Key pillars of the SDR

The SDR commits to increasing defence spending to 2.5 percent of GDP by 2027, with an ambition to reach 3 percent in the next Parliament. It places a strong emphasis on warfighting readiness, alliance-led deterrence and the rapid integration of cutting-edge technologies across land, sea, air, cyber and space domains.

Crucially, the SDR also seeks to broaden the defence supply base by integrating small and medium-sized enterprises more fully into military programmes, fostering innovation and enhancing resilience in the industrial ecosystem.

Defence as an engine for growth

Published in September 2025, the Defence Industrial Strategy (DIS) reframes procurement as an industrial policy tool rather than a simple budget exercise. The DIS commits £250 million to regional defence growth deals, establishing innovation clusters from shipbuilding hubs in Plymouth and Glasgow to advanced electronics centres in the Midlands.

Complementing this is a £182 million skills and training package designed to cultivate the specialist engineers, technicians and project managers needed to deliver next-generation capabilities. At the heart of the DIS lies the appointment of a National Armaments Director, tasked with streamlining the acquisitions process, reducing procurement timelines, de-risking supplier entry and accelerating the fielding of critical assets.

Channels for private equity engagement

Both the SDR and DIS introduce formal avenues for private capital participation, beginning with the establishment of a Defence Investors’ Advisory Group that brings together venture capital and private equity expertise to shape funding models and co-investment frameworks.

The emphasis on SME engagement creates a wealth of carve-out and growth capital targets, particularly among companies developing dual-use technologies or niche capabilities. Meanwhile, the publication of a rolling, multi-year procurement pipeline offers the transparency funds need to execute buy-and-build strategies focused on supply-chain consolidation, technology scale-up and platform integration.

The attraction of defence to private funds

The combination of strategic clarity and industrial ambition makes the defence sector increasingly compelling for private equity. Multi-year budgets and pipeline forecasts provide rare revenue visibility, reducing project-funding risk. Defence spending has proven counter-cyclical, underpinned by national security imperatives that buffer it from economic downturns.

Rapid shifts in warfare (spanning AI, autonomous systems and cyber), favour agile, innovative companies and create an “innovation premium.” Explicit government support for regional growth deals and levelling-up aligns closely with private equity’s growth-drive, offering both financial returns and broader economic impact.

How we can help you

Our specialisms play a pivotal role in translating the SDR’s vision and the DIS’s framework into actionable investment opportunities for your business. We can guide your private equity fund through the intricacies of procurement rules and defence export licensing, ensuring every co-investment vehicle and consortium agreement complies with national security screening, state aid restrictions and competition law.

By structuring transactions that align government-mandated deliverables with fund return profiles, we can help you secure robust exit strategies and mitigate deal-execution risk.

For further information, please contact Debbie Jackson or Della Heptinstall.