An In‑Depth Analysis of Growth, M&A, and Valuation Trends in Europe’s Defence Technology Landscape

Executive Summary

The European defence electronics sector has become central to Europe’s pursuit of defence sovereignty, entering a phase of accelerated investment and technological transformation since the Russo‑Ukrainian conflict. Rising budgets, autonomy initiatives, and innovations in electronic warfare, sensors, and C4I systems are reshaping the industry.

Between 2022 and 2030, European defence spending is expected to grow 7–12% annually, expanding the aerospace and defence (A&D) landscape. Electronics players — from subsystem suppliers to platform integrators — are capturing a growing share of procurement as militaries prioritise networked, data‑driven systems.

Financial markets mirror this momentum. European defence electronics firms have outperformed US peers and indices, gaining 200%+ since 2022, driven by record order backlogs, rearmament programmes, and the push for self‑reliance. The result: strong margins and premium valuations.

Recent years have seen intensified M&A, including acquisitions in infrared imaging, radar, RF systems, satellite comms, and C4ISR. Key consolidators — Rheinmetall, Safran, Saab, and Thales — continue to expand vertically, while private equity invests in high‑growth niches such as electro‑optics and cybersecurity.

Valuations remain elevated, with defence electronics trading near 18.7× EV/2025E EBITDA, ahead of both European (16.7×) and US (14.9×) defence peers. Supported by state demand, cash visibility, and low cyclicality, the sector offers enduring stability and attractive returns.

Carlsquare expects sustained M&A activity as sovereign investment, vertical integration, and sponsor consolidation continue across core domains like sensors, EW, and intelligence systems.

Introduction — Carlsquare & Compass

Carlsquare, in collaboration with Compass Aerospace & Defence, advises on cross‑border M&A within defence, aerospace, and government‑driven industries.

Our partner-led platform combines deep technical knowledge, transaction experience, and a global network to support strategic corporates, private equity investors, and founder‑led companies in executing buy‑side mandates, exits, and capital raises.

What Defines Europe’s Defence Electronics Market Growth?

The Russian invasion of Ukraine triggered a critical reassessment of European defence capabilities. Governments across the EU have embraced a multi‑decade rearmament cycle, linking national security to technological sovereignty.

Defence electronics — spanning sensors, radar, communications, and electronic warfare suites — now anchor modern military platforms. Electronics integration in systems such as the Leopard II main battle tank and Eurofighter Typhoon demonstrates the sector’s strategic importance.

Projected growth of ~12% CAGR through 2030 positions defence electronics among the most dynamic sub‑sectors in European A&D, driven by sustained budget allocations and emerging sovereign radar, optronics, and command system programs.

Which Subsegments Are Driving Technology Leadership?

The industry is organised along a vertically integrated value chain:

• Component Manufacturers: RF modules, microwave components, and semiconductors
• Subsystem Suppliers: Electro‑optical assemblies, EO/IR systems
• System Integrators: C4I and electronic warfare systems providers
• Platform OEMs: Prime contractors integrating full electronic suites

Consolidation has intensified as European defence primes — including Leonardo, Hensoldt, and Saab — internalise critical electronics capabilities. At the same time, niche sensor and subsystem firms pursue bolt‑on acquisitions to scale vertically and secure supply chains.

How Is M&A Activity Transforming the Sector?

Defence electronics has experienced a surge in deal flow between 2023 and 2025. Key transaction themes include:

• Infrared and imaging systems: €17 million – €700 million deals
• Electro‑optics and radar platform integration
• Strategic expansions by Safran, Rheinmetall, Thales Group into EW and C4I capabilities
• Private equity investments in CBRN detection and power conversion technologies

What Do Valuation Benchmarks Reveal?

Segment	Median EV/2025E EBITDA	Commentary
Defence Electronics	18.7×	High growth, strong cash visibility
General EU Defence	16.7×	Increasing but below electronics peers
General US Defence	14.9×	Stable, diversified portfolio exposure

Key Takeaways for Investors and Owners

• Outperformance: Defence electronics stocks exceed broader indices by 200%+.
• Strategic Imperative: Sovereign value chains remain central to EU defence planning.
• M&A Momentum: Consolidation across subsystem and integration tiers will extend beyond 2026.
• Premium Valuations: Investors favour scalable, high‑tech electronics portfolios with defensible margins.

Interested in Strategic M&A Opportunities in Defence Electronics?

Carlsquare’s team partners with innovators, entrepreneurs, and investors across the transatlantic landscape. We provide M&A advisory, private placement, and valuation services for companies shaping the future of European defence technology.