The Takeaway: A Q&A With Anita Bucanac on the Valuation of Defence Assets

The European defence sector has moved from the sidelines to centre stage. As investor sentiment shifts from speculative promises to rewarding proven results, one question has become critical for both asset managers and company executives: “What is my business really worth?“ This new era of execution has profound implications for how defence assets are valued, creating both unprecedented opportunities and complex challenges.

The European defence sector has seen a significant shift in investor sentiment over the past 18 months. How has this impacted the valuation of defence assets, particularly for private companies and the asset managers that invest in them?

The impact has been immediate and profound, creating both opportunities and new pressures. For asset managers in private markets, from private equity to venture capital, the public market boom, with indices like the FTSE 350 Aerospace & Defence up more than 60% since early 2025, has a direct knock-on effect. It puts a spotlight on the value of their illiquid holdings. Their stakeholders are asking what this market rerating means for their private portfolios, creating an urgent need for robust, independent valuations to accurately mark their assets to market.

Simultaneously, for the entrepreneurs and management teams running these businesses—whether it’s a high-growth startup or a large, established private company—the world has changed. They are receiving inquiries from advisors and potential buyers, all pointing to these high public valuations. The critical question for them becomes, “What is our business really worth in this environment?“ A credible answer isn’t just for a potential sale; it’s essential for internal strategy. It becomes the bedrock for simplifying complex shareholder structures or preparing for a future funding round—work that is often a prerequisite for any major transaction.

You mentioned the boom in public markets. For investors in private markets, how should they think about the sustainability of these record-high valuations?

That’s the critical question for any asset manager deploying capital in this space. The high public multiples are a double-edged sword: on one hand, they provide a clear roadmap for potential exit valuations, which is fantastic. On the other hand, it means paying higher entry multiples for new deals, which puts immense pressure on generating returns.

The sustainability of your investment thesis hinges on believing this is a long-term, structural rerating of the sector. The key underpinning for that belief is the unprecedented, policy-driven demand from governments. Initiatives like the EU’s Readiness 2030 plan provide a decade-long demand signal, which fundamentally de-risks the investment horizon in a way you don’t see in other industries.

However, from an investor’s standpoint, this doesn’t mean every company is a good investment. The focus shifts to capital discipline. The winners won’t be those who simply ride the wave; they will be the ones who leverage this long-term visibility to lock in efficiencies and prove they can generate the cash flow to justify their valuation.

From a valuation standpoint, what are the most significant risk factors that can materially impact a defence company’s value?

That’s a great question, as it gets to the heart of what makes defence valuation so specialised. Beyond the numbers, you have to understand a few unique risks. The first is program risk. A company might have a huge order book, but how secure is it? Is its value tied to one big contract that could be cancelled with a political shift?

Then there’s technology risk. A company’s great idea is only valuable if it can be integrated into the major platforms that armed forces actually use, and if it isn’t about to be made obsolete by a competitor. Finally, and perhaps most importantly, there is simple execution risk. In this industry, having a contract isn’t enough. A company’s worth is directly tied to its ability to build things at scale, on time, and on budget. Any failure there immediately impacts its value.

How do these valuation risks change when looking at earlier-stage defence startups versus established players?

It’s a completely different mindset. For an established prime, the valuation is anchored in stability—their long-term contracts and proven track record. The main risks are external, like major shifts in government budgets.

For a startup, the valuation is all about future potential, and the risks are almost entirely internal. Can they get their foot in the door and convince a major buyer to adopt their new technology? Can they scale up from a prototype to actual production without running out of money? They have to survive the notorious “valley of death“—the funding gap between developing a great idea and securing that first big, stable contract. So, while we value a prime based on predictable cash flows, a startup’s valuation is heavily discounted by these very real hurdles they have to overcome.

You mentioned the “ESG penalty“ shifting to a “security dividend.“ How is this trend impacting capital allocation in private markets?

It’s one of the most significant shifts we’ve seen. For years, the “ESG penalty“ meant many asset managers couldn’t get approval from their own investors—their LPs—to invest in defence. That door was effectively closed. Now, with the focus on national security, that door has swung wide open. We are seeing a “security dividend“ paid directly in the form of private capital inflows.

This is happening in two main ways. First, you have the rise of dedicated defence funds. Asset managers are now successfully raising new funds specifically targeting aerospace, defence, and security, something that was incredibly difficult just a few years ago.

Second, and perhaps more broadly, we see mainstream tech and industrial funds transitioning their mandates to actively pursue dual-use assets. They see a company with a strong commercial technology, like AI or autonomous systems, and are now eager to underwrite its value in the defence sector as well. This influx of new, motivated buyers is having a massive impact on the private market, driving up competition for quality assets and, consequently, increasing valuations.

So, what’s The Takeaway?

The valuation of European defence assets has matured from a sentiment-driven spike into a fundamentals-driven market:

1. Execution Beats Sentiment Every Time: Premium valuations now demand proven operational excellence and the ability to actually scale production, not just a compelling story.
   
   
2. The “Security Dividend“ Is Unlocking Capital: The shift from an “ESG penalty“ to a “security dividend“ has opened the floodgates for private capital, driving fierce competition and redefining multiples.
   
   
3. Surviving the Tech “Commercialisation Chasm“: For startups, unlocking high valuations requires proving your innovation can seamlessly bridge the gap from prototype to real-world military integration.