Geopolitical tensions in the Middle East, Ukraine and pressure from Russia have pushed European defence firms into a surge of activity. Private equity analysts at Houlihan Lokey say the uptick in IPOs, mergers and acquisitions, and startup funding signals a robust environment for limited partners eager to diversify into the sector for long‑term investments within the defence value chain today.

The report notes record flows of private capital into defence, a trend that could reshape investment strategies across Europe. David Kelnar, head of Houlihan Lokey’s private capital team, argues that resilience becomes a key theme for investors, as firms seek steady returns amid uncertain security dynamics for capital allocations in the industry and to support long‑term growth in the sector.

For limited partners, the surge offers an opportunity to lock in exposure to a sector that benefits from sustained government spending and technological innovation. General partners, meanwhile, can capitalize on the growing deal flow, leveraging increased competition to secure favourable terms. The current environment underscores the importance of strategic positioning in defence for both sides of the market for investors.