Investing In The Defense Sector: Procurement, Sanctions, And ESG (Podcast)

Private capital is playing an increasingly important role in the defense sector, with interest from nearly every major bank and private equity fund. In our latest podcast, Magdalena Nasilowska is joined by Maeve Hanna, Matthew Townsend, and Udo Olgemoller to examine the key legal and regulatory considerations now shaping defense investment—and what they mean for deal structure, risk management, and long-term value creation.

The discussion explores the evolving landscape across the EU and UK, focusing on:

• why public procurement is central to success in the defense industry, where governments are effectively the only customers, and how procurement frameworks shape valuations, deal certainty, and revenue predictability
• how the EU's patchwork of 27 national procurement regimes operates, including targeted exemptions, Article 346 TFEU carve-outs for essential security interests, and new programs like SAFE that impose additional conditions on funding
• the UK's reformed approach under the Procurement Act 2023, including greater flexibility for defense and security contracts, expanded scope covering dual-use and emerging technologies, and streamlined powers for designated authorities
• sanctions risks across four key categories—country risk, counterparty risk, sector and activity risk, and equipment/technology risk—and why supply chain transparency is critical
• the explosion in export control complexity, including dual-use regimes, U.S. Export Administration Regulations (EAR) implications, and how ownership structures affect future licensing possibilities
• the EU Defense Readiness Omnibus package, which aims to accelerate procurement and capability development while introducing stronger supply chain checks and compliance expectations
• ESG considerations and whether defencse investment remains compatible with sustainability commitments, including the distinction between taxonomy-aligned funds and those with greater investment flexibility.

What this means for investors

Defense transactions require careful navigation of procurement regimes, sanctions frameworks, and export controls—all of which directly affect deal structure and long-term returns. Investors should prepare properly by developing a detailed defense sector strategy and reviewing internal policies, define their investment scope carefully, recognizing that defense extends beyond heavy military equipment to critical infrastructure, defense technology, and dual-use products, and build robust compliance frameworks with strong governance structures, audit and risk committees, and rigorous contract reviews.