How autonomous technology is shaping M&A in the defence sector
AI and unmanned systems is driving a wave of consolidation as defence primes snap up innovative start-ups, writes Tom Rowe-Jones, director at M&A advisory firm LAVA Advisory Partners.
The defence industry has always been at the forefront of innovation, with technological advancements playing a crucial role in shaping its future. Today, the rise of autonomous systems and artificial intelligence (AI) is transforming defence, sparking a wave of mergers and acquisitions to secure competitive capabilities in a rapidly evolving market.
A key motivator for these firms is that an unmanned autonomous vehicles (UAV) may only be relevant for mere months before mitigations against it emerge, so developers need to spirally develop, test, upgrade and produce in a much shorter time frame than they’ve done historically. This industry evolution is a huge value driver in the M&A space and the cause of much of the activity we’re seeing today.
Once seen as tools primarily for reconnaissance, UAVs can perform a range of missions, from surveillance to precision strikes, and counter-UAV technology is rising in parallel to meet the challenge. Simultaneously, AI enables predictive maintenance, mission planning, and real-time decision-making, enabling smarter and faster military operations.
For defence firms, staying ahead of the curve is paramount. Autonomous systems and AI aren’t just buzzwords; they represent a shift in how conflicts are approached and resolved, and this transformation is driving defence giants to seek smart acquisitions that boost their capabilities.
Why UAVs are a gamechanger
M&A has long been a strategy for growth and diversification in the defence sector, but the focus has shifted from consolidating traditional capabilities to acquiring cutting-edge technologies. Defence firms are increasingly targeting innovative and specialist companies that excel in autonomous systems and AI, mainly because it’s almost always quicker and easier than pivoting to a large, established company to develop those same capabilities in-house.
In early 2024, BAE Systems acquired Malloy Aeronautics, a British company specialising in heavy-lift unmanned aerial vehicles, enhancing its military logistics and operational support capabilities. Similarly, in November 2024, Lockheed Martin Ventures invested in Vatn Systems, a start-up specialising in autonomous underwater vehicles. These types of moves make it clear that the big players in the industry are seeking niche expertise to complement their broader portfolios.
Autonomous UAVs have become a central focus in defence thanks to their versatility and operational advantages. Unlike manned aircraft, UAVs can operate in high-risk environments without endangering the operators’ lives and can perform missions with greater precision and efficiency, reducing both costs and collateral damage.
From a business perspective, the UAV market is booming. According to recent estimates, the global military UAV market is expected to reach £37 billion by 2032, with autonomous capabilities driving much of this growth.
Of course, with the rise of UAVs comes the need to mitigate them. The counter-UAV market is projected to grow from around £1.4 billion in 2023 to £11 billion in 2032. This is only driving further consolidation as big players recognise the value in the ability to offer both UAV and counter-UAV solutions to their customers.
AeroVironment recently announced plans to acquire BlueHalo, a defence engineering firm specialising in counter-UAS systems, demonstrating the significance of UAS and counter-UAS capabilities in the modern environment. For defence firms, acquiring companies with expertise in UAV technology isn’t just about staying relevant; it’s about securing a share of this lucrative market without building capability from scratch.
AI is transforming the battlefield
While UAVs are revolutionising the physical battlefield, AI is transforming the digital realm. AI-powered algorithms can analyse vast amounts of data in real-time, identifying threats, optimising resource allocation, and even predicting enemy movements. These capabilities are essential in an era where decision-making speed and accuracy can mean the difference between success and failure.
For defence firms, AI isn’t just a nice to have, it’s a core capability that enhances every aspect of their operations. From autonomous navigation to intelligent targeting systems, the applications of AI in defence are virtually limitless.
To capitalise on this trend, major players are acquiring AI-focused firms at speed. In April, US defence technology firm Shield AI acquired Sentient Vision Systems, an Australian company specialising in AI-powered sensor technology for UAVs. Lockheed Martin recently partnered with Meta to integrate Meta's Llama large language model into their AI Factory, developing tools for national security applications including code generation and data analysis, and emphasising the growing need for firms to integrate AI into their systems to stay competitive in a technology-driven battlefield.
