The European defence electronics sector is undergoing a profound transformation, driven by geopolitical shifts and technological advancements. Since the onset of the Russo-Ukrainian conflict, Europe has prioritised defence sovereignty, sparking a wave of investment and innovation in defence electronics. This sector, encompassing sensors, radar, communications, and electronic warfare systems, is now pivotal to modern military platforms.
Between 2022 and 2030, European defence spending is projected to grow at an annual rate of 7–12%, significantly expanding the aerospace and defence (A&D) landscape. Electronics players, from subsystem suppliers to platform integrators, are increasingly capturing a larger share of procurement as militaries prioritise networked, data-driven systems. This shift is evident in platforms like the Leopard II main battle tank and the Eurofighter Typhoon, where electronics integration is critical.
Financial markets reflect this momentum. European defence electronics firms have outperformed their US counterparts, gaining over 200% since 2022. This surge is driven by record order backlogs, rearmament programmes, and the push for self-reliance, resulting in strong margins and premium valuations.
“Defence electronics — spanning sensors, radar, communications, and electronic warfare suites — now anchor modern military platforms,” noted Carlsquare in their recent analysis. The sector’s growth is underpinned by sustained budget allocations and emerging sovereign programmes in radar, optronics, and command systems.
The industry is organised along a vertically integrated value chain, including component manufacturers, subsystem suppliers, system integrators, and platform OEMs. Key consolidators such as Rheinmetall, Safran, Saab, and Thales are expanding vertically, while private equity invests in high-growth niches like electro-optics and cybersecurity.
Recent years have seen intensified M&A activity, with notable deals in infrared imaging, radar, RF systems, satellite communications, and C4ISR. Carlsquare anticipates sustained M&A activity as sovereign investment and vertical integration continue across core domains like sensors, electronic warfare, and intelligence systems.
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, in collaboration with Compass Aerospace & Defence, advises on cross-border M&A within defence, aerospace, and government-driven industries. Their 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.
“Sovereign value chains remain central to EU defence planning,” Carlsquare emphasised. The firm expects consolidation across subsystem and integration tiers to extend beyond 2026, with investors favouring scalable, high-tech electronics portfolios with defensible margins.
As Europe navigates a new era of defence priorities, the electronics sector stands at the forefront of innovation and strategic importance. Carlsquare’s analysis underscores the sector’s potential for growth, investment, and technological leadership, shaping the future of European defence technology.