Europe’s hottest defence tech startups are raising billions of euros — and some are increasingly using the cash to acquire other companies.

Defence tech unicorn Helsing’s announcement it had bought underwater autonomous vehicles startup Blue Ocean last week was its second announced acquisition of the year. Surveillance drones company Quantum Systems has taken over three companies in 2025. Drone makers Stark and Tekever have also been active.

The M&A splurge comes as Europe’s increasingly well-funded defence techs look to bolster their capabilities and beat rivals to rapidly opening revenue opportunities in the region.

Defence tech is in the middle of a boom right now. Investors have funneled €3.5bn into the sector so far this year, according to Sifted data, a sharp rise from the €1.85bn picked up in 2024.

Governments across Europe have pledged to ramp up defence spending in the face of rising geopolitical tensions, with some of them signalling a growing willingness to open up lucrative defence contracts to startups.

That’s led some of Europe’s best-funded defence startups to ramp up M&A in 2025, expanding into new segments or launching new products, as they look to take advantage of an uptick in the addressable market.

“There’s an opportunity here to build an alt-prime,” says Nazo Moosa, managing director at defence tech VC Paladin Capital Group, referring to a new version of the incumbent defence primes which have longstanding direct relationships with governments. “To do that you need lots of capabilities.”

Rapid M&A

Over the past year, governments around the world have hiked defence budgets and increasingly signalled intent to modernise military capabilities with autonomous technologies and increase procurement from tech companies.

The UK government pledged to spend hundreds of millions of pounds on military tech each year earlier in 2025 and said a shift to AI in the armed forces was an “immediate priority”. Other countries like Germany committed to increase its defence budget to 3.5% of GDP by 2029.

Some startups have secured big contracts as a result.

Helsing says it is working with the governments of countries like Germany, Estonia, the UK and Ukraine, alongside Swedish defence prime Saab. Quantum Systems has contracts with Australia, Germany and the US and in May, Tekever announced a deal with the UK’s Royal Air Force (RAF).

Increased revenue opportunities — combined with record funding flowing into rivals in the sector — is seeing the region’s best-funded defence startups rushing to expand their capabilities to secure new contracts ahead of competitors.

In Helsing’s case, its acquisition of Grob Aircraft in June helped the company launch a new product in September — an autonomous fighter jet.

“The need for a smart autonomous mass-approach is clear, and together with Blue Ocean we can build an autonomous glider that provides a big leap forward to conduct underwater surveillance for navies,” Amelia Gould, general manager of maritime at Helsing, said last week.

For Quantum Systems, M&A opportunities need to boost the company in three criteria: technology, talent or strategic fit, chief revenue officer Martin Karkour tells Sifted.

“Mainly we look for portfolio-product-market fit and excellence in products and technology. What is important is future-proofed technology that brings value for our existing [and future] customers.”

It’s a logical step for these startups, says Benjamin Ullrich, a partner at German law firm YPOG which counts Helsing as a client.

“Defence techs are particularly interested in hardware, either other hardware startups or longstanding companies in the hardware space,” he notes. He believes it “makes a lot of sense” considering “it often takes quite a bit of time to develop and to iterate the product.”

Expanding capabilities

“There’s a tremendous focus and realisation that you’ve got to get things into the battlefield quickly, and therefore if you’re a large defence startup, you need to acquire to be able to do that,” says Nick Kingsbury, partner at Amadeus Partners, which backs dual-use startups. “Defence is a very fast moving market.”

The startups’ backers also expect them to grow fast. In 2025 alone, Helsing picked up €600m in funding, Quantum Systems raised €160m, Stark raised $62m and Tekever got a unicorn-making cash influx.

“All of [Europe’s best-funded defence techs] have raised substantial amounts of funding and face investor pressure to deploy and grow as fast as possible,” says Benjamin Wolba, co-founder of the European Defense Tech Hub, which runs hackathons. “Investors want to see ROI, and growth through acquisitions is one way to go.”

There is a talent element, too: while workers in areas like AI and deeptech are in short supply across Europe’s tech sectors, defence techs also have the added complexity of needing to hire people with experience working with government or in legally complex fields.

“All of these companies want to scale up and thus need to hire hundreds of highly specialised profiles,” says Wolba. “There are simply not enough people in Europe at this intersection.”

**A coming consolidation **

While some of the most headline-grabbing defence tech startups are snapping up other companies, industry insiders say the sector’s broader M&A market in defence is yet to gather steam.

“We have not seen a lot of actual M&A yet,” Christian Saller, general partner at German VC HV Capital and an investor in Quantum Systems, tells Sifted.

“The corporates are themselves experiencing strong growth from increased defence spending and are very focused on expanding their core business and satisfying demand,” he adds. “The strong startups/scale-ups see the opportunity of building something much bigger than they are now and are not really pursuing an exit yet.”

Ullrich adds that “what we’re seeing is really more defence techs themselves buying established players or smaller companies, manufacturers; what we really haven’t seen much are exits of defence techs. And I think ... it’s probably still too early.” There’s “not much point in selling a defence tech where you don’t know if the product is really working.”

That might change, but not anytime soon. “I could imagine that M&A activity will go up, but rather further out than in the next 12 months,” argues Saller, at a point “where the market environment is stabilising and it becomes clearer which startups can become really big and who will not be able to make it independently.”

For some VCs, the overcrowded drone market — startups building everything from surveillance to strike drones — is ripe for consolidation. “I would expect 90% of the market to die in the next five years,” Nicola Sinclair, founder of dual use firm Twin Track Ventures, recently told Sifted.

At the growth stage of Europe’s defence startups, M&A will likely continue at its current rate for neo-primes — a term for defence companies beginning to challenge incumbents — while the funding environment remains strong, says Kingsbury.

“The rapidly changing picture on the ground means that the needs change and the larger well-funded players will continue to need to fill capability holes.”