2025 Wrapped: Mid-market investment in defence & maritime gains ground
The starting gun has been fired on a new wave of mid-market defence and maritime investment. While the sector has long been dominated by prime contractors and multinational giants, a combination of geopolitical pressures, regulatory reforms and government attitudes towards SME procurement is creating opportunity for small, specialist firms to move from the edges of the supply chain to the centre of defence innovation.
A market once seen as too large, complex and difficult to align with ESG priorities has become more accessible and more attractive to investors.
Key Drivers:
Geopolitical pressure remains intense, prompting higher levels of defence spending across the UK and Europe. Lessons from Ukraine have added momentum, underlining the importance of agile and rapidly deployable technologies, new forms of training and different operational requirements alongside the traditional platforms still supplied by larger primes.
The government has also reformed procurement processes, prioritising UK based companies and placing a greater importance on SMEs – the modern industrial strategy aims to lift MOD spending on SMEs by 50% to £7.5bn a year by 2028, while the SME hub is creating ringfenced innovation funds and improving access, marking a significant shift in procurement behaviour.
Alongside this, the regulatory landscape is realigning – whilst still complex, regulation is now better defined and more aligned internationally with allies in NATO and Europe, opening new investment opportunities and widening the use cases for these companies’ products and services.
Together, these drivers are creating a strong environment for SMEs to scale. Mid-market investors should take note.
Opportunity:
Some of the most compelling opportunities lie with companies that already understand how defence decisions are shaped. Businesses with established relationships across public and private stakeholders, and a firm grasp of regulatory requirements, are often able to compete effectively with primes and differentiate from other specialists.
Dual use firms – those that sell into both the defence and civilian markets – are particularly attractive, as they are prioritised by government and offer investors some protection against the defence sector’s historic cyclicality.
As innovators, these firms have the opportunity to define and influence their own emerging markets – barriers to entry are usually high, relying on years of building experience meaning competitive risks are less established. Primes will struggle to develop competing capabilities in house, instead, they are actively looking to buy in-house specialist capabilities to strengthen their portfolios and secure access to the SME share of MOD spending. This creates clearly defined and attractive exit routes, reassuring investors.
Despite the growing opportunity, the defence market remains far from straightforward. Stakeholder networks can be difficult to map, with influence spread across multiple departments, programmes and decision makers. Contract structures often vary by customer and platform, and the roles and responsibilities of key individuals are not always clear from the outside. Routes to market differ between programmes, and procurement cycles can shift with little public visibility. Competitor landscapes are equally nuanced, made up of domestic specialists, international primes and OEMs. In many emerging segments, there are limited data sources and few established benchmarks, making it hard for investors to judge traction or maturity.
For investors, understanding these factors early is essential. Clear insight into stakeholders, buying behaviour, competitive dynamics and the true scale of the addressable market can shape both the investment case and the plan for value creation once capital is deployed. Unpicking these complexities helps define where the risks sit, where growth can be unlocked and how a business can position itself to win in a fast changing environment.
Our discussions with corporate finance advisors, Private Equity firms and management teams suggest that 2026 will provide plenty of defence & maritime deal opportunities.
Armstrong has deep experience across the defence & maritime sectors and understands the specific areas investors need to get comfortable with, from how the market really works to where the risks and opportunities sit. If you are interested in investing in this space, or looking to understand a specific business in more detail, speak to:
Gabriel Leggo
gleggo@armstrong-ts.com
+44 7772 623 607
Peter Cookson
pcookson@armstrong-ts.com
+44 7871 425 467