Interviewing Matthias Puschnig

Following the strong interest generated during the Defence Panel at our recent M&A Worldwide Convention in Munich, we invited one of the panel participants to share further perspectives on the sector’s rapidly evolving M&A landscape. With defence becoming an increasingly strategic focus across Europe and globally, the discussion highlighted not only the scale of capital now flowing into the sector, but also the very specific challenges that distinguish defence from more conventional industrial markets.

In this post-Convention interview, we explore some of the key themes raised during the panel — from capital allocation and realistic market entry strategies for new players, to the complexity of executing transactions in a highly regulated and relationship-driven environment. The conversation also touches on the broader consolidation outlook in Europe and what this may mean for investors and strategic buyers over the coming years.

1. Capital allocation under geopolitical acceleration
European defence budgets are expanding at an unprecedented pace. From your perspective, where are CEOs still misallocating capital — and which subsectors will capture disproportionate M&A-driven value over the next 3–5 years?

Misallocation comes from the impression that a company can do business before it has overcome market entry barriers or learned about the industry. VW, e.g. has set up a production line for Pickups with Camouflage light, which they can produce in hundreds of thousands. Problem: They will not be accepted at any procurement office with their supply chain, none of these cars meets concrete tenders, and no one buys cars like this at these numbers. Defence is individual production, not serial, except for ammunition and small arms. Not even drones will be procured now in hundreds of thousands, because innovation is way too fast.

 2. Mid-cap window of opportunity

You’ve highlighted that the defence sector is opening to new entrants. For mid-cap companies outside defence today, what is the most credible entry strategy: organic pivot, partnerships, or acquisitions — and what typically fails? Definitely acquisition of an established player, who brings in certificates, security cleared personnel and a supply chain that is resilient in times of war. Acquiring these preconditions for market entry requires years otherwise. Loose partnerships can help, but not when it comes to real business.

3. Deal complexity vs speed
Defence transactions are structurally complex, given regulatory approvals, security clearances, and political overlays. In practice, what separates deals that close from those that stall?

Patience and key account management! One needs to stand long sales cycles. This means certain funding, but first of all, trust in your experienced lobbyists and key account managers. If you don’t have those with longstanding experience, the hr market is empty. There are consultants, but only those with longstanding expertise are helpful.

And never commit to a reasonable investment before a contract is signed. Only a deal probability of 100% is reliable. This does not exclude prototypes. But they should be paid, which is quite common in defence.

4. Europe vs the US: structural gap and consolidation thesis
Do you expect the European defence landscape to consolidate into a few dominant platforms — similar to the US — or will fragmentation persist? And what does that imply for valuation premiums today?

There might be new dominant platforms, but only a few more. The layered structure in the supply chain has proven effective. Insourcing the whole supply chain is no option in a market where you have to show three reliable sources on every level.

Fragmentation will go down, as a growing market allows for larger and better integrated units, but it will not entirely disappear

On premiums, I have no information.

Matthias Puschnig at the Federal Ministry of Defence was primarily responsible for multinational military policy tasks in connection with NATO and the EU and is now a member of the management team of the Special Task Force Ukraine.