Investment in European defense ventures soars to a monumental $5.2 billion
Boom in Defence Innovation: UK Leads the Way
The UK defence sector is witnessing a significant surge in innovation, driven by increased investments and government commitments. At the forefront of this transformation is the newly established UK Defence Innovation organisation, tasked with centrally coordinating innovation within the sector.
The UK Government's dedication to research and development (R&D) is evident, with plans to allocate at least 7% of its budget to R&D by 2030. This move is expected to nearly double annual defence science spending, reaching approximately £4 billion. This investment is part of the government's pledge to raise defence spending to 2.5% of GDP by 2027.
This investment boom has propelled the UK's defence and national security sectors to an all-time investment of $5.2 billion in 2024. Post-Brexit, the UK has continued to pursue innovation independently through the National Security Strategic Investment Fund and the Defence and Security Accelerator.
The surge in investment is not limited to the UK. Europe launched the Nato Innovation Fund in 2023, a €1 billion multinational venture vehicle backed by 24 Nato allies. Germany, too, has seen a rise in defence investments, overtaking the UK in 2024. France also experienced strong inflows, making the UK and Germany the leading destinations for defence-related venture capital.
Investors are increasingly recognising defence as not only critical but also an untapped and potentially lucrative part of the investment landscape. They are directing capital towards dual-use technologies such as AI, cybersecurity, autonomous systems, and quantum.
Large defence contractors are reinvesting profits into R&D, and there are more acquisition plays of innovative firms. For instance, the 2024 acquisition of SixWorks by IBM for $150 million. PE firms have also made headline acquisitions of UK defence companies.
The UK's aerospace, defence, security, and space industries employed 443,000 people and generated more than £100 billion in revenues in 2024. This growth underlines the pace of the sector's transformation over the past decade, with a 31% turnover growth.
The new UK-EU post-Brexit agreement allows UK-based firms access to the EU's new Security Action for Europe - a €150 billion fund providing loans for defence projects. This agreement further cements the UK's position as a key player in the European defence sector.
The rise in geopolitical risks, particularly the Russia-Ukraine war, is prompting institutional investors to rethink long-standing restrictions around defence allocations. Matt Croker, partner at Heligan Group, believes that the long-term stability and resilience of investments in defence are improved due to a sector strongly influenced by geopolitical necessity and governmental support.
As the UK defence sector continues to evolve, it is clear that innovation, investment, and strategic partnerships will play a crucial role in shaping its future.
