A turning point for investors — The European defense tech ecosystem as a new asset class for private equity

Private equity is losing its fear of defense tech. Medium-sized compa­nies that have been serving the defense indus­try for deca­des are now beco­ming the focus of inves­tors. The geopo­li­ti­cal wake-up call — the large-scale Russian war of aggres­sion against Ukraine in Febru­ary 2022 marked a funda­men­tal break in the Euro­pean secu­rity archi­tec­ture and abruptly ended the era of the so-called “peace divi­dend” that had prevai­led since the end of the Cold War. It became clear that the Euro­pean defense tech­no­lo­gi­cal and indus­trial base was comple­tely inade­qua­tely equip­ped for a high-inten­­sity, conven­tio­nal war of attri­tion on its own soil. 

Private equity is redis­co­ve­ring Euro­pe’s defense tech: Driven by the turn­around in secu­rity policy, massive defense budgets and a tech­no­lo­gi­cal leap towards AI, auto­no­mous systems, cyber­se­cu­rity and space, an inde­pen­dent asset class with a long-term predic­ta­ble, state-supported demand signal is emer­ging. At the same time, a dyna­mic start-up ecosys­tem is growing with strong clus­ters in Germany, the UK, France and the Baltics, while a late-stage gap in growth capi­tal and a chan­ging ESG narra­tive are crea­ting stra­te­gic oppor­tu­ni­ties for specia­list inves­tors who actively manage regu­la­tory comple­xity, procu­re­ment cycles and geopo­li­ti­cal risks.