Historical shifts are reshaping Europe’s defence industry. Rising budgets and mounting geopolitical pressure are driving a wave of investment not seen in decades. But dealmakers navigating this landscape in Europe face a dual (sometimes even triple) challenge: Merger control and national foreign investment screening often run in parallel, each with its own logic and timeline. Recent transactions show what parties need to consider in practice.
The consolidation wave
European defence is consolidating fast. In Germany, Rheinmetall completed its acquisition of Naval Vessels Lürssen (NVL) at the beginning of this month, creating what Rheinmetall calls a “Cross-Domain System House” spanning land, sea, air, and space. In France, KNDS is absorbing Texelis Défense, a provider for mobility solutions for the defence and transport sectors. And in Italy, Leonardo is acquiring Iveco Defence Vehicles for EUR 1.7 billion, making a significant step in its plan to strengthen its role as a leading, fully integrated manufacturer in the land defence domain.
But every one of these deals must pass through regulatory gatekeepers, and in the defence sector, there are often more than one.
Merger control: Smoother than expected?
The good news for dealmakers is that merger control in the defence sector has generally been straightforward this far. Rheinmetall/NVL was cleared by the European Commission in Phase 1. At the end of 2025, KNDS/Texelis received unconditional approval from the French competition regulator in even under a month. Leonardo/Iveco is currently under EU merger review, but, according to Leonardo´s CEO, is expected to be completed by the end of March. This merger is one of the cases which also needed the green light under the EU’s Foreign Subsidies Regulation (FSR), which it already received in February.
But a smooth ride should not be taken for granted: Rheinmetall’s 2023 acquisition of Spanish ammunition manufacturer Expal for EUR 1.2 billion was initially cleared in Spain in just six days without conditions. Then things got complicated. After a customer appealed to the Spanish National High Court, the Spanish regulator discovered that Rheinmetall had allegedly omitted information on its activities in markets for key inputs for ammunition production. In May 2024, the regulator imposed a EUR 13 million fine for concealing information in the notification and providing misleading information during the subsequent investigation.
The story still did not end there. In September 2025, the Spanish regulator informed Rheinmetall that it wants to reinvestigate the acquisition and is seeking approval from Spain´s National High Court to do so.
FDI Screening: The national layer
Merger control is only half the story in these cases. Cross-border defence M&A almost invariably triggers foreign investment screening as well, and here the picture is more fragmented. All EU Member States now have foreign investment control mechanisms in place, but the rules vary significantly.
Leonardo/Iveco illustrates the parallel-track challenge: The deal is subject to both EU merger control review and the Italian foreign investment control regime (the so-called Golden Power rule). On top of that, the deal needed to be cleared under the FSR. Dealmakers must coordinate filings, manage timelines, and anticipate potential conditions on all fronts.
As our frequent readers know, Germany´s foreign investment control regime contains special rules for acquisitions in the defence sector, the so-called sector-specific review. To give you a sense of the scale: In 2025, 339 FDI screening cases were filed, of which 13 involved the defence industry (read more about German foreign investment control in numbers here).
A recent German example of this is HENSOLDT´s 2024 acquisition of ESG Elektrosystem- and Logistik-GmbH (ESG). As a core integrator of highly sensitive military electronics, ESG fell within the scope of Germany´s sector-specific rules. And while HENSOLDT is partly owned by the German state, its shareholder structure includes non-German investors, like the Italian defence company Leonardo (already mentioned above), triggering a mandatory review by the (former) Federal Ministry for Economic Affairs and Climate Action. The transaction proceeded smoothly and was officially closed in April 2024, after receiving all official approvals.
As a side note: HENSOLDT just announced yesterday that it signed an agreement to acquire the Dutch optronics specialist Nedinsco, expecting to close the acquisition by mid-2026.
Lessons for dealmakers
What should practitioners take away from this wave of transactions?
- First, map all applicable regimes early. A deal that looks like a straightforward national filing may also require EU notification, and vice versa. Foreign investment control adds a further dimension that must be built into the timeline from day one.
- Second, take information obligations seriously. The Rheinmetall/Expal experience shows that post-closing enforcement is real and that information accuracy is not a formality.
- Third, do not forget that national foreign investment control regimes vary and can be tricky to navigate. In Germany, the sector-specific investment review – applicable for investments in the defence sector – applies to all deals involving non-German acquirers (including a German acquirer having direct or indirect non-German shareholders holding 10% or more of its voting rights).
What comes next
Further industry consolidation is on the horizon. Discussions around a potential satellite merger involving Leonardo, Airbus, and Thales have been ongoing for months. The European Commission has signalled a more accommodating approach towards the defence industry through its Defence Readiness initiatives, and revised Merger Guidelines are expected in 2026 that may explicitly address defence and security considerations. The reform of the EU FDI Screening Regulation is aiming to harmonizing timelines for foreign investment control reviews across Europe but will also expand the scope of transactions subject to review in many countries.
For dealmakers, the challenge remains the same: Navigate both tracks simultaneously, and do not underestimate either one. And, in particular in this industry, put a focus on the political dimension.
Photo by Roby Allario on Unsplash
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