Baird Global Investment Banking recently attended DSEI UK, a headline event for the global defense industry that brings industry, governments, national armed forces and academics together biennially in London. In our conversations with leaders from across the defense & government landscape, one theme consistently came to the fore: The pieces are in place for an explosion of opportunities in European defense.
Following are the dynamics shaping today’s exciting European defense market.
Historic Surge in Defense Spending
NATO’s European members approved considerable increases in spending, equal to 5% of GDP - doubling from €400 billion annually to over €800 billion by 2030
Capacity constraints: Significant overlap between defense and commercial aerospace supply chains - Europe requires significant industrial build-out amid strained supply chains and talent gaps
>40% of future spend earmarked for hardware and tech innovation
Ongoing Modernization of GovTech
European governments are accelerating digital transformation, moving away from manual systems to cloud-based, secure platforms
High retention and trust in GovTech vendors create opportunities for long-term contracts and cross-selling
GovTech funding remains strong even during budget constraints
Growing Momentum in DefenseTech & SpaceTech
IPOs and follow-on offerings from companies like Karman Space & Defense, Voyager, AeroVironment, Firefly Aerospace, and Kratos highlight investor appetite
VC investment in DefenseTech rose from ~$18B in 2019 to >$60B YTD in 2025
Europe is seeing increased participation
Significant Changes in Warfare Conduct, as Witnessed in Ukraine, Driving Rapid Investment and Growth
Drone and anti-drone technology being introduced in a wide range of formats (air, sea, land) and investment profiles
Communication networks and related software being transformed to accommodate these more complex systems and dynamic battlefield environments
Growth in manned units also anticipated in Europe to support this growth
Extraordinary interest in developing low cost, attritable systems and capabilities at tremendous scale
Pace of innovation at an all-time high – ideas going from concept to battlefield in days, not decades
Cyber Investment Fueled by Need to Protect Against Foreign State Actors
European infrastructure is increasingly targeted by foreign state actors
Investment is flowing into dual-use cybersecurity technologies to protect critical systems and public safety
Strategic M&A Activity is Robust
European defense firms are actively acquiring capability-rich assets, especially in:
ISR (Intelligence, Surveillance, Reconnaissance)
Electronic warfare
Counter-UAS
Space payloads
Cross-border and stock-based deals are becoming more common, with financial sponsors showing strong interest
