Weapon financing: Small and medium-sized enterprises suffer particularly from bank reluctance
According to Marc Niclas from Eight Advisory, demand for weapon financing has increased massively. He sees potential in private equity financing and does not fear risks arising from a short-term chase for high returns.
Marc Niclas, a Transaction Services partner at Eight Advisory, explains the financing challenges small and medium-sized defense suppliers (SMEs) face compared to larger companies. “There is still a certain residual risk that the weapons or technologies will not end up where they belong. The question is how much control a financier can have in such situations.” Banks are hesitant due to reputational risks over how weapons may ultimately be used, even for defensive purposes.
Private equity presents an alternative weapon financing option for SMEs, but their defense activity has decreased recently, likely due to predetermined investment criteria focused on other sectors over the past few years.
However, Niclas notes “Investments in technology are not unpopular in this area. This is because there is often strong growth potential here, so you can benefit from the development over the term of the investment.” While aiming for profitable exits, longer financing cycles aren’t necessarily unattractive if growth potential is high.
With rising defense budgets and accelerated equipment wear from active use, the need for defense investment is increasing. Whether private equity engagement grows, or state funding expands will shape the future weapon financing landscape for these small and medium-sized suppliers.
And download our report for more insights on financing in the defense industry. The study on which this article is based was conducted by Christian Berling and Jean-Charles Doussau.
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