Why Private Equity is Turning to UK Defence Tech SMEs
The UK’s defence sector is entering a new phase and private equity is starting to pay attention.
Labour’s recent Strategic Defence Review has pushed defence up the political and economic agenda, framing it not just as a national security priority, but as a driver of long-term UK growth. With plans to raise defence spending to 2.5% of GDP by 2030 and an ambition to reach 3% beyond that, the government is signalling a fundamental shift in how it views the sector: not just as a cost centre, but as a strategic investment in British industry.
The key to this strategy is a push to bring more small and mid-sized enterprises (SMEs) into the fold. For years, a handful of major defence primes have dominated procurement. But in today’s fast-changing threat landscape, that model is looking increasingly outdated. The war in Ukraine has shown just how effective smaller, commercially developed technologies like drones, electronic warfare kits and mobile defence software can be. They’re quicker to produce, easier to adapt, and often a fraction of the cost of traditional military hardware.
In the UK, the government wants to harness that same agility. It’s in the process of reforming procurement practices to make it easier for SMEs to access contracts: reducing bureaucracy, shortening decision timelines, and opening the door to new players with innovative solutions. The message is clear: defence spending should support a broader industrial ecosystem, not just a handful of legacy suppliers.
There is particular interest in companies developing dual-use technologies (products with both civilian and military applications). These businesses tend to be more commercially resilient, able to scale more quickly, and better positioned for export. For government, that ticks several boxes: it strengthens the UK’s sovereign capabilities, delivers economic value, and reduces dependency on foreign tech.
Another critical factor is supply chain integrity. Recent global events from COVID to conflict in Europe have highlighted the risks of overreliance on fragile or offshore suppliers. The government now places a premium on security and resilience. For SMEs in the defence space, having an insulated, UK-based or trusted partner supply chain isn’t just a bonus, it’s rapidly becoming a requirement.
For private equity, all of this adds up to a growing opportunity. The market is fragmented, many of the most promising firms are still under the radar, and there’s a clear political will to back them. But the defence sector isn’t without its complexities. Regulatory hurdles, opaque procurement pathways, and shifting government priorities mean that understanding where and how to invest will be crucial.
To find out more about opportunities in this space, please contact:
Gabriel Leggo
gleggo@armstrong-ts.com
+44 7772 623 607