Defence: France launches nationwide drive to arm its defence industry with capital

Despite a good order book, the 4500 companies in the French defence industrial and technological base (BITD for “Base Industrielle et Technologique de Défense”) face major structural constraints: long production cycles, lower profit margins and undercapitalisation. Many of them are family-owned SMEs that are not used to mass production. Payment delays, especially within supply chains, further weaken their financial position, although mechanisms such as advance payments of France’s Directorate General of Armaments (DGA for “Direction Générale de l’Armement”) provide some relief.

“Many companies operating in the sector are family-owned businesses that are structurally undercapitalised,” says Christian Berling, Partner Eight Advisory and co-author of the study Financing the Defence Industry. “What’s more, while working capital requirements are a common issue across industries, defence firms are facing a sharp ramp-up in production – a major challenge for companies more accustomed to bespoke, low-volume manufacturing than to industrial-scale output.”

“France has opted for a randomised military model, i.e. it aims to have a relatively wide range of equipment in limited quantities to cope with different situations — unlike many other European armies. This largely explains both the importance and the fragmentation of the BITD” — Jean-Charles Doussau

To meet these challenges, the government and private players are introducing new tools. While banks are expanding their financing solutions, new sources of financing are also emerging through stock market and private equity. Exosens, for example, went public after several LBOs. Although controls on foreign investment remain in place, they are gradually being relaxed.

“The sector is very attractive to investors as it has high growth rates, high revenue visibility and attractive valuation multiples against a backdrop of long production cycles,” says Christian Berling, Partner at Eight Advisory. “It is undeniably an attractive sector, despite the potential limitation of investment controls on resale.” — Christian Berling

The financial ecosystem is now structuring itself to attract more private capital. The French Financial Markets Authority (AMF for “Autorité des marchés financiers” while more than 80 funds are mobilising to enable individual investors to take part in financing the sector. As France is the second largest arms exporter in the world, the sector attracts a lot of capital and plays a key role in strengthening national economic sovereignty.

Read the full version of this article by Lara Rinaldi published in Option Finance on 30 May 2025 (available in French) and download our related white paper Financing the defence industry