Why the MoD wants private equity on the frontline of defence sector funding
How defence can become a "core engine of stimulus and growth"
Hello Rainmakers,
The war in Ukraine and mounting international tension have led to the largest sustained increase in government defence spending since the end of the Cold War.
Robert Buckland discovers how this has triggered new opportunities to invest in the sector - and why the Government wants private equity to be on the front line.
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Every year the Ministry of Defence spends around £27.4bn on equipment – from buying and repairing combat aircraft and warships to installing advanced tech, submarines, and cyber systems.
With the present government’s commitment to lift total defence spending from its current 2.5% 3.5% of GDP by 2035, it’s not surprising that ministers are targeting private investment to play a key role the sector.
In April, Defence Secretary John Healey and Chancellor Rachel Reeves sat down with leaders from the UK banking, venture capital and strategic finance to discuss just that, dangling a carrot of access to lucrative multi-year contracts and ‘dual-use’ technologies - those that have civil as well military applications.
The Government has also expanded its Defence Investors’ Advisory Group (DIAG) and placed it on a permanent footing and launched a bespoke £20m fund to offer accelerated contracts to small, innovative start-ups with limited or no previous business with MoD.
Will these initiatives bring the investment needed?
It’s fair to say that private equity hasn’t always been keen to invest in the defence sector. This stems mainly from the often-complex regulatory requirements and the dominance of large ‘prime’ contractors on projects.
Research in 2024 by dealroom.co (correct) showed defence tech in the US and Europe received less than 2% of total VC funding.
