Defence and security M&A: What a record first half really tells us

UK defence and national security M&A has just had its busiest first half on record. Heligan Group’s own tracking shows 104 completed transactions between January and June 2026, split between 86 trade deals and 18 deals involving financial sponsors. That total already exceeds five of the last eight full calendar years, with six months of 2026 still to run and Heligan forecasting an even stronger close.

We’ve spoke to a few founders and shareholders and they’ve expressed caring more about the reasons behind these deals than the headline number. My Defence and National Security team puts it down to a set of structural shifts in how capital, government and industry treat the sector. Ministerial reshuffles and rows over the Defence Investment Plan create friction and headlines, but they haven’t changed that underlying direction of travel.

Private Equity has finally joined the party ahead of time

According to our 2026 Mid-Year Defence & National Security M&A Review, private equity funds that used to arrive late to defence deals (if they even arrived at all) are finally beginning to set the pace of the deal. Dual-track processes, where sponsors and trade buyers compete for the same asset, have become standard, and in a growing number of contested situations, we report that financial buyers are outbidding strategic acquirers.

The deal log from the first half of 2026 shows the same pattern in practice. LDC backed three separate platform businesses (Eagle Eye Innovations, Daintta and Appcheck), a sign of deliberate buy-and-build activity. The National Wealth Fund’s investment in sensing and communications business Rowden Technologies shows state-linked capital is now active alongside private funds, and Sullivan Street’s backing of aerospace component manufacturer Zenix Aerospace shows the same appetite extending into dual-use industrial supply chains.

Financing has loosened too. Several major banks reversed earlier restrictions on defence lending after being challenged in front of a parliamentary select committee over the practice, and specialist private debt funds are actively seeking exposure to the sector. As the Head of Defence and National Security M&A, I puts it plainly in the H1 report:

“The most valuable thing an advisor can do is to tell you what they actually think – not what is comfortable, not what is consensus and not what generates the most optimistic picture of their own market.”

Where demand is outrunning supply

Four subsectors stand out because buyer interest has grown faster than the number of quality assets coming to market: 

• maritime electronic systems
• precision engineering across defence and aerospace
• law enforcement technology
• UAV and counter-UAS systems

Each has been overlooked by commentary that fixates on submarines, primes and headline drone platforms, while acquirers set aside historic valuation benchmarks for businesses with exportable IP, established government relationships and a credible route through fragmented procurement.

We go into each of these four themes in more depth in Four defence themes Heligan is watching in 2026.

Getting ready before the market decides for you

Owners weighing a sale or investment process over the next 18 to 24 months should focus on three basics.

The first is strategic clarity. Buyers want businesses that can define precisely where they play, whether that is dual-use data and AI for secure government environments, maritime electronic systems with exportable IP or precision components for a small number of critical programmes. A generic “defence supplier” label carries little weight with acquirers targeting specific capability gaps.

The second is resilience: cash generation, working capital discipline and management depth. This is what specialist lenders and private debt funds are actually underwriting, and it shapes how easily a business can raise finance.

The third is a credible route to market. Joining a regional defence cluster, building relationships with primes and systems integrators and investing early in bid and capture capability all help buyers see a path from today’s order book to tomorrow’s revenue.

The window is open

Heligan’s own assessment is direct: “H1 has been a record period for the sector. The interest in the sector is unprecedented and valuations are continuing to trend upwards.”

Whether that continues into 2027 will depend on decisions being made now, by government on funding, by investors on where to deploy capital and by owners on whether to bring their business to market while conditions remain this favourable.

If you are weighing your options for a defence or security technology business, Heligan’s Defence and National Security team can help you test where your business sits against the current market. Contact Matt Croker, Head of Defence and National Security, at [email protected].