Capital earlier this year.<\/p>\n According to Dawson, despite numerous discussions about more joint ventures, high valuations are an obstacle to mergers and acquisitions in the defense sector.<\/p>\n Despite the flow of money into the sector, challenges remain if Europe wants to build a defense technology sector using private European investor money.<\/p>\n Tamkivi from Plural said governments need to fix their procurement methods, which are known to be bureaucratic and prioritize large companies, and that governments must \u201censure that if new technology companies are built in Europe and financed with private capital, they can access procurement flows.\u201d<\/p>\n He added that Europe needs the right mechanisms to work with smaller companies. \u201cHow do you create a large company from an SME? That\u2019s the venture capital game,\u201d Tamkivi stated.<\/p>\n However, attitudes towards defense investments have changed significantly, and interest in the sector is unlikely to wane even if there is a ceasefire between Ukraine and Russia.<\/p>\n \u201cThe mood of investors, probably regulators, and probably governments too, is changing,\u201d claimed Friedberger from Tikehau. \u201cThere can be no sustainable economic development without defense.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":" Private investors and venture capital are poised to play a significant role in Europe\u2019s rearmament, providing much-needed capital to help grow the defense industry and boost the region\u2019s industrial resilience. More than three years after the war in Ukraine began, European capitals have pledged billions of euros to invest in defense and new technologies, according […]<\/p>\n","protected":false},"author":1,"featured_media":9377,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"ep_exclude_from_search":false,"footnotes":""},"categories":[3],"tags":[9717,9718,9696,9169,9716,503,9719,6706,207,9715,7428,746,4560],"class_list":["post-9376","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-europe","tag-aerospace-and-defense-ma","tag-defense-funding-gap","tag-defense-startups","tag-defense-technology","tag-european-defense-industry","tag-headline","tag-industrial-resilience","tag-military-technology","tag-nato","tag-private-equity","tag-rearmament","tag-ukraine-war","tag-venture-capital"],"yoast_head":"\n