We are pleased to present our Industry Commentary 2025 highlighting key developments in the European Defence market.

Key take-aways:

• Spending step-change: EU27 defence expenditure reached €381bn in 2025 – an 11th consecutive annual increase and the first time exceeding the previous 2% of GDP guideline – with NATO's new 3.5% GDP target requiring an additional ~€254bn and implying a path toward ~€635bn in total defence expenditure

• Fragmentation limits efficiency: Of the €381bn in total defence expenditure, only ~€130bn is expected to qualify as defence investment, with national procurement patterns continuing to constrain scale, interoperability and industrial ramp-up – making consolidation an enabler, not just a financial choice

• Consolidation in motion: Defence market valuations for leading listed European players have nearly doubled since 2022, and flagship transactions such as Rheinmetall/NVL (~€1.5bn) and Leonardo/IDV (€1.7bn) reflect an emerging national-champions consolidation pattern

• Capital inflow accelerating: VC funding in European defence tech grew >67% YoY to $8.7bn in 2025, with Munich as the leading hub and Germany, the UK and France collectively accounting for >75% of regional activity