Interest in the UK defence sector is rising, and valuations are continuing to trend upwards with unmanned aerial vehicle (UAV) platforms receiving significant funding.
UK defence M&A has kicked off strongly in 2026. There has
been a record performance in the first half of of the year
with 84 trade transactions and 33 financial transactions,
according to a new H1 2026 defence M&A report from Heligan Group, an
investment and advisory business.
There have also been many new platform investments from private
equity, including Growth Capital Partners investing in Security
HQ, Evity Invest investing in Martin Precision and Sullivan
Street investing in Zenix Aerospace. The portfolio companies will
use M&A as a growth strategy, with some already completing
bolt-on acquisitions despite only recently finalising investment,
the firm said in a statement.
“The upward trend of deals across the UK defence and national
security industry is expected to continue into the second half of
of 2026 and [into] 2027 as the market is repricing defence and
national security businesses,” Matt Croker, corporate finance
parter at Heligan Group, said. “The dual-track processes between
private equity and trade buyers are now standard, and valuations
in contested processes are increasing as financial buyers are
willing to compete with acquirers.”
“Private equity is now outbidding trade in many processes and
institutional capital in defence and national security
has never been greater,” he added.
Prices of some European defence-linked firms have risen
in the past two years, for example the case
of Rheinmetal. Over the past five years
until yesterday, around 13:00 UK time, shares in Rheinmetall
skyrocketed more than 1,960 per cent, although they have eased by
35 per cent since the start of the year. This is perhaps
unsurprising after such a vertiginous ascent. Germany and the EU
have also recently agreed to hike defence spending. A number
of investment
managers – for example, BNP Paribas Asset
Management – have consequently been launching
defence-focused funds. WisdomTree has launched a new
exchange-traded fund:
The WisdomTree Europe Defence UCITS ETF (WDEF), listed on
Börse Xetra, Borsa Italiana and the London Stock Exchange.
“Defence and security are underrepresented in many portfolios and
have faced decades of underinvestment in Europe, resulting in a
significant capability gap. A structural shift is underway in
Europe as nations increase defence budgets to meet NATO targets
and respond to geopolitical challenges,” Pierre Debru, head of
research, Europe at WisdomTree, said in a note.
The new UK Prime Minister Andy Burnham has appointed John
Healey – who resigned as Secretary of State for Defence in June –
as Chancellor of the Exchequer, aka finance minister. (Burnham
removed Rachel Reeves from the post.) Healey had argued about the
need for credible increases in defence spending as a reason for
standing down, so his
appointment to the Treasury will be seen as a sign that
the new administration will want to increase defence
spending.
According to the Heligan Group report, acquirers are actively
seeking maritime electronic systems businesses but are finding
fewer than expected. Law enforcement technology is catching up,
and the businesses that have quietly built a position in this
market are going to find that the M&A interest arrives faster
than anticipated.
Unmanned aerial vehicle (UAV) platforms have received the most
funding, the report states. Autonomous systems have accounted for
up to 80 per cent of battlefield losses in the Russia-Ukraine
war, and greater M&A activity in the sector is expected, with
companies that have received venture and growth capital funding
emerging as highly innovative, high-growth businesses.
“In H1 of 2026 we’ve seen a significant shift in activity with
private debt funds now actively seeking to enter this market,”
added Croker. “For private equity overall, interest and deal
activity is increasing year-on-year.”
“The defence and national security market is repricing with
valuations increasing, but this fundamental change is still early
in its cycle,” he continued. “Capital follows capital, and now
that the Defence Investment Plan (DIP) has finally been
released, a further step-up in M&A and investment activity is
a near certainty.”