Private Equity in Dual-use Aerospace and Defence Tech: Where Capital Meets Capability

Can private equity turn dual-use aerospace and defence technology into a sustained competitive advantage instead of short-term return optimisation?   

In 2024, global military expenditure reached US$2.72 trillion, a 9.4% increase from 2023. That surge reflects the intensification of geopolitical tensions and the global expansion of defence budgets. This expanding investment creates a growing and stable demand base for dual-use systems such as space-based communications, sensors, autonomy, cyber, and secure infrastructure. It also creates fertile ground for private capital to scale these technologies into production and recurring revenue models.  

Dual-use technology now stands at a crucial intersection. On one side lies commercial demand from sectors like telecommunications, logistics, infrastructure, and energy. On the other hand, lies the defence demand driven by national security needs. Private equity with the capacity to fund scale-up, industrialisation, and compliance work, as well as long-term growth, views dual-use aerospace and defence technology not as a speculative side bet, but as an infrastructure-level investment.  

Macro triggers: Shifting Defence Economics and Structural Opportunity  

Global military budgets are climbing steeply. The jump to US$2.72 trillion in 2024 reflects the tenth consecutive year of growth. The international army burden, meaning military spending relative to world GDP, rose to roughly 2.5% in 2024.  

In Europe, regional security uncertainties and renewed strategic priorities led to defence outlays that increased by roughly 17% in 2024. That increase drove heightened demand for defence technology capabilities. Demand rose especially for dual-use and technology-enabled systems such as satellites, drones, secure communications, autonomy, and cyber tools.  

On the private capital side, investment in defence technology and dual-use startups also rose sharply. In 2024, venture funding into European defence, security, and resilience startups reached US$5.2 billion, the highest figure on record for a single year. That amount represents nearly a fivefold increase over the past six years. During the same period, even as overall venture funding across Europe slowed, the defence technology segment outperformed many other deep technology verticals.  

These macro trends recast dual-use defence technology not as an ideological niche but as a growing industrial domain. The structural increase in government budgets provides long-term stability in demand. The rising private investment shows a maturing pipeline of innovations. Private equity now stands poised to close the gap between early-stage innovation and production-ready certified systems.  

Investment zones: Where Dual Use and Private Equity Converge  

Some subsectors stand out as especially ripe for private equity scaling because they combine dual market demand, potential for recurring revenue, and relative technological maturity.  

First, space, satellite communications, and space-based ISR or data analytics. Secure and resilient communication networks serve both civilian infrastructures, such as telecom, broadband, and connectivity, as well as defence sectors focused on satellite communication, reconnaissance, and imagery data. Investors see value in firms that combine commercial demand, such as connectivity, Earth observation for agriculture, energy, and logistics, with defence-grade analytics, encryption, and secure delivery capabilities.  

Second, autonomy, drones, unmanned platforms and robotics. Autonomous systems in air, land, or maritime environments serve military needs, including reconnaissance, unmanned ISR, and logistics. At the same time, the autonomy software and hardware support commercial use cases, including surveying, mapping, logistics, infrastructure inspection, and industrial automation. When those platforms offer dual-use capacity, they secure commercial revenue while maintaining defence relevance.  

Third, cybersecurity, secure communications, encrypted networks and edge computing. As critical infrastructure and defence networks increase in complexity, technologies that secure data, ensure encrypted communications, or enable edge computing for mission-critical systems gain dual-use relevance.  

Fourth, advanced manufacturing, materials, sensors, electronics, and supply chain-enabled hardware. As defence procurement shifts toward agility and rapid deployment, dual-use manufacturing, such as components, electronics and sensors, gains strategic importance. Private equity firms see value in vertical integration and consolidation in these areas, as it enables them to control supply, ensure quality, and mitigate vendor-related risks.  

Private Equity Playbooks: Scaling Beyond Capital 

Private equity firms that enter this domain typically follow three structured playbooks designed to capture value in dual-use aerospace and defence technology.  

Commercial to Defence Scale Up: Private equity firms acquire companies with commercial traction, such as those in satellite data analytics, cybersecurity platforms, or autonomous software. It then builds compliance capabilities, certification infrastructure and secure facility readiness to qualify for defence contracts.   

Defence Professionalisation and Commercial Expansion: Investors acquire smaller, defence-focused vendors, such as hardware suppliers and specialised electronics firms, and transform them into well-structured firms ready for commercial markets. The strategy modernises operations, broadens the customer base and reduces dependence on defence procurement cycles.  

Capability Roll Ups and Integration Platforms: Private equity consolidates fragmented niche players, such as autonomous software firms, sensor vendors, communication technology providers, and cybersecurity startups. The combined entity provides integrated solutions for both defence and commercial clients. Consolidation increases scale and delivers complex systems that competitors cannot easily replicate.  

These playbooks are effective only when investors contribute operational capabilities. They need program managers experienced in defence procurement, regulatory experts for export compliance, engineers for certification and secure supply chain professionals. Execution capability separates a short-term financial transaction from long-term industrial success.  

Risks and friction points: Complexity is real 

Investing in dual-use aerospace and defence presents challenges that exceed the typical considerations of private equity.  

Regulatory and export compliance impose heavy burdens. Export controls, classified access requirements, secure facility standards, security audits, and background-checked personnel increase costs and time. Supply chain fragility and vendor qualification create additional risk. Dual-use and defence systems require traceable and certified supply chains, as well as stable vendor relationships. Production delays and certification failures continue to be common.  

Certification and testing risk can threaten expected revenue. Dual-use prototypes must pass rigorous testing requirements, including environmental stress tests, electromagnetic interference standards, cyber hardening, and mission readiness assessments. Political and public optics matter. Investments in defence and dual-use technology can face scrutiny related to national security ethics and geopolitical implications.  

Strict governance from the outset protects capability. Investors must separate classified and commercial lines, establish a robust compliance infrastructure, adopt more extended holding periods, and invest in secure facilities.  

What success looks like: Dual Market Platforms with Scale, Resilience and Margin  

When private equity executes successfully, the resulting platforms share defining characteristics.  

• They deliver sticky and long-term revenue. Defence contracts typically last multiple years, while commercial contracts provide recurring revenue that is independent of procurement cycles.  
  

• They build high barriers to entry. Compliance, certification, supply chain integrity and organisational capability create durable moats.  
  

• They deliver scalable margins through economies of scale. Higher production volume reduces marginal cost and strengthens vendor pricing.  
  

• They secure diversified demand across defence and commercial markets, which reduces dependence on any one region or budget cycle.  
  

• Consider a private equity platform that acquires autonomy software, sensor suppliers and secure communications firms.   
  

With compliance and production capabilities integrated, the firm becomes a full-stack provider capable of serving defence agencies and commercial industries. Over a five- to ten-year horizon, the business evolves from a niche software vendor into a high-entry-barrier systems provider with diversified revenue streams.  

Outlook and Why Dual-use Defence Technology is now Investable  

Given the global scale of military spending and rising demand for technology-enabled defence capabilities, dual-use aerospace and defence technology represents a compelling industrial investment frontier. Private equity firms that approach this sector as a long-term industrial build-out, rather than a short-term trade, will create durable platforms with strong margins, defensible differentiation, and stable revenue.   

Private capital will not replace traditional defence contractors. It will strengthen them by scaling specialised innovation and building capacity more quickly than conventional procurement structures can alone. When capital aligns with technical capability and disciplined execution, the result is transformational and strategically important.