Finnish defence industry growing strongly, investors eyeing dual-use products in particular
Tesi’s (officially Finnish Industry Investment) recent survey reveals robust growth in Finland’s defence industry: new startups and growth companies are being founded at an accelerating pace while the sector’s more traditional companies are scaling up. Dual-use companies, offering solutions for both civil and military use, are growing fastest and they are also attracting investors’ interest.
The survey identified 368 companies operating in the sector, of which 144 are rapidly-growing startups and growth companies. The remainder are typically more established players with a long history, or they mainly offer consultancy services to Finland’s defence forces. Around one-half of Finnish defence industry companies are located in the Uusimaa region of Finland, while the other half are scattered around the country, also in smaller cities and municipalities.
Most of the strongly growth-oriented startups and growth companies covered by the survey are dual-purpose companies – i.e. their solutions can be utilised in both civil and military applications.
“Although the oldest Finnish defence industry companies date from the 1800s, taken as a whole the sector is still young. It’s developing rapidly now, though: new companies are being established at a fast pace and the growth figures are very impressive,” comments Jakob Sandell, Tesi’s Research Manager in charge of the survey.
The review shows that numerous new companies have started in the sector. Only a few new companies focused purely on the defence industry were identified, however. Growth is robust, and is even in all size classes – which means that newly established companies are succeeding in expanding their operations.
Growth in net sales of dual-use technology companies was around 30-40 per cent. More established defence sector companies are profitable, but generally have single-digit growth in percentage terms. New companies offering solutions purely for defence purposes, meanwhile, typically show moderate growth and positive, although sometimes weak, profitability.
“It’s far more difficult for companies focused clearly on defence technology, and that have no dual-purpose solutions, to attract investments. Many investors are bound by financing agreements that might, for instance, prevent investing in technology for war purposes. This limitation does not apply to companies offering dual-purpose solutions because they always have also an explicit commercial purpose,” explains Keith Bonnici, Investment Director at Tesi.
Companies offering dual-use products, on the other hand, are attracting investors. Over one-third of the companies surveyed offering dual-use products have venture capital/private equity (VC/PE) investors as their owners, and VC investors are the largest individual investor group for companies offering dual-use products.
The Finnish state is also an active investor in the defence industry, and in just over a decade state-owned companies have made over forty investments in defence industry companies.
“There is demand for growth capital because the sector’s sales are booming and the number of export licences has risen steeply, so production needs to keep up with the increased demand. Testimony to Finland’s competitiveness in the defence industry is that Finnish players include the world’s largest defence contractors amongst their customers, as well as NATO members’ defence forces,” comments Bonnici.
“In addition to the requirements of strategic defence policy, the defence industry is also a globally growing sector. A powerful base of Finnish companies and new innovations provide Finland with secure emergency supplies as well as with economic opportunities,” concludes Bonnici.
You can find the study in here.
More information about the review:
Jakob Sandell, Research Manager
jakob.sandell@tesi.fi, +358 44 2960 466
More information about investing in defence industry companies:
Keith Bonnici, Investment Director
keith.bonnici@tesi.fi, +358 40 179 9584
Communications contact:
Saara Vettenranta, Communications Manager
saara.vettenranta@tesi.fi, +358 40 723 3516
About the survey:
The review surveyed 368 Finnish defence sector companies. Companies operating in the defence sector were identified from industrial sources and via some sector-specific and other organisations, including public sources, and were checked by Tesi’s thorough background research.
Tesi (officially Finnish Industry Investment Ltd) is a state-owned, market-driven investment company that has an industry-focused mission aimed at promoting economic growth, innovation, and investments. We invest on market terms in private equity and venture capital funds, and also directly in growth companies.