CLIENT ALERT
Europe’s defense investment boom demands a new deal playbook
October 2026
Read time: 15 min
Finding attractive assets has always been central to successful investment. In Europe’s rapidly evolving defense sector, however, investors are increasingly recognizing that identifying the right opportunity is only part of the equation. Understanding how national security regulation is reshaping the transaction landscape is becoming just as important.
Europe’s defense sector is entering a period of unprecedented growth. Driven by heightened geopolitical tensions, evolving security priorities, and significant public investment commitments, governments across Europe are reshaping the region’s industrial base. The commercial opportunity is significant, but so too is the regulatory complexity accompanying it. Increasingly, the businesses attracting the greatest investor interest are the very businesses likely to face the greatest regulatory scrutiny.
The commitment by European nations to increase defense spending towards 5% of GDP is creating one of the largest industrial investment opportunities in recent decades. Investment extends well beyond traditional defense contractors into advanced manufacturing, artificial intelligence (AI), autonomous systems, critical infrastructure, logistics, software, and space technologies. Public investment is also supporting efforts to strengthen Europe’s industrial resilience and strategic autonomy through initiatives such as the ReArm Europe Plan and Defense Readiness 2030.
Investment activity continues to accelerate across the sector. Venture capital is supporting a new generation of defense technology companies, while private equity firms are pursuing opportunities across the wider industrial ecosystem. At the same time, established defense contractors are increasingly partnering with emerging technology businesses through acquisitions, joint ventures, and strategic alliances to combine innovation with industrial scale.
Yet the defining feature of today’s market is not simply the volume of investment. Governments are increasingly viewing defense capability, industrial resilience, and national security as interconnected policy objectives. As a result, regulatory considerations are playing a more prominent role in investment decisions from the earliest stages of a transaction.
For investors, this represents an important shift. The question is no longer simply what to invest in, but also how to structure and execute transactions in an environment where national security considerations are increasingly influencing commercial outcomes.
Regulation is becoming part of the investment strategy
Traditionally, competition law, foreign investment screening, export controls, and sanctions have often been considered separate legal workstreams. Increasingly, however, these regimes converge on the same strategic technologies and transactions.
Together they can influence valuation, transaction structures, execution timelines and, ultimately, exit opportunities. Investors that consider these issues holistically from the outset are often better placed to anticipate regulatory challenges, while those that address them later in the process may face avoidable delays or additional execution risk.
As a result, regulatory strategy is increasingly becoming an integral component of investment planning rather than simply a legal compliance exercise.
Competition policy is evolving alongside industrial strategy
European policymakers are placing greater emphasis on strengthening industrial resilience and strategic autonomy alongside maintaining effective competition.
Recent initiatives, including the Defense Readiness Omnibus package, Defense Readiness Roadmap 2030 and the European Commission’s draft revised EU Merger Guidelines, suggest a more nuanced approach to defense-sector consolidation. While competition authorities continue to assess transactions carefully, there is increasing recognition that certain scale-enhancing transactions may contribute to Europe’s defense readiness, strengthen security of supply, and support long-term innovation.
National security considerations are playing a larger role
Foreign investment screening is becoming an increasingly important consideration in cross-border defense transactions. Proposed reforms to the EU Foreign Direct Investment Screening Regulation would expand mandatory screening across strategic sectors, strengthen cooperation between Member States and increase scrutiny of indirect ownership structures and sensitive technologies.
For investors, regulatory approvals are no longer simply procedural milestones. They are increasingly influencing transaction structures, deal timetables, and execution certainty. Incorporating national security considerations into transaction planning at an early stage can therefore help improve deal certainty and reduce execution risk.
Export controls have become a strategic consideration
Export controls have evolved beyond traditional compliance obligations and are increasingly influencing investment decisions, supply chain strategies, and future exit options. This is particularly relevant for businesses developing technologies with both commercial and defense applications. Regulators are placing greater emphasis on software, technical know-how, and technology transfers, meaning companies operating in AI, semiconductors, cyber, quantum technologies, autonomous systems, and space capabilities may all attract heightened scrutiny – even where they do not consider themselves traditional defense businesses.
Assessing export controls alongside foreign investment screening and competition issues can provide investors with a more complete understanding of regulatory risk and help avoid unexpected challenges later in a transaction.
Early planning can create competitive advantage
The growing interaction between competition law, foreign investment screening, export controls, and sanctions means regulatory diligence is increasingly sitting alongside commercial, financial, and tax analysis from the earliest stages of a transaction.
Businesses with mature governance structures, robust compliance programs, and well-managed licensing strategies may be better positioned to achieve greater deal certainty, reduce execution risk, and support stronger valuations. In this context, regulatory preparedness is becoming an increasingly significant indicator of operational maturity as well as legal compliance.
Europe’s defense investment landscape presents one of the most significant industrial opportunities of the coming decade. Capital is available, government commitment remains strong, and innovation continues to accelerate across the sector.
The investors best placed to capitalize on these opportunities are likely to be those that incorporate regulatory considerations into investment strategy from the outset, rather than treating them solely as legal or compliance issues.
As Europe continues to align industrial policy, competition policy, and national security objectives, regulatory considerations are likely to play an increasingly important role in how transactions are structured, executed, and valued. For investors, understanding that shift will be critical to navigating Europe’s evolving landscape for defense investment, and to unlocking long-term value.
Regulatory developments in 2026
On 10 June 2026, the Council and the European Parliament reached a provisional agreement on the Defense Readiness Omnibus. The package brings together, among other measures, simplifications in defense procurement, facilitated investment, cross-border transfers of defense-related products within the EU, adjustments to the application and funding procedures of the European Defense Fund, permitting arrangements for Defense Readiness Projects, support for SMEs, and clarifications regarding environmental and chemicals rules. In addition, permitting procedures for Defense Readiness Projects are to be harmonized and limited to a maximum of 102 working days. Where the competent authority fails to take a decision, tacit approval is envisaged under certain conditions.
The direction of travel is clear: less bureaucracy, faster cross-border procurement, and a more rapid expansion of industrial capacity. This will create new opportunities for companies in connection with EDF projects, joint procurement, cross-border supply chains, and the scaling-up of production.
Following the European Parliament’s vote, the Council gave its final approval on 9 October 2026 to the Defense Readiness Omnibus package known as ‘Omnibus V’. The package comprises two regulations and one directive:
- A regulation facilitating defense investments and conditions for the defense industry;
- A regulation accelerating permit-granting for Defense Readiness Projects; and
- A directive streamlining defense procurement and intra-EU transfers of defense-related products.
The acts will enter into force on the 20th day following their publication in the Official Journal, and their implementation by the Member States should be closely monitored.
Europe’s defense financing landscape is expanding rapidly, with new EU and EIB-backed instruments mobilizing public capital to accelerate investment, innovation, and industrial capacity across the sector. These programs are creating significant opportunities for companies, investors, and consortia across procurement, scale-up financing, research and development, and strategic defense technologies.
Following its adoption in 2025, the EU’s SAFE instrument has entered the implementation phase. SAFE provides up to €150 billion in long-term loans to Member States for rapid defense investment. Companies benefit indirectly through the resulting national and common procurement programs. To maximize impact and reduce fragmentation, projects are generally based on common procurement involving at least one Member State receiving SAFE funding and another Member State, Ukraine or an EEA-EFTA country. The program supports priority capabilities including ammunition, missiles, air and missile defense, drones, cyber capabilities, and military mobility.
Financial assistance has been approved for 18 Member States. Poland received the first SAFE pre-financing payment in May 2026, and Canada became the first non-European country formally admitted to participate in SAFE procurement in June 2026.
The EU framework sets the direction, but the regulatory landscape is shaped by how rules are implemented and enforced at national level. The following country-specific articles explore the key legal considerations, differences, and developments across major European jurisdictions.
Germany’s regulatory framework
Faster Bundeswehr procurement, simplified export controls and plans to accelerate military infrastructure are reshaping Germany’s defense market, creating new opportunities across defense, technology, construction and infrastructure.
France’s regulatory framework
An additional €36 billion in rearmament spending through 2030, combined with evolving investment screening, procurement and export controls, is creating new opportunities while increasing regulatory scrutiny.
Italy’s regulatory framework
Growing investment in defense modernization and advanced technologies is creating new opportunities in Italy, while Golden Power scrutiny, specialized procurement rules and export controls require careful regulatory assessment.
