Europe’s defense boom: Geopolitics and investments fuel surge in M&A activity

The European defense industry, currently undergoing on a growth trajectory fueled by national self-defense initiatives, has been seeing more mergers and acquisitions (M&As) in recent years. A new report from Roland Berger projects even more M&A activity on the horizon.

The geopolitical situation in Europe is increasingly tense, not least owing to the war in Ukraine and increasingly hostile relations with Russia. The traditional role of the US as the leading force (and financer) of NATO has been called into question by the isolationism of the Trump administration.

Now, European nations have woken up to necessity of a strong EU-centered defense industry. M&A activity has become a major part of this transformation, as valuations increase significantly for leading European defense companies, more than doubling from 2022 to 2025.

Going forward, the market is expected to grow even more. The report estimates that defense spending from European NATO nations could increase from around $500 billion this year to $800 by 2030, which marks a 9% rate of growth.

In the past few years, Germany, the UK, France, and Italy have been the biggest spenders when it comes to defense. Bowing to pressure from the US, most European NATO member states agreed this past June to raise military spending by 2% of GDP up to 2035. That would also include a 3.5% increase in ‘core’ military budgets and a further 1.5% on infrastructure related to defense.

“Building up deterrence for Europe requires an increase in defense capabilities and capacities. We will therefore see a significant increase in M&A activities in the next 1–2 years,” said Stephan Baur, partner at Roland Berger.

More M&A on the horizon

In tandem with the growth in the defense industry, the overall number of M&A transactions has also been increasing in Europe since around 2023. The growing market consolidation is linked to the general market uplift, fueled in part by major public contracts and private investments, according to Roland Berger.

“We expect the strong momentum in European M&A activity to persist toward 2030. This will be the case even if there is peace in Ukraine,” noted Baur.

In terms of figures, the number of European defense transactions has nearly tripled from 2023 to 2025. The values of transactions have also been at an all-time high. Meanwhile, European investors are keen to get in on the wave of rising value, looking forward to high returns later down the line.

The background for this boom in European defense is a major regulatory pivot at the EU level in the past few years. Several EU programs have fomented investment and development in arms and defense, in hopes of boosting the domestic market and facing what some leaders see as an existential threat from adversarial superpowers like Russia and China.

Among other ambitious initiatives, the European Commission put forward a plan to make €800 billion in funding available to EU nations, partially in the form of loans. The plan has been somewhat controversial because it could draw funds away from other important programs.

‘New defense’

A major part of what Roland Berger calls the ‘new defense’ ecosystem is being driven by startups that specialize in smart and affordable technologies – things like custom drones. Many new players are also disrupting in the segment of tech equipment that address the threats of cyber attacks and sabotage.

Meanwhile, however, legacy players are also increasingly acting on the imperative to introduce AI-powered tech and other new innovation in an effort to keep up with the changing market. The attractive defense environment is also creating the opportunity for non-defense players to transfer their capacities towards defense.

“We see startups with rapid innovation cycles emerging as attractive M&A targets, while more established players, fueled by strong capital inflows, are increasingly engaging in M&A themselves,” noted Andreas Grille, partner at Roland Berger.