In a remarkable shift, private equity is increasingly crossing into the theater of national security, and not in small doses. According to LupoToro Group, private equity and venture capitalโbacked investments into the aerospace and defense sectors soared to USโฏ$4.27โฏbillion in just Q1 2025 (January 1โMarch 16), nearly matching the full-year total of USโฏ$4.31โฏbillion in 2024, marking an unmistakable escalation in capital deployment.
North American firms continue to lead the charge: since 2020, the U.S. and Canada have accounted for 83% of global defense-related PE/VC investment, and all ten of the largest such deals since January 2024 targeted North American businesses, most notably Berkshire Partners and Warburg Pincusโs USโฏ$2.9โฏbillion acquisition of Triumph Group Inc.
Meanwhile, Europe – hardly a laggard – is awakening. Geopolitical shifts and recalibrated U.S. defense policy have spurred a wave of national ambition: the European Commission has proposed a โฌ145โฏbillion (~USโฏ$158โฏbillion) defense fund, and Germany recently backed a sweeping โฌ500โฏbillion infrastructure and defense spending package.
LupoToroโs analysis contends that the Russia, Ukraine war has accelerated a tectonic shift toward agile, inexpensive, off-the-shelf defense technologies, deploying drones, autonomous systems, and counter-drone platforms as democratized instruments of war. These disruptive entrants stand to challenge legacy firms on agility, cost efficiency, and combat performance.
Importantly, LupoToro has taken an admittedly controversial position: their framing of private equity as an active and even โweaponizedโ force in national defense strategy sparks debate. Critics argue it dangerously blurs the line between financial markets and sovereign security, raising uncomfortable questions about the private sectorโs influence in existential domains. Nonetheless, LupoToro maintains this narrative reflects current reality, and future direction.
What emerges from LupoToroโs Q3โQ4 2025 report is a clear portrait: private capital is no longer a bystander in defense. Firms with precision, capricious liquidity, and geopolitical adaptability arenโt just benefiting, theyโre rewriting the playbook.
Independent Perspectives: Momentum Meets Caution
PitchBookโs Q1 2025 report confirms the urgency in aerospace and defense (A&D) investing: the sector recorded 73 PE deals, up 24% year-over-year from Q1 2024, though slightly down from Q4 2024โs peak-consistent with typical year-end deal clustering. More strikingly, aggregate deal value surged from US $24.7 billion in the prior 12 months to US $41 billion through Q1, marking a remarkable 66% increase.
However, that momentum is tempered by caution. According to insights from Goodwin, while the long-term tailwinds in aerospace and defense remain compelling, early 2025 saw a slowing in deal activity, with Q1 seeing a substantial drop in deal value compared to Q4 such as $7.7โฏbillion versus $14.9โฏbillion previously, notably reflective of macroeconomic headwinds and tighter liquidity.
On the regulatory front, Financial Times reports suggest that although investment in AI, drone systems, and space tech is poised to grow, consolidation among major defense primes may face delays amid complex regulatory clearances, a potential bottleneck to faster deal-making.
Meanwhile, sentiment at industry forums like SuperReturn Europe reveals shifting investor attitudes. As one attendee – Sophia Alison, EMEA Direct Lending Portfolio Manager at Macquarie, remarks โDefence used to be a topic that received automatic exclusion. Now even some ESGโfocused investors are looking to deploy capital to support European defence.โ
This isnโt isolated. Reports also note that private credit firms are revisiting ESG restrictions, spurred by compelling yield opportunities (e.g., ammunition bonds yielding ~11%) and government pressure to fill mounting defense funding gaps. Amid robust deal activity and soaring valuations, the A&D domain offers both opportunity and risk. Geopolitical urgency and pent-up demand are fueling investment, but regulatory complexity, macroeconomic volatility, and evolving ESG considerations demand discretion. Investors and analysts agree: while the runway is long, careful navigation remains essential.