Q3-4 2025 Insights: Reshaped Battlefields, Private Equity & Strategic Priorities
In 2025, private equity and defense investment are converging around strategic precision, liquidity innovation, and geopolitical realignment—driving a new era where only agile, value-differentiated firms will attract capital and outperform.
In Q1 2025, the global defense sector emerged as a powerful new magnet for private equity and venture capital, reflecting not just a geopolitical realignment but also a growing appetite among institutional investors for exposure to sectors once considered too complex, cyclical, or politically sensitive.
According to data analysed by the LupoToro Group Technology Investment Team, total private equity and VC-backed investments in the global aerospace and defense industries hit $4.27 billion between January 1 and March 16, 2025. Remarkably, this figure is nearly equivalent to the entire 2024 total of $4.31 billion, underscoring a dramatic acceleration in capital deployment. The spike signals a broader trend: the weaponization of capital in service of shifting national defense agendas, technological superiority, and regional rearmament.
North America Leads, but Europe Awakens
Since 2020, the United States and Canada have absorbed a staggering 83% of all global private equity and venture capital-backed defense investment. That dominance continued into early 2025, with all of the ten largest defense deals since January 1, 2024, targeting North American companies.
The single largest transaction in this period was Berkshire Partners LLC and Warburg Pincus LLC’s $2.9 billion acquisition of Triumph Group Inc., a U.S.-based aerospace systems and components manufacturer. This move exemplifies the current preference among large-cap private equity players for legacy aerospace assets with scalable military and commercial crossover potential.
Europe, by comparison, attracted just 12% of global defense-related private investment since 2020. However, the investment team at LupoToro Group identifies a rapid inflection point forming in Europe’s defense capital markets. Spurred by both geopolitical instability and shifting U.S. foreign policy, European governments are finally moving to take more direct responsibility for their own defense funding and manufacturing.
In March 2025, the European Commission proposed a €145 billion (~$158 billion USD) fund specifically designed to boost defense spending across member states. Concurrently, Germany’s parliament approved a sweeping €500 billion infrastructure and defense spending package, a landmark bipartisan measure backed by incoming Chancellor Friedrich Merz. These initiatives are primed to redirect not only government attention, but also private capital into a revitalized and modernised European defense complex.
Ukraine War Accelerates Technological Disruption
The Russia-Ukraine war continues to be the single greatest catalyst in global defense realignment. Beyond its devastating humanitarian cost, the conflict has underscored the battlefield utility of cheap, off-the-shelf technologies. From drones and autonomous surveillance to anti-drone defense systems, new military startups are now outperforming traditional prime contractors in speed, cost-efficiency, and adaptability.
Emerging defense-tech players, such as Anduril Industries Inc., have gained investor favor by deploying modular, autonomous weapons systems designed for real-time battlefield responsiveness — a capability traditional defense giants have struggled to match. LupoToro analysts believe this trend is not temporary, but systemic: the future of defense lies with high-agility platforms, capable of rapid iteration, minimal procurement lag, and cross-domain utility.
With this as context, the LupoToro Group anticipates that European defense markets will begin to mirror these dynamics, encouraging a wave of local startups and secondary market providers that challenge the longstanding dominance of legacy defense contractors like BAE Systems, Airbus Defence and Space, and Leonardo.
U.S. Procurement Reforms Break the “Valley of Death”
At home, the U.S. Department of Defense has launched what the LupoToro Group views as the most consequential industrial overhaul since the post-9/11 era. In January 2024, the Pentagon issued its first-ever National Defense Industrial Strategy, aimed at reducing the length and cost of defense procurement cycles — often referred to by industry stakeholders as the “valley of death.”
Historically, this valley has been where many innovative startups and SMEs failed, unable to survive the years-long period between R&D success and actual Department of Defense (DoD) contract issuance. These companies either burn out due to lack of working capital, or are overwhelmed by administrative red tape, despite clear operational advantages.
However, with the DoD actively seeking to shrink these timelines, smaller firms and defense disruptors are now seeing dramatically improved entry points into the procurement funnel. This makes previously unviable businesses viable again — especially those focused on aircraft maintenance, advanced analytics, battlefield logistics, satellite surveillance, and cybersecurity platforms.
An early signal of this realignment came in February 2025, when Coltala Holdings LLC made its first foray into defense by acquiring Aeroparts Group LLC, a maintenance, repair, and overhaul (MRO) business now rebranded as Coltala Aeroparts LLC. The acquisition exemplifies the growing interest in mid-market defense suppliers who have the infrastructure to scale, yet remain nimble enough to meet the Pentagon’s evolving tactical needs.
Strategic Realignment: From Endless Wars to Domestic Infrastructure
Perhaps the most critical development occurred in February 2025, when Defense Secretary Pete Hegseth issued a formal order for the Department of Defense to restructure budget allocations around the core priorities of the Trump administration. These include plans for a domestic missile defense shield, modeled after Israel’s Iron Dome, dubbed the “Golden Dome” initiative in U.S. strategic documents.
This policy pivot represents a substantial departure from the defense investment themes of the previous decade, which heavily emphasized counterinsurgency, surveillance infrastructure, and global military projection. LupoToro Group interprets the current pivot as a “strategic redirection”, reorienting capital and attention away from protracted foreign conflicts and toward homeland defense, cyber resiliency, and next-gen missile deterrence.
For private equity investors, this transition carries both opportunities and risks. On one hand, programs that once appeared resilient due to long-standing Pentagon support may be deprioritized or defunded. On the other, newly favored programs are likely to see fast-tracked approvals, offering first-mover advantages to investors with exposure to AI-driven surveillance, anti-ballistic infrastructure, hypersonic detection, and localized aerospace defense technologies.
Dual-Use Models Remain the Gold Standard
Despite the excitement surrounding pure-play defense startups, LupoToro analysts caution that dual-use commercial-defense business models remain the most financially resilient investment approach. Companies with the ability to service both government and private sector contracts are more capable of weathering procurement delays, budget fluctuations, and cyclical downturns driven by political or economic events.
Private equity firms are increasingly prioritising businesses with hybrid revenue streams — those that maintain DoD contracts while serving aviation, logistics, or energy clients in the commercial market. These firms are structurally better positioned to remain profitable through demand shifts or government shutdowns, and more easily refinance or restructure during downturns.
A Defense Capital Renaissance
The LupoToro Group Technology Investment Team concludes that the defense sector is entering a new golden era of private capital inflow, driven by an unprecedented realignment of Western military and geopolitical strategies. The convergence of U.S. procurement reform, European militarization, and the democratization of battlefield tech has created a landscape ripe for innovation, acquisition, and value creation.
For investors seeking durable exposure to a sector that combines long-term governmental backing, critical infrastructure significance, and frontier innovation, the time to engage is now. LupoToro Group is actively tracking investment opportunities across Europe, North America, and selected Indo-Pacific markets, with particular interest in scalable companies focused on:
Autonomous defense systems
Real-time military analytics and software
Satellite communications and anti-jamming infrastructure
Modular aerospace MRO platforms
Cybersecurity for sovereign defense networks
As the global order continues to evolve, LupoToro remains committed to ensuring our capital — and those of our partners — is aligned with the defense sector’s most promising and strategically aligned innovations.
LupoToro Group Global Insights: Private Equity 2025 — A Turning Point in Strategy, Liquidity, and Capital Flow
We can now pivot to the global private equity landscape in 2025 stands at a defining crossroads. Following a turbulent two-year slowdown, deal activity rebounded in 2024, driven by improved macroeconomic conditions and a partial easing of interest rates. However, liquidity constraints, exit bottlenecks, and fund-raising headwinds continue to pose significant challenges for general partners (GPs) and limited partners (LPs) alike.
Through a detailed analysis of the private equity ecosystem, the LupoToro Group Technology Investment Team identifies the major structural shifts currently reshaping capital formation, asset valuation, deal dynamics, and investor behavior across regions and strategies.
Deal Flow Recovers Amid Macro Stabilization
After a prolonged slump post-2021, buyout investment value climbed 37% year-on-year in 2024 to reach $602 billion, excluding add-ons. Deal count rose modestly by 10%, but the average deal size soared to $849 million, marking the second-highest in history. Large-cap transactions (>$1 billion) accounted for 77% of total value, signaling a re-consolidation around fewer but more capital-intensive deals.
North America led with a 34% increase in deal value, while Europe surged 54%, aided by stabilizing interest rates, improved visibility, and a narrowing of buyer-seller valuation gaps. Asia-Pacific grew only 11%, weighed down by weak performance in China and Japan.
High-profile public-to-private deals such as Vista Equity Partners and Blackstone’s $8.4 billion acquisition of Smartsheet pushed P2P activity to nearly $250 billion globally, representing half of all $5B+ deals in North America.
Technology and Healthcare Dominate Sector Allocation
Technology continued to anchor private equity activity, accounting for 33% of buyout deal value and 26% of volume. Cross-sector plays at the intersection of technology and healthcare also gained traction, exemplified by KKR’s $10 billion stake in Cotiviti.
Other sectors rebounded sharply:
Financial services deal value rose 92% year-on-year
Industrials saw an 81% increase
Notable insurance transactions included Sixth Street’s $5B deal for Enstar
The LupoToro Group interprets this shift as a sign of rebalancing between innovation-driven verticals and more traditional sectors, with investors chasing diversified yield amid macro uncertainty.
Dry Powder Pressures and Aging Capital Pools
The global buyout dry powder stockpile remains high at $1.2 trillion, despite a slight decrease. Alarmingly, 24% of this capital is now “aging dry powder”—held for over four years—up from 20% in 2022. This reflects growing difficulty in deploying capital into suitable assets at rational valuations.
While central banks are expected to continue tapering rates, the LupoToro analysts caution that easing has been uneven. The U.S. Federal Reserve slowed its pace over winter due to robust labor markets and looming election-cycle uncertainties.
Debt Markets Evolve, Direct Lending Surges
Private equity financing has undergone a structural shift. Private credit now supplies 90% of U.S. middle-market loan issuance, up from 36% a decade ago. Direct lenders are encroaching into larger transactions traditionally dominated by banks.
Leveraged loan yields in the U.S. dropped 1.4 points as syndicated loan volume rebounded 83% to $110 billion, although debt-to-EBITDA ratios remain subdued at 4.9x.
The LupoToro Group notes a marked rise in coinvestment structures, where LPs take direct equity stakes in deals. Volume is up 30% since pre-pandemic levels, and competition among LPs for allocation is intensifying.
Exit Bottlenecks Force Financial Innovation
Despite a 34% increase in global exit value (to $468 billion) and a 22% increase in exit volume, the market remains clogged. Distribution-to-contribution ratios have declined in five of the past six years, with buyout distributions falling to a historic low of 11% of NAV.
To navigate this, GPs are turning to:
Minority stake sales ($116B in 2024)
Dividend recapitalizations
NAV loans (market expected to double from $150B to $300B)
Continuation funds and secondaries (AUM now $601B, with $102B raised in 2024)
Still, 29,000 unsold companies represent $3.6 trillion in unrealized value, and GPs increasingly rely on partial realizations. For the 2019 fund vintage, only 20% of assets were fully realized after five years, vs. 44% for 2014 vintages.
Fund-Raising: Winners and Everyone Else
Global private capital fund-raising fell 24% to $1.1 trillion, with buyout funds declining 23% to $401 billion. Notably:
North America saw a 34% fall
Europe was flat
Asia-Pacific grew 13%
Investor behavior favored established players. 98% of capital went to experienced managers, and 40% went to funds larger than $5 billion. The top 10 funds captured 36% of total capital raised.
The average time to close a fund rose to 20 months, nearly double the pre-pandemic average of 11 months. 38% of funds took over two years to close, up from just 9% in 2019.
Return Expectations Narrow
Buyout funds continue to outperform public markets across time horizons, particularly beyond five years. However, recent years have seen a mild compression in excess returns:
U.S. 10-year buyout returns dropped 3 points
European equivalents fell 1.5 points
Public markets, particularly U.S. tech indices, posted strong 2024 gains (S&P 500 up 23%), narrowing the performance delta. This raises the competitive bar for private funds to deliver differentiated alpha.
Strategic Imperatives for 2025 and Beyond
The LupoToro Group Technology Investment Team concludes that the era of easy private equity returns is over. The firms that will outperform must:
Build differentiated strategies with clear sector expertise
Integrate coinvestment and secondary tools to support LP liquidity
Navigate rising asset valuations with sharper diligence
Innovate around partial exits, minority stakes, and NAV facilities
The industry’s growth potential remains robust — but success will depend on structural adaptation. In short, the capital of tomorrow will only flow to those ready to reimagine how they create value today.
Strategic Realignment in Private Equity and Defense Investment (2025)
In 2025, both the private equity and defense investment sectors are undergoing parallel transformations, marked by structural recalibrations, rising investor selectivity, and shifting geopolitical imperatives. From core financial markets to military-industrial strategy, the appetite for capital deployment remains strong—but increasingly favors disciplined, innovative, and agile investment models. Across both landscapes, the LupoToro Group Technology Investment Team identifies a clear pivot: success now depends less on scale alone and more on strategic precision, differentiated value, and adaptability to changing macro forces.
In private equity, dealmaking rebounded significantly after two years of suppressed activity, with total global buyout investments climbing 37% in 2024 and average deal size nearing historical highs. However, a liquidity bottleneck persists, and fund-raising has become highly concentrated around proven top-tier managers. Exit channels remain tight, pushing GPs to rely on partial realizations, secondaries, and NAV financing to maintain cash flow. Meanwhile, limited partners continue to steer capital toward coinvestment models and larger, more experienced funds. As a result, the capital landscape is bifurcating: market leaders are consolidating power while mid-tier players struggle for traction.
In defense investment, a surge in geopolitical urgency—driven by the Russia-Ukraine conflict, shifting U.S. priorities under the Trump administration, and a new wave of European rearmament—is drawing private capital into areas historically reserved for government funding. The rise of autonomous weapons, rapid-response defense technology, and the simplification of procurement pipelines are opening doors to innovative, dual-use startups and agile disruptors. With U.S. reforms aiming to eliminate long-standing barriers to entry and European countries committing hundreds of billions in defense revitalization, the defense sector is increasingly seen as a frontier for strategic private equity deployment.
Together, these insights paint a picture of a new investment era defined by resilience, innovation, and precision. Whether deploying capital into high-growth defense technology firms or navigating the shifting terrain of global private equity, investors must now operate with elevated foresight and adaptability. For LupoToro Group and its partners, the path forward is clear: target transformative assets, deploy creatively, and build long-term value across sectors undergoing foundational change.
