Building Sovereign Capability: How Private Capital and Dual-Use Businesses Will Deliver the UK’s Defence and Resilience Ambitions

This article has been authored by Charlie Foster (Trainee Solicitor) in our Corporate M&A team.

This is the second article in a series examining the emerging opportunities at the intersection of defence, energy security and critical infrastructure resilience. The first article made the investment case: rising defence expenditure, the drive for sovereign capability and the need to protect Critical National Infrastructure (CNI) are creating real opportunities for dual-use businesses and private investors. This article answers how that sovereign capability will actually be built and financed, the role private capital and commercial businesses will play in delivering the Government’s ambitions, and what that means for those investing in, acquiring or partnering with the businesses behind it.

One threat surface, physical and digital

The threat to CNI is by no means confined to the seabed. In the year to August 2025, the National Cyber Security Centre (NCSC) handled 204 nationally significant cyber incidents, up from 89 the year before. 

Combined, these trends point to a single conclusion: physical sabotage and cyber intrusion are but two of the weapons in our adversary’s arsenal. Energy networks, interconnectors, offshore wind, telecoms and data infrastructure form one interconnected target. Appropriately, the Government has responded on both fronts, through the uplift in defence budgets and the Cyber Security and Resilience Bill - introduced to strengthen the security of the UK’s essential services.

Dual-use by design

Defending such a threat surface requires technology that spans military and civil markets. The capabilities NATO is deploying in the Baltic are, almost without exception, equally valuable to the commercial operators who own the infrastructure being protected:

• Uncrewed underwater and surface vehicles used for naval patrol are equally suited to cable route surveys, pipeline inspection and offshore asset monitoring.
• Acoustic, sensor and maritime awareness systems that track suspicious vessels can provide monitoring of energy and telecoms assets.
• AI-enabled ISR and analytics (intelligence, surveillance and reconnaissance) support both military situational awareness and the security of on and offshore energy sites and grid assets.
• Operational technology security and cryptographic communications protect defence networks and CNI control systems alike.

For the businesses developing these capabilities, dual-use is not a by-product but a business model. 

Serving both defence customers and commercial CNI operators diversifies revenue, smoothing the protracted cycles of defence procurement and broadens the pool of potential investors and acquirers. For energy providers, offshore wind developers and telecoms operators, access to defence-grade protection for assets is becoming somewhat of a priority.

Who pays? Private capital and the delivery of sovereign capability

Public budgets alone will not build sovereign capability at the pace or scale required, so private capital will increasingly decide where and how quickly it is delivered. The spending momentum is real: NATO reports that the European Allies and Canada increased defence spending by 20% in real terms in 2025 compared with 2024. Government is already turning to commercial partnerships to bring private funding in alongside its own programmes, and private investment in UK defence technology has been matching public spending several times over. CNI operators, meanwhile, face growing regulatory and ownership scrutiny to show that resilience is a priority.

The result is a convergence of defence and infrastructure capital, in which investors and commercial businesses act as delivery partners rather than simply suppliers. We expect private capital to participate in four main ways:

• Acquisitions: Defence primes and mid-tier suppliers buying dual-use businesses to gain capability and commercial customers that would take years to build organically.

• Direct investment by CNI operators: Energy, utilities and telecoms operators taking stakes in defence technology businesses through corporate venture arms, securing early access to protective capability and a say in development.

• Private equity and infrastructure fund platforms: Funds backing buy-and-build strategies that consolidate specialist sensing, autonomy and security businesses serving both defence and infrastructure markets.

• Joint ventures and integrated service contracts: Partnerships combining a defence technology provider's capability with an infrastructure owner's assets, operating knowledge and subject matter expertise, often as the first step towards deeper equity ties.

A cross-sector delivery model

Delivering sovereign capability is not just a defence exercise. Many of the assets that need protecting, from interconnectors and offshore wind farms to subsea cables and data centres, are owned and financed by commercial operators and long-term investors. Those operators can close the gap by taking stakes in counter-drone and surveillance businesses, procuring secure communications services, or co-developing resilience technology with dual-use suppliers. Doing so gives them proven, security-cleared capability and supports a sovereign UK supply chain. 

Finance and regulation will shape what is possible. Lenders and fund investors are reassessing how defence and dual-use exposure fits within their mandates, while regulatory frameworks across energy, telecoms, cybersecurity and investment screening will determine who can own, fund and operate these capabilities. The businesses and investors that succeed will be those able to navigate defence, infrastructure and financial regulation concurrently, rather than treating each as a separate hurdle. Partnering with dual-use businesses will mitigate much of this complexity. 

The M&A challenge: why dual-use deals are different

The very dual-use feature that makes these businesses attractive, places them in the most closely scrutinised parts of the UK’s investment and trade regimes. A dual-use target is, in effect, regulated twice: once as a defence supplier and again as a provider to, or operator of, critical infrastructure. For buyers and investors, that creates a unique set of challenges.

1. National security screening: notify first, complete later. The National Security and Investment Act 2021 (NSIA) requires mandatory notification and approval before completion, of acquisitions in sensitive sectors. One dual-use business may engage several at once, including Defence, Military and Dual-Use, Communications, Energy and Critical Suppliers to Government. A completed acquisition without approval is void with parties risking civil and criminal penalties. 

2. Looking through the buyer: ultimate ownership. Screening does not stop at the immediate acquirer. The Government has intervened where the acquiring entity was based in a seemingly neutral jurisdiction, such as Luxembourg or the Netherlands, but was ultimately controlled by Russian or Chinese investors. For PE and venture-backed bidders, diligence on the partner base and co-investors is as important as that on the target.

3. Export controls: the licence is part of the value. Dual-use, software and technology are controlled under the Export Control Order 2008. A target’s revenue may depend on the continued ability to export. 

However, recent changes also create opportunity. For dual-use UK businesses, licences such as the Open General Export Licence and Open General Licence for the GCAP (Global Combat Air Programme) make it easier to sit within European supply chains and joint ventures - an important advantage as European nations look to bolster sovereign capability closer to home.

5. Investor terms: building in sovereignty. On the investment side, shareholder agreements are increasingly expected to include sovereignty protections. Measures such as restrictions on share transfers to certain investors, caps on foreign investor board rights, and mechanisms  regulating a change in an investor’s own ownership to name a few. Getting these terms right at seed or Series A stage can make a later exit far smoother.

Positioning for the Next Decade

Protecting critical national infrastructure is no longer a niche defence task. It is now a shared priority for governments, infrastructure owners and investors, and dual-use technology is the bridge between them. Government can set the ambition and provide seed funding, but building sovereign capability at scale will need private capital and commercial businesses. That means it will be built as much in boardrooms and investment committees as in procurement offices. The question is no longer whether the private sector has a role, but how these deals are structured to work for everyone at the table. We will explore that in our next piece on the anatomy of a dual-use deal.

Burges Salmon advises businesses, investors and infrastructure operators across defence, energy and critical national infrastructure. If you would like to discuss investment, partnerships or transactions in the dual-use market, please get in touch with Alex Lloyd or Chris Doherty from our Corporate M&A team.