Defense & Dual-Use M&A · 2026
Europe re-arms.
Capital follows.
A mid-year view of deal activity, valuations and the themes reshaping defense and dual-use transactions across Europe and beyond.
Edition 01 · July 2026 · © Nevon GmbH
The spending is structural.
The deal market is still forming.
For a decade, European defense was a market without a deal cycle. Budgets were flat, buyers were sovereign, and private capital largely stayed away. That has changed, and not as a spike.
In 2025, European military spending rose 14 percent to $864 billion1, the highest level SIPRI has ever recorded and, among NATO's European members, the fastest annual increase since 19532. Within this, European NATO members spent $559bn and Central and Western Europe $580bn, the part of the market this report addresses. Over the decade to 2025 it has doubled. NATO's pledge to reach 5 percent of GDP by 2035 turns a budget surge into a multi-year structural commitment.
Capital is following along two distinct tracks. One is the established supply chain: primes, tier-one systems houses and a long tail of mid-sized manufacturers now absorbing record orders. The other is a dual-use wave of venture and growth capital backing technology that crosses between civilian and military use.
Nevon Partners sits where these two markets meet, advising founders, owners and investors across the European mid-market. This report is our read of where the capital is going, what it is paying, and where the next transactions will originate.
1Europe as defined by SIPRI includes Russia ($190bn) and Ukraine ($84.1bn). European NATO members spent $559bn and Central and Western Europe $580bn in 2025. Source: SIPRI (2026).
2European NATO members. Source: SIPRI press release, April 2026.
Source: SIPRI, Trends in World Military Expenditure 2025 (April 2026); NATO.
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Four numbers that frame the year.
$864bn1, 2
European military spending in 2025, up 14 percent year on year and the highest level SIPRI has ever recorded.
Source · SIPRI
$8.7bn
European defense, security and resilience venture funding in 2025, up about 55 percent, outpacing the broader European VC market, which grew about 16 percent.
Source · Dealroom / NIF
1343
European aerospace and defense M&A transactions in 2025, up about 34 percent, Europe the fastest-growing region.
Source · LSEG
$114bn2
Germany's military spending in 2025, up 24 percent, the single largest in Europe excluding Russia.
Source · SIPRI
1Europe as defined by SIPRI includes Russia ($190bn) and Ukraine ($84.1bn). European NATO members spent $559bn and Central and Western Europe $580bn in 2025. Source: SIPRI (2026).
2Spending levels are in current US dollars. Percentage changes are in real terms, constant 2024 US dollars. Source: SIPRI.
3European A&D M&A reported value in 2025 was also $8.7bn (LSEG). This is a different figure from the $8.7bn of defence, security and resilience venture funding (Dealroom / NATO Innovation Fund).
Sources: SIPRI (2026); Dealroom.co / NATO Innovation Fund (2025); LSEG (2025).
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Not a spike. A cycle.
Within this, European NATO members spent $559bn2 and Central and Western Europe $580bn, the part of the market this report addresses.
Breadth
Spending rose across the continent. 22 of 29 European NATO members3 now meet the 2 percent of GDP guideline.
Duration
NATO has pledged 5 percent of GDP by 2035; Germany targets 3.5 percent by 2029. A multi-year commitment, not a one-off.
Velocity
A procurement acceleration law took effect in January 2026, shortening the path from budget to contract.
The honest read
SIPRI warns that NATO's new target lets up to 1.5 points cover loosely defined security-related spending, which risks blurring what counts as defense.
1US$ bn, constant 2024 prices. 2025 also shown at 2025 current prices, $864bn. The +102 percent figure is in real terms. Source: SIPRI Military Expenditure Database, Apr. 2026.
2Europe as defined by SIPRI includes Russia ($190bn) and Ukraine ($84.1bn). European NATO members spent $559bn and Central and Western Europe $580bn in 2025. Source: SIPRI (2026).
3Counts follow SIPRI methodology and may differ from NATO's own figures. Source: SIPRI.
Source: SIPRI, Trends in World Military Expenditure 2025 (April 2026); NATO.
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Deal volume hit a record. Value followed.
532
Deals worldwide A&D M&A in 2025, volume +41 percent and value +60 percent to $42.7bn.
$2.3bn
European defense M&A value in H1 2025, up about 35 percent year on year.
+55%
Growth in European defense, security and resilience venture funding, to $8.7bn.
1Worldwide deal counts are from LSEG. The European country breakdown uses Inven and is not directly comparable. Sources: LSEG; Inven.
LSEG (2025, Q1 2026); Refinitiv/LSEG via A&O Shearman (H1 2025); Dealroom.co.
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A mid-market market.
The deals concentrate at the lower end. Disclosed financing rounds, the part of the market that reports size most consistently, cluster small: roughly half are under $5 million and around seven in ten are under $15 million.
M&A consideration is mostly undisclosed, only about one in six transactions reports a figure, so the M&A size picture stays directional. Independent advisors note target sizes are concentrating in the mid-market as primes and sponsors build platforms through add-ons.
The structural backdrop is a fragmented supplier base of family-owned and mid-sized manufacturers. That is the profile of a consolidation market, not a mega-cap one.
Inven, n=99 (about 69 percent of financings report a size).
Inven, disclosed European financing rounds, Jan 2025 to May 2026. Qualitative context: Capstone Partners; Vestbee.
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Where the activity concentrates.
Consolidation
Land systems
DriverAmmunition and armored-vehicle demand.
Anchors
KNDS acquired Texelis.
Leonardo agreed to take Iveco Defence Vehicles, €1.7bn.
Capability build-out
Naval
DriverCapacity build-out.
Anchors
Rheinmetall agreed to acquire Naval Vessels Lürssen, EC Phase 1 clearance.
TKMS listed in 2025.
Vertical integration
Space
DriverScale against non-European competitors.
Anchor
Project Bromo: Airbus 35 percent, Leonardo and Thales 32.5 percent each. Targeted operational 2027, subject to EC review.
Dual-use frontier
Cyber and AI
DriverAI was 44 percent of DSR funding.
Anchors
Safran acquired Preligens.
Helsing raised growth financing.
Priority capability
Missiles and air defense
DriverEuropean Sky Shield Initiative and the EU 2030 Defence Readiness Roadmap.
Note
Order and programme led, with no single mid-market M&A anchor.
Company and regulatory announcements; aggregate context LSEG; AI share Dealroom.co / NATO Innovation Fund.
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Listed re-rated. Private has not, fully.
Listed European primes re-rated sharply in 2025, trading near all-time highs. The STOXX Europe Total Market Aerospace and Defense index rose sharply over the year. That re-rating lifts seller expectations right across the private market.
Private mid-market assets, however, clear well below the listed peak. Transaction multiples remain full, yet sit beneath where listed comparables trade. This public-private gap is the core pricing-discipline question, alongside the distinction between genuine dual-use technology and an asset with a defense story attached.
US and global, listed and large-cap; not directly a European mid-market private benchmark. Transactions also about 2.4× EV/Revenue.
DC Advisory; Capstone Partners; PwC; STOXX. Multiples are indicative reference points across differing scopes.
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Two markets, one rearmament cycle.
01 · The established supply chain
Order surge, accelerated by the January 2026 procurement law.
Family-owned and mid-sized suppliers, plus engineering and automotive firms pivoting in. Friction sits in certification and export control, not demand.
Transaction multiples around 14× EV/EBITDA.
02 · The dual-use wave
Venture and growth-funded, backed by a new public and private capital stack.
EU (EDF, EUDIS), EIB Group, NATO (DIANA, NIF) and specialist private funds. Risk is the dual-use label outrunning genuine dual-use technology.
$8.7bn in 2025, up about 55 percent, outpacing the broader European VC market, which grew about 16 percent.
Dealroom.co; Capstone Partners; EU Commission; NATO.
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The buyer pool has widened.
01
Strategics and primes
Reshaping portfolios through acquisitions and disposals as they refocus on priority capabilities.
Active acquirers
Rheinmetall, Leonardo, KNDS, Safran
02
Private equity, sponsors and VC
Among the most active acquirers, building platforms as lending eases, now joined by a fast-growing wave of defense-dedicated VC funds backing earlier-stage companies.
Recent activity
Tikehau Capital (ScioTeq, from OpenGate)
03
Industrial corporates pivoting in
Engineering and automotive groups entering defense to redeploy capacity into a growing end market.
Tailwind
Mittelstand succession: 532k SMEs by 2028
04
The new dual-use capital stack
EU programmes, the EIB Group and NATO-linked vehicles backing dual-use technology alongside private funds.
Capital providers
EU (EDF, EUDIS), EIB Group, NATO (DIANA, NIF), DTCP
Sovereign buyers operate at large-cap scale and sit outside the mid-market focus of this report.
LSEG; Capstone Partners; BVMW; EU Commission.
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The new defense capital stack.
European Union
European Defence Fund committed more than €1.1bn in 2025; EUDIS targets SMEs and start-ups.
EIB Group
Defence Equity Facility of about €175m; for example €50m into Join Capital's €235m fund III.
NATO
DIANA accelerator and the NATO Innovation Fund, a €1bn deep-tech vehicle.
Specialist private funds
A fast-growing field of newly raised, defense-dedicated VC funds, such as DTCP's €500m Project Liberty and new funds like Verne Capital, is channelling fresh early-stage capital into the industry. What was a thin layer two years ago is now one of the most active parts of the stack.
2025 aggregate
$8.7bn
European defense, security and resilience venture funding in 2025, up about 55 percent year on year, outpacing the broader European VC market, which grew about 16 percent.
EU Commission (EDF/EUDIS); EIB/EIF; NATO (DIANA/NIF); DTCP; Dealroom.co / NATO Innovation Fund.
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Part two
02
The themes shaping 2026.
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01
The order surge is hitting a supply chain that cannot scale fast enough.
Demand is no longer the constraint. Supply is. Record orders are landing on a base of family-owned and mid-sized manufacturers that cannot expand capacity, certification and skilled labour at the pace required.
Engineering and automotive firms are entering defense to redeploy capacity, but they need certification and export-control capability to qualify as suppliers. Primes and corporates are buying that capability rather than building it, and private equity is assembling platforms through add-on acquisitions.
A succession overlay sharpens the picture: KfW estimates more than 532,000 German SMEs face a handover by 2028. That figure is general Mittelstand context, not defense-specific, but it points to a steady supply of owners ready to transact. The result is the setup for a multi-year mid-market consolidation cycle.
532k+
German SMEs facing succession by 2028, general Mittelstand context.
~14×
EV/EBITDA on transactions, full but below the listed peak.
€1.7bn
Leonardo's agreed purchase of Iveco Defence Vehicles.
BVMW; Capstone Partners; KfW (succession figure is general SME context, not defense-specific).
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02
Civilian technology is crossing into defense, faster than the label can keep up.
Artificial intelligence absorbed 44 percent of European defense, security and resilience investment in 2025, a six-year high. This creates an entirely new class of targets and pulls strategics and venture investors onto the same cap tables.
It also demands discipline. Dual-use is overused as a label, and autonomous systems follow different rules than software. The valuation gap between genuine dual-use technology and an asset with a defense story attached is widening, and telling the two apart is becoming the core diligence question.
44%
AI's share of DSR funding in 2025, the highest in six years.
$4.7bn
Late-stage funding in 2025, roughly tripled year on year.
$1.7bn
Raised in Munich, Europe's number one DSR hub.
By country, the UK led with $2.9bn and Germany followed with $2.1bn.
Dealroom.co / NATO Innovation Fund (2025); Rockaway.
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Screening is reshaping cross-border defense M&A.
Sovereignty and a buy-European reflex are now structural features of the market. In Germany, the AWV requires a non-German acquirer of 10 percent or more of a defense target to file for review; the ministry of defense issued rare public guidance in January 2026, and a consolidated Investment Screening Act is planned for 20261.
At EU level, a revised FDI Screening Regulation reached a provisional political agreement on 11 December 2025, with the text published in February 20262, and sets a minimum screening standard across all member states. Deals can be blocked on sector sensitivity alone, even for EU investors. Deal structure, minority positions, EU-led consortia and sensitive-asset carve-outs, is becoming as important as valuation.
| Jurisdiction | Defense trigger | Note |
|---|---|---|
| EU | Minimum mandatory screening across all member states. | Provisional agreement2 |
| Germany (AWV) | Non-German acquirer of 10 percent or more of a defense target. | Mandatory filing and standstill |
| France | Control by any non-French acquirer; 25 percent for non-EU/EEA investors; 10 percent if the target is listed. | |
| UK (NSI Act) | More than 25 percent in a mandatory sector including defense, any acquirer. | Sector list expanding in 2026 |
| Italy (Golden Power) | Clearance required from 3 percent upward, any investor. |
1A new German Investment Screening Act is planned for 2026. The timing is not yet confirmed.
2Provisional political agreement of 11 December 2025. Text published February 2026. Formal adoption expected in the first half of 2026. The rules apply 18 months after the regulation enters into force. Source: EU Council.
3Thresholds are simplified and sector-specific. The figures shown are the triggers most relevant to defense targets. National regimes continue to evolve. Sources: national authorities and published legal guidance.
German Foreign Trade Ordinance (AWV); BMVg; EU FDI Screening Regulation (provisional agreement Dec 2025); national authorities and published legal guidance.
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Germany is the engine of European rearmament.
German military spending rose 24 percent to $114bn in 2025, the largest in Europe excluding Russia and above 2 percent of GDP for the first time since 1990. A March 2025 Basic Law amendment exempts defense spending above 1 percent of GDP from the debt brake and creates a €500bn infrastructure fund over twelve years, on top of the €100bn special fund from 2022. Berlin targets 3.5 percent of GDP by 2029.
$114bn
2025 military spending, up 24 percent.
€500bn
Infrastructure fund over twelve years.
3.5%
Of GDP targeted by 2029.
German spending fuels the market, but sourcing is European and global, not contained within Germany. The buy-European pull is a counter-current, yet supply chains remain international, and that gap is itself a source of transactions.
From spending to dealmaking
Supply chain
Capacity redeployed into defense.
Engineering and automotive firms pivoting in, against a backdrop of broad Mittelstand succession.
Dual-use
Scale-ups drawing dedicated capital.
Including DTCP's Project Liberty. Munich was Europe's number one DSR hub in 2025, with $1.7bn raised.
Screening
A higher bar on deal structure.
A 10 percent threshold triggers a mandatory filing, and BMVg guidance plus a planned Investment Screening Act1 raise the bar.
1A new German Investment Screening Act is planned for 2026. The timing is not yet confirmed.
SIPRI (2026); German Basic Law amendment; BMVg; Dealroom.co / NATO Innovation Fund; DTCP.
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Notable European defense and dual-use transactions.
| Target | Acquirer / Investor | Sub-sector | Date | Value | Note |
|---|---|---|---|---|---|
| Naval Vessels Lürssen | Rheinmetall | Naval | 2025 | n/d | Cross-domain build-out; EC Phase 1 clearance |
| Iveco Defence Vehicles | Leonardo | Land | 2025 | €1.7bn | Land-systems consolidation |
| Texelis Défense | KNDS | Land | 2025 | n/d | French regulator cleared end-2025 |
| Loc Performance Products | Rheinmetall | Land | 2025 | $950m | US target; cross-border into North America |
| LMB (France) | Loar Holdings (US) | Aerospace | 2025 | ~€365m | Inbound US acquisition of EU supplier |
| ScioTeq (Belgium) | Tikehau Capital | Avionics | 2025 | n/d | PE majority, from OpenGate |
| Preligens (France) | Safran | Cyber and AI | 2024 | ~€220m | Defense AI capability |
| Helsing (financing) | Series D | Dual-use | 2025 | €600m | Dual-use frontier growth round |
| TKMS | Listing (IPO) | Naval | 2025 | n/d | Capital markets listing |
| Blue Ocean | Helsing | Dual-use | 2025 | n/d | Underwater autonomy |
| EFT Mobility | Quantum Systems | Dual-use | 2025 | n/d | Drone supply chain |
| Blackned | Rheinmetall (majority) | Software | 2025 | n/d | Majority stake |
Illustrative, not exhaustive. STOXX Europe Aerospace and Defense index rose sharply in 20251. Pipeline: Czechoslovak Group IPO planned. n/d = not disclosed.
1Reported 2025 gains for the index range from roughly 50 to 74 percent depending on the index variant, data window and source. No single calendar-year figure is used here. Sources: STOXX; market reporting; Bain.
Company and regulatory announcements; startup transactions via Sifted; aggregate context Refinitiv / LSEG.
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Outlook for H2 2026.
Volume · higher, but selective
Q1 2026 A&D M&A volume rose about 37 percent and value about 166 percent (LSEG). European defense M&A value was up about 35 percent in H1 2025 (Refinitiv). Expect activity to stay elevated but more selective, with consolidation continuing.
Valuation · elevated, bifurcated
Listed primes near 20× and transactions near 14× EV/EBITDA. The gap between public and private, and between genuine dual-use and a defense story attached, widens. Dual-use commands a premium.
Buyers · a widening field
Primes use strong equity, sponsors compete harder as lending eases, industrial corporates pivot in, and the new public and private capital stack keeps funding the dual-use wave.
What to watch in H2 2026
EU FDI screening
Formal adoption expected in H1 2026, then applies 18 months after entry into force.
German screening act
A new German Investment Screening Act is planned for 2026.
EU 2030 roadmap
The EU 2030 Defence Readiness Roadmap, including a European air and missile defense shield.
NATO target
NATO target of 5 percent of GDP by 2035.
LSEG (Q1 2026); Refinitiv/LSEG (H1 2025); DC Advisory; Capstone Partners.
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What the cycle means for participants.
Founders and owners
A rare window, with more process.
Buyer competition is elevated and valuations are full. Sovereignty screening adds process complexity to cross-border deals. Broad Mittelstand succession points to a steady supply of transactions over the coming years.
Private equity and sponsors
From avoid to allocate.
Defense has moved from avoid to allocate. Platforms are built through add-on acquisitions and carve-outs as lending eases. The public-private valuation gap makes pricing discipline the central question.
Industrial corporates
Buy the qualification.
Engineering and automotive groups are redeploying capacity into defense. They need certification and export-control capability, so buying a qualified supplier often beats building one.
Synthesis of report findings. Context: SIPRI; LSEG; Capstone Partners; KfW.
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Experienced. Digital. Human.
Partner-led.
In a sector where buyers move quickly and judgement matters, a Partner stays on your deal from first conversation to close. The people you meet are the people who run the process.
Digitally powered.
The same data and AI tools reshaping defense sharpen our work, mapping buyers, benchmarking valuations and running tighter processes, so you reach the right outcome with fewer surprises.
Human at the core.
Selling or scaling a defense or dual-use business is a personal decision, not only a financial one. Deals turn on trust, and earning it on both sides of the table is the part of the work we care about most.
Where two
markets meet.
Edition 01 · July 2026 · © Nevon GmbH