Transformed nuclear strategy: Possible significant change ahead?

The defense industry in Europe is on the cusp of a significant transformation, as consolidation, private investments, and strategic partnerships promise to reshape the landscape.

Consolidation is seen as a key driver for growth, enabling businesses to scale up, standardize, and reduce costs. This, in turn, opens up opportunities for increased investment in research and development and attracts investors. However, the surge in private investments raises the issue of capital control, with finding the right balance being essential. It is legitimate to impose capital controls on strategic companies to ensure national security interests are protected.

France has been a prominent player in this shift, with French private equity investment in the European defense sector totaling €9 billion over the past 20 years, with €4 billion coming in the last five years. This trend was the focus of a recent panel discussion hosted by Eric Benoist, Hadrien Camatte, and Laurence Porruncini from CIB Research and CIB Tech Hub, along with partners. The event brought together leading industry experts, including Jean-Baptiste Kerveillant (Deputy Director for the Protection and Resilience of Businesses - Direction Générale de l'Armement), Guilhem de Marliave (CEO - Elistair), Vianney Mercherz (Executive Vice President - ATDI Group), and Thomas Schmitz (Investment Director, Straton - Audacia).

The panel discussed the transition to a New War Economy, a term that encapsulates the need for a more strategically autonomous European continent in light of the U.S.'s retreat from its role in guaranteeing global security. The DGA action plan on getting ready for a war economy rests on five pillars: giving the defense industry more visibility, securing supply chains, simplifying requirements, mobilizing human resources, and strengthening the resilience of the defense industrial base.

One of the challenges facing the New War Economy is the need for Europe to produce "more, better, and faster," address bottlenecks, modernize and integrate new technologies, and increase research and development efforts. To this end, there is a pressing need to bolster small, agile companies through increased public and private investment. Early-stage contracts directly with SMEs are helping these businesses transition from the lab to the battlefield, providing startups with credibility, valuable references, and real-world testing.

However, the fragmentation of European defense markets hinders defense companies' ability to scale and achieve critical mass. To overcome this, the ReArm Europe plan allows European nations to borrow up to €800 billion for defense over the next four years to finance this additional expenditure. This, coupled with the increasing role of private equity funds in the European defense industry, provides not only capital but also strategic expertise for sustainable growth.

Supporting SMEs and fostering strong relationships between government entities and the defense industry is crucial for facilitating exports and securing a foothold in a competitive global landscape. Strict legislation is upheld, as no nation wants to allow companies to export critical military components without oversight, which can hamper smaller firms from entering foreign markets.

The appetite for investment in defense is on the rise, with private equity increasingly recognizing the sector as a viable investment opportunity. This shift in attitudes is also reflected in the defense sector being increasingly seen as a responsible investment, apart from controversial weapons. Panelists discussed the introduction of private equity to individual savings, such as Bpifrance's initiative to establish a national savings fund.

As the defense industry navigates rapid geopolitical changes, finding the right local partner is crucial for success in the US market. European armies need to modernize and integrate new technologies, such as AI, to remain competitive and close the gap with the U.S. and China. In June 2025, NATO countries committed to investing 5% of their GDP on defense by 2035, including 3.5% on core defense requirements and 1.5% on defense- and security-related investments.

In conclusion, the New War Economy presents both challenges and opportunities for Europe's defense industry. By addressing these challenges, such as bolstering small, agile companies, fostering innovation, and streamlining procurement processes, Europe can position itself to compete effectively in a rapidly evolving global landscape.