European defence stocks have fallen from recent highs amid stuttering efforts to end the war in Ukraine, but this short-term reaction neither deflects from a wider need for the continent to rearm, nor detracts from the equity deals that investors can back to play this trend.

No-one seems to understand this better than equity capital markets practitioners. Europe’s push for strategic autonomy was the key deal driver in Europe’s ECM universe last week, with Franco-British satellite company Eutelsat launching a EUR 670m rights issue as part of a EUR 1.5bn capital raising effort backed by the French and UK governments.

This is just the tip of the iceberg.

Enlarged state-led investment, heralding opportunities to crowd in private capital, will remain essential in any outcome for Ukraine. Any Ukraine peace deal is unlikely to convince European leaders to let down their guard against Russian aggression, especially given a more isolationist United States under President Donald Trump.

There is also still a long way to go before any peace is struck, meaning the sell-off in some defence names looks decidedly premature. The first draft of the Trump administration’s 28-point peace plan, agreed after negotiations with Russia, was hugely favourable to the latter’s position and was met with strong resistance from Ukraine and its European allies.

A new plan – swiftly drawn together by US, European and Ukrainian leaders in Geneva – is not guaranteed to be accepted by Russia, who have been non-committal on peace talks given the revisions to its original proposals bilaterally agreed with the US.

However the dust settles, Europe’s new strategic reality is that any negotiated settlement will almost certainly involve territorial concessions to Russia.

Hostility between Europe and Russia has also widened beyond Ukraine, with Russian drones intercepted recently in Poland. European countries have frozen Russian assets and imposed heavy sanctions on the country.

Europe’s strategic autonomy consequently remains a priority for governments across the continent – and as such defence should remain a key area of investment and a hot sector for equities.

Equity capital markets opportunities

Which is why the Eutelsat capital raise is so salient.

Two bankers close to the deal noted that the market is looking at the transaction firmly as a defence play, with the equity story centred around Europe seeking space-technology autonomy that breaks its reliance on both the US and SpaceX, the space and satellite business owned by billionaire Elon Musk.

Musk, an on-off ally of US president Donald Trump, has also been an occasional interloper on the European political scene, with vocal support for the continent’s populist right across several countries.

“This is increasingly being viewed as a security and sovereignty issue for Europe, especially after recent Trump declarations on European security, which have become a major theme,” said one of the bankers.

The transaction is just one of many large defence-linked ECM deals for investors to ponder, with several IPOs in the works for next year.

These include the large listings of defence manufacturers Czechoslovak Group (CSG) and KNDS, both in Amsterdam. The first deal is reported to be in the works for 1H26, potentially as soon as January, while the KNDS IPO is likely to come later, with banks pitching for roles in a listing effort slated for execution before year-end, as reported by this news service.

Alongside these benchmark listings there are a host of smaller listings in the works, including a German IPO for Vincorion, which develops mission-critical power systems for defence companies.

“Defence IPOs are a really a big theme and we are getting a lot of inbounds on these deals,” said a third ECM banker.  “Investors are dissecting defence company margins like they never have before and many are becoming real defence specialists.

“Several industrial and aerospace funds are moving over to this sector and putting time into what really makes these companies. It is really fascinating for us as well, we have been through these sorts of rotations in the past, but its always great really delving into a new sector.”

Structural growth, big gains

Equity investors that have backed Europe’s defence companies since the start of the war in Ukraine have made strong returns. The STOXX Europe Total Market Aerospace & Defense index is up 52% over the last 52 weeks, despite a small retraction since the Ukraine peace talks began. And even here, it’s worth considering whether some investors are using the news as a reason to take profits as part of their year-end window-dressing, rather than making a serious call on the geostrategic implications.

Source: Dealogic

Against the longer-term backdrop, a good defence IPO can generate substantial returns for investors – and have done of late.

For example, Renk, the German company that provides drive systems for defence vehicles, is up over 240% from its February 2024 IPO price as of 27 November 2025. For a long-only investor that, say, managed to secure a EUR 25m allocation in the EUR 500m IPO, that stake would now be worth just over EUR 60m, despite the recent pull-back in line with other defence stocks on the Ukraine talks.

For investors looking at possibly investing in European defence IPOs next year, a short-term sell-off on stocks amid the sadly still distant possibility of peace in Ukraine should not be factored in too much.

Ending the conflict in Ukraine would be unlikely to precipitate a lasting rapprochement between Europe and Russia and – in that vein – the continent needs to be committed to the new age of strategic autonomy, independent of a US reconsidering its role as a security partner.

European defence remains a solid growth prospect over the longer term – and IPO investors getting in at the ground floor could bank significant gains as the continent rearms.