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Research by White & Case found that 97% of surveyed UK defence firms view the UK as Europe's leading destination for defence technology investment. More than a quarter plan to invest more than £100 million over the next 12 months.
The survey of 250 senior decision-makers at UK defence companies and defence technology start-ups pointed to rising spending plans as businesses respond to demand for newer defence systems and related technologies.
Some 27% of respondents said they expected to invest more than £100 million in the coming year, while 67% planned to invest between £50 million and £100 million. Average planned investment was £79 million.
Companies cited several reasons for the planned spending. Maintaining competitiveness was named by 50% of respondents, followed by demand for next-generation defence technology (42%), export opportunities (38%), and rising government defence spending (33%).
Technology focus
Just over half of respondents (56%) said they planned to invest in defence technology over the next 12 months. Of those, 46% said the money would go towards developing new technologies, while 44% aimed to increase production capacity.
The areas attracting the most attention reflect shifts in military priorities. Cybersecurity and digital tools were cited by 46% of firms, advanced sensors by 45%, and space technologies by 39%.
Air defence systems and counter-drone applications were the most commonly cited uses for these investments, with 68% of firms pointing to those areas. The findings suggest companies are directing capital towards technologies linked to missile and drone threats as procurement priorities change.
Expansion plans
The research also indicated that investment confidence is feeding into domestic expansion plans. Some 76% of respondents said they intended to expand their presence in the UK over the next 12 months.
That compares with 55% planning expansion in Europe, 27% in the US, and 26% in both the Middle East and Asia-Pacific. The results place the UK ahead of other regions as the main market for near-term growth among the companies surveyed.
The sample covered UK-headquartered defence companies and military and defence technology start-ups. All respondents were senior decision-makers at director level or above.
"It is particularly encouraging to see defence and defence tech companies confirm the UK as Europe's leading destination for investment in one of the hottest and most strategically important sectors, as military expenditure soars and companies race to invest in and develop new technologies. With its ability to attract deep pools of capital, world-class defence and technology businesses and strong management talent, the UK is a natural hub for defence technology investment. As private capital pours into the sector, the challenge now is to capitalise on that momentum and ensure UK companies continue to have access to the right funding on the right terms in order to scale and compete globally," Patrick Sarch, Head of UK Public M&A at global law firm White & Case LLP, commented on the findings.
Angus Nunn, Growth Capital and Technology M&A Partner at White & Case, said the type of technology attracting investment had changed sharply alongside developments in warfare.
"The nature of conflict has changed completely in the last five years and strengthening air-defence systems is now a major priority, with some of the highest-demand capabilities being affordable, scalable technologies that can intercept drone and missile threats at a fraction of the cost of legacy systems. The application of AI to existing defence systems is also transforming capabilities across the sector.
"The sector is set to remain highly active as governments increase defence spending and the UK and Europe place greater emphasis on developing world-class sovereign defence technology capabilities. At the same time, the pool of available capital is broadening significantly as previous restrictions are relaxed and investors increasingly seek exposure to the sector. This should help drive further fundraising, investment and M&A activity across the UK and Europe."