Interest in the UK defence sector is rising, and valuations are continuing to trend upwards with unmanned aerial vehicle (UAV) platforms receiving significant funding.

UK defence M&A has kicked off strongly in 2026. There has been a record performance in the first half of of the year with 84 trade transactions and 33 financial transactions, according to a new H1 2026 defence M&A report from Heligan Group, an investment and advisory business.

There have also been many new platform investments from private equity, including Growth Capital Partners investing in Security HQ, Evity Invest investing in Martin Precision and Sullivan Street investing in Zenix Aerospace. The portfolio companies will use M&A as a growth strategy, with some already completing bolt-on acquisitions despite only recently finalising investment, the firm said in a statement.

“The upward trend of deals across the UK defence and national security industry is expected to continue into the second half of of 2026 and [into] 2027 as the market is repricing defence and national security businesses,” Matt Croker, corporate finance parter at Heligan Group, said. “The dual-track processes between private equity and trade buyers are now standard, and valuations in contested processes are increasing as financial buyers are willing to compete with acquirers.”

"Private equity is now outbidding trade in many processes and institutional capital in defence and national security has never been greater,” he added.

Prices of some European defence-linked firms have risen in the past two years, for example the case of Rheinmetal. Over the past five years until yesterday, around 13:00 UK time, shares in Rheinmetall skyrocketed more than 1,960 per cent, although they have eased by 35 per cent since the start of the year. This is perhaps unsurprising after such a vertiginous ascent. Germany and the EU have also recently agreed to hike defence spending. A number of investment managers – for example, BNP Paribas Asset Management – have consequently been launching defence-focused funds. WisdomTree has launched a new exchange-traded fund: The WisdomTree Europe Defence UCITS ETF (WDEF), listed on Börse Xetra, Borsa Italiana and the London Stock Exchange. 

“Defence and security are underrepresented in many portfolios and have faced decades of underinvestment in Europe, resulting in a significant capability gap. A structural shift is underway in Europe as nations increase defence budgets to meet NATO targets and respond to geopolitical challenges,” Pierre Debru, head of research, Europe at WisdomTree, said in a note.

The new UK Prime Minister Andy Burnham has appointed John Healey – who resigned as Secretary of State for Defence in June – as Chancellor of the Exchequer, aka finance minister. (Burnham removed Rachel Reeves from the post.) Healey had argued about the need for credible increases in defence spending as a reason for standing down, so his appointment to the Treasury will be seen as a sign that the new administration will want to increase defence spending. 

According to the Heligan Group report, acquirers are actively seeking maritime electronic systems businesses but are finding fewer than expected. Law enforcement technology is catching up, and the businesses that have quietly built a position in this market are going to find that the M&A interest arrives faster than anticipated.

Unmanned aerial vehicle (UAV) platforms have received the most funding, the report states. Autonomous systems have accounted for up to 80 per cent of battlefield losses in the Russia-Ukraine war, and greater M&A activity in the sector is expected, with companies that have received venture and growth capital funding emerging as highly innovative, high-growth businesses.

“In H1 of 2026 we’ve seen a significant shift in activity with private debt funds now actively seeking to enter this market," added Croker. “For private equity overall, interest and deal activity is increasing year-on-year.”

"The defence and national security market is repricing with valuations increasing, but this fundamental change is still early in its cycle,” he continued. “Capital follows capital, and now that the Defence Investment Plan (DIP) has finally been released, a further step-up in M&A and investment activity is a near certainty.”