The defense and security sector in Finland is experiencing rapid growth, offering significant opportunities for investors. Geopolitical tensions worldwide and Finland’s NATO membership are driving the expansion of the industry, with the Finnish defense market projected to grow substantially in the coming years. The sector's revenue is estimated at €2.6 billion, with a growth rate exceeding 30% annually. This presents an attractive entry point for those looking to invest in innovative and strategically important defence and dual-use technologies.
Tesi (a state-owned venture capital and private equity company) market study on defence sector and dual-use technology companies published in September 2024 identified 368 Finnish companies operating in the sector, out of which about 144 being high-growth firms focused on either military technologies or dual use applications.
High Potential in Dual-Use Technology
One of the most promising areas for investment is dual-use technology—solutions that serve both civilian and military purposes. These technologies range from high-tech products such as advanced materials, electronics, software and telecommunications and cyber-security systems to sensors and lasers. Companies developing dual-use solutions are experiencing the strongest growth, as their products are not only versatile but also essential in both defense and civilian markets.
As global demand for cutting-edge dual-use technologies increases, Finland is positioning itself as a key player. For investors, this means access to a growth sector that bridges the gap between civilian industries and defense, offering scalability and diverse revenue streams.
Evolving Investor Interest and Capital Opportunities
Historically, defense startups in Finland faced challenges in securing financing. However, the situation is changing. Private equity, venture capital, and angel investors are increasingly turning their attention to companies offering dual-use products, recognizing the potential for long-term growth and profitability. While there are risks, including significant capital requirements for R&D and scaling production, the growing interest from governments in long-term contracts for defense solutions makes this sector more attractive. Nevertheless, the defense industry across Europe, including Finland, remains still underfunded.
Regulatory Considerations for Foreign Investors
Export controls
For non-Finnish investors, understanding the regulatory landscape is crucial. The export of dual-use technologies is controlled by both EU and Finnish laws, which may require export licenses. However, these regulations do not represent insurmountable barriers. The Finnish Ministry of Defense and the Ministry of Foreign Affairs are key partners for investors looking to navigate these regulations effectively.
Foreign direct investment monitoring
Additionally, foreign investors should be aware of Finland’s Foreign Corporate Acquisitions Act. This law monitors and can limit foreign ownership in companies deemed critical to national security, including those in the defense and dual-use sectors. While the law favors foreign investment, it applies more stringent controls and requires prior authorisation for transactions with investors from outside the EU and EFTA regions. Proper legal consultation and planning are recommended to ensure smooth acquisition processes.
Real Estate Considerations for Investors
For those considering acquisitions that involve real estate in Finland, particularly in strategic areas, approval from the Ministry of Defense may be required if the buyer is from outside the EU or EEA. This is especially pertinent for properties deemed important to national security, such as those near critical infrastructure or defense-related sites.
A Strategic Opportunity in a Growing Market
Finland’s defense and dual-use technology sector offers investors a unique opportunity to enter a high-growth market backed by advanced technologies and strategic national importance. This might be an ideal time to explore investments in innovative Finnish companies at the forefront of dual-use technologies.
Navigating the complexities of investing in Finland’s defense and dual-use sectors, from regulatory compliance to acquisition structuring, you need the right legal partner. Our corporate law firm specializes in guiding international investors in investments in and M&A transaction with Finnish companies. Let us help you unlock the full potential of Finland's growing defense market.