Former US President Donald Trump’s resilience in the opinion polls despite his multiple legal contretemps comes as a surprise to many in Europe. What will happen in the Old Continent if the populist right-wing politician pulls off a shock victory in November’s elections?

The North Atlantic Treaty Organisation (NATO) – the US-led collective security group established in 1949 – is likely to come into immediate focus if Trump sweeps home. The Republican candidate says that European members of NATO need to “pay up” if they want to continue to enjoy American protection.

While more than 20 NATO members are expected to hit a goal of 2% of GDP spending, many large European countries like Germany, Spain, Italy and Belgium still run sizeable deficits against the 2006 spending target. A Trump victory could prompt massive government spending on arms throughout the Continent, which in turn could prove a catalyst to consolidation.

Indeed, Exosens [EPA:EXENS], a French company offering photo detection to defence clients, upsized its IPO offering earlier this month, as investors bet on Europe taking defence more seriously in the months ahead. Exosens plans to buy complementary tech following the IPO, as reported.

Defence M&A among European members of NATO boomed in 2019 during Trump’s presidency. Some 11 deals worth EUR 4.5bn crossed the line, according to Mergermarket data. Although deal volumes fell after Trump’s loss to Democrat Joe Biden in 2020, they remained high by historical standards in 2021 (EUR 1.8bn across six deals) and 2022 (EUR 1.8bn from 13 deals).

Deal volumes have also boomed in the year to date (YTD), with EUR 415m generated via four tie-ups – the largest YTD figure in the past decade. This result is primarily driven by Fincantieri’s [BIT:FCT] May swoop for WASS, an underwater weapons manufacturing division of Italian defence group Leonardo [BIT:LEO] – one of the top five European defence deals in recent years.

States of play

NATO has 29 fully European members, with Turkey spanning Europe and Asia, and Canada joining the US in North America. Although there is a strong case for consolidation throughout Europe, dealmakers warn that transactions in the sector can often be difficult to execute because key companies are considered strategic by national governments, which means elected officials want a seat at the table.

ITP Aero, which makes engines for the Spanish Air Force, is a case in point. Its former owner, Rolls-Royce [LON:RR], flagged a sale in August 2020. The vendor confirmed exclusive talks with a consortium led by Bain Capital a year later and confirmed a deal by the end of the following month.

After months of talks, Indra [BME:IDR], which is backed by the Spanish government, provisionally agreed to join the consortium in July 2022. The sale to Bain’s consortium was approved by the Spanish government in August 2022.

The regional Basque government bought a stake in ITP Aero, which is headquartered in the Basque Country (an autonomous community of Spain), later the same year. Indra eventually finalised its own stake purchase in August 2023, fully three years after Rolls-Royce began the sale process.

ITP shareholder Indra is also involved in another proposed defence deal. Redeia [BME:RED] would likely sell satellites operator Hispasat if it receives an offer above EUR 1bn, as reported. Indra is the frontrunner, if not the only suitor.

A call to arms

NATO deficits are far from the only catalyst for activity. Russia’s invasion of Ukraine in February 2022 has also provided a boost to the defence industry in the war-torn country’s neighbouring Eastern Europe. The regional market is estimated at USD 3.93bn in 2024 and is expected to reach USD 4.76bn by 2029, according to a market report.

Czech family office RSBC is seeking small-arms acquisition targets across Western Europe, CEO Milan Slapak said recently. RSBC recently bought Austrian rifle manufacturer Steyr Arms and wants to develop synergies with further deals.

Meanwhile, Czechoslovak Group (CSG) is scouting for defence, aerospace and ammunition targets across Europe and the US, according to chairman and owner Michal Strnad.

Although European defence is likely to be a theme for dealmakers in Eastern and Western Europe in the months ahead, there is another wild card: Trump’s ideologues are also on the march in the heart of Europe.

Could the populist right sweep to power more generally and not just in the US? If so, what would be the consequences for the post-WWII institutions of NATO and the EU? Dealspeak EMEA can offer no easy answers to this question.