Dual benefits

Beth Brearley | 19 November 2025

https://realdeals.eu.com/article/dual-benefits

Beth Brearley examines the tailwinds driving investment in aerospace and defence technology

European companies developing dual-use technologies – those with both military and civilian applications – are increasingly on the radar of PE firms as countries across Europe bolster their defence budgets, providing a tailwind for private investment in the sector.

In the wake of geopolitical shifts during the past few years, countries have amended their agendas, strengthening their sovereign capabilities, beefing up supply chains and galvanising investment in defence tech after years of underinvestment.

“Governments are encouraging industrial resilience and supply chain independence, especially in the US, UK and Europe, and we believe this shift away from historical global supply chains is catalysing dealflow across the traditional defence and more modern defence-tech ecosystems,” says Karthik Achar, partner at Stellex Capital Management.

“There is an imperative need for defence modernisation and integration of modern technology in all the systems. Governments cannot fund innovation alone and we believe investment from private equity is vital,” Achar adds.

Hidden in the supply chain

Initiatives such as the Defence Equity Facility (DEF), which is part of the European Commission’s InvestEU programme and is managed by the European Investment Fund, are also supporting investment.

Launched in January 2024, DEF aims to support venture capital and private equity funds investing in European companies developing dual-use technologies.

“Dual-use technology has become the new engine of strategic advantage,” says John James, managing partner and group CEO at Boka. “The same quantum sensors used in medical imaging are being deployed for submarine detection. AI models built for logistics optimisation are enhancing military decision support.”

“For investors, this duality creates resilience and scale: civilian markets validate the product, while defence contracts provide mission-driven stickiness and national alignment,” adds James.

As such, GPs are no longer focusing on large prime contractors, or ‘primes’, but are increasingly backing these specialised suppliers and financing technologies that are integral to larger systems and have the benefit of being less cyclical.

“The most critical components of future defence capability are often hidden in the supply chain: advanced materials, satellite networking, edge computing and AI model retraining,” says James.

For example, in 2023 Stellex acquired David Brown Santasalo, which supplies gearboxes – critical components for the UK’s Royal Navy. Stellex also recently acquired Beaufort, which uses proprietary technology to manufacture protective clothing and survival equipment for military personnel.

Another trend that Oriane Durvye, managing director in Alantra’s investment banking team, is seeing is traditional A&D companies developing software as part of their digital transformation strategies, then rolling out the software as a commercial product and marketing it independently.

An example is JPB Système – a supplier to major aircraft engine manufacturers – which Alantra recently advised on its sale of a minority stake to Ardian.

JPB Système is known for its self-locking doors, but in 2022 the company launched KEYPROD, a cloud-based solution platform.

“This is an example of a pure A&D business that has developed a parallel tech business,” Durvye says.

Opportunities bring exit risks

These innovative companies that integrate their technology seamlessly into larger systems are “the real frontier of modern defence investment”, according to James.

“Our first investment in a quantum technology company – now set to go public in December 2025 – demonstrates the scale of opportunity emerging from this intersection of deeptech and national security,” he says.

“Much like Carlyle’s early focus on defence and aerospace post–Gulf War I, we’re witnessing a generational moment where geopolitics, innovation and capital are converging again.”

Luke Matthews, partner at Maven Capital Partners, describes his firm as sector-agnostic but says much of what it invests in is A&D tech-focused. Recent investments include cybersecurity businesses Cysiam and Blueskytec, 3D-printing business AMufacture, and airborne satellite monitoring systems provider Horizon Technologies, all of which are dual use.

“There are attractions to having a broader revenue base, although there are some challenges in terms of managing different go-to market strategies, different sales cycles and different buyer concerns,” he says. “But ultimately who knows how the market is going to play out? So having more options is quite attractive.”

“We have to think about exits at some point, and they could be more constrained when you have customer dependency on a handful of small government or defence clients,” explains Matthews.

Durvye agrees that exit constraints can be a problem for companies with government agencies as clients.

“If the Direction Générale de l'Armement (DGA) is a client, for example, the DGA will have an approval right at the end on final acquirer, because it will have to go through the FDI process in France, so the exit may be constrained.”

However, Durvye is seeing a strong appetite from private equity investors for A&D tech, both through generalist funds and via dedicated vehicles. One example is Eiréné, launched by Weinberg Capital Partners in 2020.

Eiréné is an LBO fund that aims to take majority shareholder positions in French defence small- and mid-caps with dual character. In October, Weinberg Capital announced a new closing of €275m for Eiréné.

Educated investors to benefit from durable demand

Achar is optimistic on the outlook, given the increased collaboration between traditional defence players and tech-driven players, which he says is creating “compelling” buy-and-build opportunities and potential partnerships.

Mohamed Fawzy, founder and managing director of Oxpera, is slightly less bullish on the deal pipeline for A&D tech. While he predicts a “wave of deals coming in over the next couple of years”, he says most of these will be in the supply chain – such as machinery parts – where the industry is more fragmented.

“The play in Europe seems to be more about consolidation than a technology enabler,” he says. “The LP appetite is growing in that area but we're seeing more cautious moves in terms of how PE is investing in the sector, due to heavy regulation.”

Mathews agrees that regulation is one of the hurdles GPs face, along with long sales cycles, customer concentration and export licences, so suggests A&D tech is best suited to educated investors.

“We're not put off by these challenges but you need to understand them,” he says. “Investors need a level of education and to be comfortable with these issues.”

For James, the pros far outweigh the cons. “The challenge lies in understanding how to navigate procurement cycles, export controls and the sensitivities of dual-use applications,” he says. “That’s why operational experience and relationships matter as much as financial acumen.

“The attraction is clear,” he adds. “These sectors address the most durable form of demand – sovereign need. Nations will continue to fund the technologies that secure their economies, energy systems and borders. The result is a long-duration, non-cyclical growth profile rarely found elsewhere.”