A broader push for consolidation is underway, as leaders argue Europe’s defence industry must merge to achieve scale and efficiency
After 30 years of gradual integration, the conditions for a new wave of M&A look favorable: European military budgets are rising fast, defence stocks have rallied, and big contractors have strong balance sheets (net debt is negligible at most top firms). Bank of America analysts project operating margins at Europe’s 10 largest defence groups will increase by ~1.3 percentage points by 2025 thanks to robust demand, giving companies a “pumped-up acquisition currency” in the form of high share valuations. The economic rationale for consolidation is considered “overwhelming”: fewer, larger European players could reduce duplicate costs, wield bigger R&D budgets, and negotiate better terms in joint procurement programs. They would also be more formidable against U.S. giants like Lockheed Martin and RTX. Currently, Europe’s defence market is notoriously fragmented – for example, European armies operate 15 different types of battle tanks vs. just 1 in the U.S., and 20 types of fighter aircraft vs. 7 in the U.S.. This inefficiency has long been recognized, but political hurdles (national pride, jobs, control) often stalled big mergers. Now, however, EU officials and national governments are pushing to remove those hurdles. France’s leadership has openly floated removing regulatory obstacles – even suggesting easing ESG constraints on banks lending to defence – to facilitate combinations. The stage appears set for more deal-making: smaller niche players are already being gobbled up by bigger ones (a trend likely to continue), and discussions of major tie-ups, like a possible merger of tank-makers KNDS and Rheinmetall or shipbuilders across countries, are gaining traction. In short, Europe’s defence industry is at an inflection point where strategic necessity might finally trump parochial interests, unlocking an M&A spree that could reshape the sector’s landscape in the coming years.