Europe outpaces global rise in private equity aerospace, defense investments

Global private equity and venture capital investment in aerospace and defense companies reached $10.63 billion globally in 2025, more than double the $4.88 billion total recorded in 2024, as deal value in Europe soared, according to S&P Global Market Intelligence data.

The value of private equity aerospace and defense deals in Europe, including the UK, increased about 4.8 times year over year to $658.8 million, as a ramp-up in defense spending in the region, driven by the four-year conflict in Ukraine, created deal opportunities.

"The reality is that the [European defense] sector has been underinvested in for arguably the last 20 years, maybe even longer — really, going back to the 1990s and the end of the Cold War. They're really trying to get up to speed, and we think there's an opportunity there in terms of the increased defense budgets," said Caleb Clark, a senior partner at middle-market private equity firm ATL Partners.

Europe's changing tide

In 2025, European NATO member states pledged to boost defense spending gradually to 5% of GDP by 2035. Defense spending of the 27 members of the EU is projected to climb to €392 billion in 2025 from €343 billion in 2024, according to the European Defense Agency. In Germany, Europe's largest economy, lawmakers approved a €500 billion infrastructure and defense spending package in 2025.

European private equity managers who previously invested in both aerospace and defense are now tilting more toward defense, said Dafydd Evans, a London-based managing director in the investment banking practice at Kroll LLC.

In the UK, fund rules and regulations are some factors that have limited defense sector investments.

"We're still quite hesitant to invest in pure-play defense opportunities [in the UK]. That being said, the tide is changing," Evans said.

"In last 12 months, [there have been] new funds in the UK raised specifically to invest in defense, where more conventional [private equity] funds didn't have the ability to do that because of their various fund rules," Evans said.

Onshoring production

Clark said deal opportunities are created not just by increases in European defense budgets but by plans to build out domestic defense production capabilities.

"Right now, our estimate is — depending on who you talk to — 70% to 80% for Europe's defense expenditures are with providers outside of Europe," Clark said.

One entry strategy is to first acquire a US defense sector company currently working with customers in Europe, then focus on building out that European footprint through add-on acquisitions or partnerships.

"That's a perfect example of a business we'd love to invest in," Clark said.

The defense sector was a big draw as overall investments in Europe by US-based private equity and venture capital firms rose to a four-year high in 2025.

North America

Amid Europe's rising profile with fund managers, North America still absorbs the vast majority of private equity and venture capital investment in aerospace and defense. Private equity invested $9.4 billion in US and Canadian aerospace and defense companies in 2025, or 89% of the global total, attracted by the US' massive defense budget, which exceeded $840 billion in 2025.

Ukraine's fight against Russia has highlighted the battlefield potential of commercial drones and other lower-cost and reusable or expandable technologies. Startups pursuing so-called attritable weapons systems, possibly used in combination with AI, are attracting significant attention from private equity.

"Next-generation technologies such as unmanned systems, counter-unmanned systems, and AI have become a force multiplier for the military," said Peter Manos, managing partner for Arlington Capital Partners.

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Largest deals

The $2.9 billion acquisition of aerospace and defense manufacturer Triumph Group Inc. by Warburg Pincus LLC and Berkshire Partners LLC was the largest private equity- or venture capital-backed investment in the aerospace or defense sectors since Jan. 1, 2025, according to Market Intelligence data. The next-largest was a $2.5 billion round of funding for defense startup Anduril Industries Inc., led by The Founders Fund LLC and T. Rowe Price Group Inc.

Of the 10 largest deals, seven targeted investments in North America and just one targeted Europe. Rounding out the list were two rounds of funding raised by China-based space technology companies Beijing Interstellar Glory Technology Co. Ltd. and Space Pioneer.

Exit outlook brightens

Clark said growing private equity interest in the defense sector is coinciding with a brighter outlook for the overall aerospace sector, driven in part by a post-COVID-19 rebound in air travel, as well as a backlog of commercial aircraft production in the wake of the pandemic. Those factors are pushing valuations higher across both sectors and setting up an exit opportunity for private equity.

"For private equity firms that have held assets for longer, I think you're going to see very attractive valuations. It's an opportunity to monetize and create liquidity for the investors," Clark said.