The window on dual-use is down to 18-months, maybe less

These are not developments but permanent shifts in the structure of this market, such that they do not reverse when the news cycle moves on.  These items were our thesis going into 2026 built on where capital was structurally underweight and where demand was outpacing supply. 

The opportunity is to work with the trend / change rather than against, regardless of whether you agree / disagree.  These are factors that we expect will definitely impact the M&A market in current and future periods.     

The market is repricing Defence and Intelligence businesses

Dual-track processes between PE and trade buyers are now standard and valuations in contested processes are increasing due to financial buyers being willing to compete with trade acquirors.  Sellers who ran a process 18 / 24 months ago and were disappointed should look again as the market has moved significantly (we can help you here).  

PE was late to the National Security and Defence sector.  Some were deploying capital – they’ve bought well and are seeing the benefit and will do well upon-exit.  As we’ve highlighted before, the sector now has a “halo” effect to it. This urgency is translating into higher entry multiples.  The relevant question for business owners is not “is PE interested?” but “which funds have genuine sector knowledge versus those buying exposure?” The answer materially affects deal quality and post-close experience.  PE are outbidding trade in many processes which gives you an idea into the current market dynamic. 

The negative consideration here is that some PE and VC investors are going to lose money. If you don’t genuinely understand the sector (or have someone close by who does), this is one sector whereby “you don’t know what you don’t know” holds true.  Buyer beware. 

Dual-use has blurred the lines between commercial markets and Defence

Dual-use is no longer a buzzword but it is the primary lens through which MOD procurement is now evaluated. There have been multiple structural signals that the boundary between defence and commercial technology has permanently shifted, most notably in explicit commitments in the Strategic Defence Review.

Businesses still positioning themselves as purely commercial’ are missing a window of opportunity.  However, we only expect this window to be open for the next 18 months before companies become the incumbents and breaking-in becomes challenging.  Making the pivot is not easy though.  Some companies we know have gone from 0% defence 18 months ago to now 100% defence – this is an outlier (also now not “dual-use”…!) but is a great case study in what is possible.  The challenge we see is how to support companies in this transition – many want to get more exposure to defence but it is a completely new route to market for them.  Companies who have operated in the defence sector for years find commercialisation challenging let alone those who don’t understand how defence procurements works (and how it doesn’t work…).  Regional Defence clusters are the most likely source of connections, introductions and generally a helpful group of individuals with a common purpose – if not involved, join your local cluster.  They’re highly accessibly and you will find a very supportive community.  
 

Sovereign capability is now non-negotiable and supply chain resilience

Rare earth dependencies, raw material supply chains and the accelerating push to reduce exposure to Chinese manufacturing have moved sovereign capability from strategic preference to necessity.  The issue here (one for another day) is that the UK is reliant on allied (and non-allied) states for critical raw materials.  This isn’t just UK, but also the US and wider NATO.  There is no easy fix here and supply chains will have to break and there will be bottlenecks.  

Businesses with sovereign IP, proven government customer relationships and UK-based manufacturing with a UK based supply chain are attracting strong interest.  During early conversations with buyers and investors, the focus on supply chain partners is much more prevalent and detailed.  Acquirors will pay a strategic multiple if an acquisition can help with supply chain resilience.  

Institutional capital now tracking Defence
 

The ESG reversal from major banks is more significant than the headline suggests — it unlocks leverage for PE-backed buy-and-build strategies that were previously constrained. Private debt funds are now actively seeking to enter this market.  Even as recently as 2021 and 2022, raising debt finance to support a PE acquisition was exceptionally challenging in this sector, regardless of how good the underlying business was.  This change is much welcome.
 

The trigger for this change was large banks getting hauled Infront of the parliamentary select committee, challenged on why they’re not lending, blamed FCA regulations and then subsequently came out slightly bruised when it was clear FCA regulations to not prohibit lending to the sector, only internal bank policies do – since then banks have been a much better parter for UK defence (although still more do be done we think).  
 

For Private Equity, interest and deal activity is increasing year-on-year.  Patient capital is needed as the cycles can impact exits.  Capital follows capital and an increase in defence spending across NATO will result in even greater Private Equity interest going forwards.