CF NEWS : “Financing defense contractors: don’t sacrifice SMEs and mid-caps” – by Thibault de Saint Priest
March 14, 2025, at 10:37 a.m.
Although the public is well aware of the major industrial companies, the essential network of subcontractors is not receiving the attention it deserves. Thibault de Saint Priest is Secretary General of Sienna IM.
Although the public is well aware of the major industrial companies, the essential network of subcontractors is not receiving the attention it deserves. Thibault de Saint Priest is secretary general of Sienna IM With the most unexpected geopolitical upheavals occurring at a frenetic pace, the awakening is terrible even for those nations which, like France, have somehow maintained an independent defense capability and have reallocated an increasing share of their GDP to defense spending in recent years.
The time has come, therefore, for the rearmament of Europe and the mobilization of almost 1000 billion euros to rebuild a defense tool that is up to the new challenges. The amounts announced as part of the Rearm Europe plan are dizzying.
The time needed in a Europe of 27 to raise this sum and distribute it among the States and their very disparate armies means that the actions undertaken will only slowly be translated into facts. Above all, attention should be paid to the way in which these resources will be distributed throughout the European industrial fabric. In some respects, this is the blind spot of the public budget debate, whereas the fate of a coherent and agile European defense system will depend on the maintenance of industry and its vitality on European territory.
While the general public is well aware of the major industrial companies, the essential network of subcontractors is not receiving the attention it deserves. Thus, the 12,000 European SMEs and mid-caps in the defense industry and technology (DIT) sector, a third of which are based in France, are a major factor in our security and sovereignty. These companies, which often have significant civilian activities, are a driving force in the regions, both in terms of the number and quality of jobs and their technical nature.
All financial stakeholders must mobilize
To cope with the increase in their order books, these BITD companies must find new sources of financing. Although many regulatory obstacles have been removed, their specific characteristics or sometimes fragile balance sheet structure may give rise to reservations, including from an ESG point of view.
The unprecedented increase in production capacity expected from SMEs and mid-caps in the DTIB will require the mobilization of all the players involved in their financing! The banks are already very present, but the scale of the needs will further justify the mobilization of additional resources for significant amounts. Thus, alternative lenders and investors are called upon to play a crucial role in this vital industrial fabric and to work in harmony with conventional banks.
Private debt funds, which offer a lower return than private equity, meet the need for working capital and investment financing without changing the capital structure. Institutional investors, such as insurers and pension funds, will support fund managers, as will the designers and distributors of savings products. There is no need to change the legal or political framework to deploy innovative financing. Asset managers now have the tools to deploy the capital that institutional investors will be willing to entrust to them.
The security and peace of Europe depend on a massive effort in favor of defense industries to ensure that Europe, far from any warmongering approach, is heard when it speaks and is respected by nations that would seek to impose their will on it. The SMEs and mid-caps of the BITD cannot be the blind spot of defense industry financing. It is up to us, institutional investors and asset managers, to rise to this challenge together.