European defence stocks are now trading at a premium to their US counterparts. EV/EBITDA multiples sit at 20.7x in Europe against 18.2x in the US. At the transaction level, deals are recording multiples from a median of 10.9x to an upper quartile of 19.9x.

The gap between those two numbers is not accidental.

NATO spending commitments, a European shift away from US supply chain dependency, and the UK government’s commitment to raise defence expenditure to 3.5% of GDP by 2035 have created a sustained demand environment that is reshaping the sector. Most NATO members pledged to raise defence-related spending to 5% of GDP by 2035.

UK defence SMEs sit at a specific advantage within this. Security clearances, Five Eyes and AUKUS membership, and, in many cases, a position outside the US ITAR export control regime, giving them greater flexibility to serve EMEA and APAC customers.

For acquirers, those attributes can take years to build organically. In the current environment, most are not willing to wait.

The buyer activity reflects it. BAE Systems has made 7 UK acquisitions in the last decade. Private equity deal activity reached 82 transactions globally in 2025. The sector’s largest players are using M&A because the budgets are moving faster than organic development allows.

OSL completed at the highest end of current defence multiples. Silent Sentinel attracted competitive international interest before completing with Motorola Solutions. ExoAnalytic was acquired by Anduril through targeted cross-border buyer identification.

The upper quartile does not happen by default. It is a product of process, preparation, and access to the right buyers.

Our Defence & Security Technology Insights report goes into further detail.

For any enquiries or discussions, feel free to reach out to any member of the Cavendish team.