The stigma is over. Europe’s defence industry, once an investors‘ pariah for its ethical and environmental drawbacks, is now attracting unprecedented interest. Brussels‘ historic push for military expansion has lured investors, not least from private equity firms.
The shift, catalysed by geopolitical upheaval and a redefined European Union agenda, reflects a broader realignment in how the bloc views its security—and who finances it.
Private equity giants such as Tikehau Capital, CVC Capital Partners, and Advent International are racing to capitalise on the momentum. Tikehau, based in Paris, is raising an €800 million aerospace and defence fund, with half its target already secured. Backers include Airbus, Safran, and Thales—European industrial titans looming large behind the strategic alignment between private capital and continental security.
The expectations are tremendous. Amundi, Europe’s largest asset manager, is working on the summer launch of a European ETF linked to defence companies in anticipation of a surge in military spending across the continent, according to Financial Times. “There is a massive race to set up these products,” said Kenneth Lamont, an analyst at data provider Morningstar, adding that asset managers “are turning them around quicker than I’ve ever seen”.
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Ticking upwards
BAE Systems Plc is ready to step up capital investment beyond the €1.15bn it spends annually, as the UK’s biggest military contractor prepares for a “super-cycle” in European defense spending, according to Chief Financial Officer Bradley Greve. “The defense sector looks like it will prove to be an exception to the broader downturn we are experiencing in dealmaking,” said Frank Bretag, head of industrials advisory at UniCredit SpA, an Italian bank. “European government spending is only likely to tick upwards.”
“There’s a lot of investor demand for defence and aerospace exposure right now, given the massive industry backlog both in commercial aviation and defence industries,” Roberto Quagliuolo, Tikehau’s deputy head of private equity, told Bloomberg. Weinberg Capital Partners, another French firm, recently closed its €215 million Eiréné fund, dedicated to security and defence, surpassing its initial target.
Stark reversal
“We think the barriers to investing in defence will progressively disappear,” said Lionel Mestre, a partner at Weinberg, alluding to the sector’s past stigma under environmental, social, and governance frameworks, collectively known as ESG.
This influx of capital marks a stark reversal. Over the past two decades, private equity spending on defence surpassed €1bn in just five years, according to Bloomberg data. Yet in 2025 alone, nearly €725m has already been committed, with multibillion-euro deals looming.
Meanwhile, Klaus Hommels, founder of venture capital firm Lakestar, chairs NATO’s €1bn Innovation Fund, targeting dual-use technologies like AI and quantum computing. “The perception of defence investments has shifted massively,” Hommels said. “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.”
ReName weaponry
The EU sits at the heart of this transformation. Alarmed by over-reliance on American military capabilities—from missile defence to surveillance systems—the bloc is channelling hundreds of billions into rearmament. The European Commission’s recent White Paper on an €800 billion ReArm Europe plan explicitly calls for mobilising private capital to complement public spending.
How difficult the task is has been highlighted by a typically European spat over the very name of the initiative. ReArm Europe had to be rebranded as Readiness 2030 because the Italian and Spanish governments worried that the original title was too divisive. (Produce weapons, but please keep mum.)
Nothing is off the table
“There is only so much that governments can do alone to procure and develop defence products,” said Ian Fujiyama of Carlyle Group, “private equity brings essential capital and expertise.” European Commission President Ursula von der Leyen has framed the urgency in existential terms: with the region’s “values, freedoms, and laws under threat,” she declared last month, “nothing is off the table.”
This rhetoric has emboldened investors. Defence stocks have soared on spending pledges from leaders like Germany’s Friedrich Merz and Britain’s Keir Starmer. Yet challenges persist. ESG restrictions, once a major hurdle, are being dismantled as governments recalibrate priorities. The UK’s financial watchdogs have clarified that sustainable investment rules do not block defence exposures, while EU officials are revising guidelines to ease capital flows. “One challenge was always that investors in European private equity firms had different levels of comfort on defence, but that’s changing,” said David Black of Renaissance Strategic Advisors.
Financiers, lawyers on board
The dealmaking frenzy extends beyond fundraising. Advent International recently sold Cobham Satcom, a provider of military tracking systems, and is weighing the divestment of Ultra Precision Control Systems, which manufactures missile ejection mechanisms. Searchlight Capital Partners may offload Survitec’s aerospace division, known for F-35 pilot safety gear. Smaller firms like ScioTeq, a Belgian avionics specialist, and Wescom, a British pyrotechnics maker, are also in play.
Legal and banking institutions are adapting, too. Top law firms have established defence-focused teams, while Deutsche Bank CEO Christian Sewing advocates state-backed loan guarantees to lure private finance. “Public funds must be efficiently combined with private capital,” Sewing wrote last month.
Outsize US role
Yet the sector’s sensitivities remain. When Bain Capital eyed Chemring Group, a UK defence equipment maker, Prime Minister Keir Starmer stressed the need to retain “British” ownership—a reminder of the political landmines investors face.
That poses a structural problem of its own: much of the world’s private equity money comes with American ownership. These companies know how to smell blood. Bain Capital and KPS Capital are eyeing Iveco Group’s defence unit, valued at up to €1.5bn. CVC established an aviation, defense and space team led by James Mahoney, who previously worked on deals for the firm including its investment in aerospace product supplier Ontic.
Valeriya Vitkova of Bayes Business School warns of another risk. “A potential shift in US foreign policy in the medium-term could render these investments less profitable,” she told Bloomberg.
A lobbying bonanza
With Donald Trump’s transactional approach casting doubt on transatlantic commitments, European leaders are torn between buying American arms or prioritising homegrown suppliers.
Either path, however, spells opportunity for defence lobbyists. In Brussels, lobbying has become a freshly enlivened battleground. The top 10 EU defence firms—Airbus, Thales, Rheinmetall, and others—have ramped up spending on influencing policymakers, with cumulative outlays rising from €3.95-5.1m in 2022 to €5.5-6.7m in 2023. Saab doubled its lobbying budget; Thales tripled its Brussels team.
Even US giants like Lockheed Martin and RTX are expanding their EU presence, deploying lobbyists to navigate the shifting landscape. “Banks and investment funds, which historically saw reputational risk in entering defence, also seek specialised advice now,” Jean-Marc Vesco of C&V Consulting, a firm that has doubled in size to meet demand, was quoted as saying by Politico.eu.
Playing catchup
None of the above is going to come easy, or cheap. “What the European Union is proposing cannot be done in a week or in a month, but it’s achievable,” Micael Johansson, Saab’s president and CEO, told Global Finance. “We need more concrete information from the EU regarding orders and volumes. Defense companies will be prepared to take on more risk as they negotiate contracts, and when they have the confidence, to invest to expand production capacities.”
France’s Dassault, a leading European producer of advanced fighter aircraft, is also closely monitoring the buzz. It may be able to find a hungry market for its multi-role Rafale combat plane, says Eric Trappier, CEO of Dassault Aviation. “For much too long, the European Commission has impeded the industry by a lack of investment and burdening rules,” he adds. “Meanwhile, the Chinese and Americans have developed their industries freely.”
There’s only so much governments can do. Private equity brings essential capital and expertise. Ian Fujiyama, Carlyle Group
For Europe, the stakes transcend profit. The war in Ukraine has laid bare the costs of military dependence, while Mr Trump’s ambivalence injects fresh urgency. Private equity’s embrace of defence signals a pragmatic, if uneasy, consensus: security now outweighs the ESG dogma. As Jason Thomas of Carlyle Group observed, “the 180-degree turn by European governments has been something quite incredible”. Whether this pivot can deliver lasting security without compromising the bloc’s values may well come to define not only Europe’s rearmament era, but also its very existence.
What is underway
Selected new European defence projects, documenting the rebirth of once neglected industry
– Eurosweep (Forsvarets Forskningsinstitutt, Norway), €28.5m, develops an unmanned minesweeping system
– ENGRT II (Airbus Helicopters), €100m, develops a next-generation rotorcraft
– iMUGS2 (Milrem, Estonia, now part of EDGE Group, UAE) €50m, tests unmanned ground vehicles
– Scepter (Indra Sistemas, Spain), €35m, develops interoperable and standardized radar, electronic warfare and communication systems for airborne platforms
– Beast (Diehl Defence), €34.9m, develops a future short-range, air-to-air missile
– Citadel Range (Estonian Ministry of Defence), €48m, upgrades European cyber defense
– Fasett2 (Airbus) , €30m, concept study for a new mid-sized European military transport aircraft
– Ninja2 (Rheinmetall), €29.6m, develops non-jammable precision munition
– Security Action For Europe (European Commission), €150bn, loan facility to boost defense and security-related investment programs across the EU
Various smaller projects – resilient drone navigation, swarming capability, AI for satellite-image analysis (including €78m to develop counter hypersonic glide vehicles)
Source: defencenews.com
