How Nordic defence giants are rethinking start-up acquisitions

For decades, Europe's largest defence contractors built their businesses around scale, process and predictability.

Now they are increasingly looking to startups for technologies in areas such as artificial intelligence, software, autonomy and space.

The challenge is obvious: how do primes bring startups into the defence industry without absorbing them and killing innovation?

- That is a good question and an important aspect, Eirik Lie, President of Kongsberg Defence & Aerospace, told Defence Nordic when asked about the risk startups face after being acquired by larger firms.

Startups don't carry the backpack of history

Fredrik Gustafson, Head of Group Business Development at Saab

Lie pointed to Kongsberg's recent acquisition of missile manufacturing startup Zone 5 as an example of how the company approaches the issue.

- We are not going to change the way they operate, he said. 

- They will operate exactly as they do today by innovating and finding new solutions.

According to Lie, that independence is essential.

Dinosaur's dilemma

Forcing startups into the processes and reporting structures of a major defence contractor risks damaging the very qualities that made them attractive acquisition targets in the first place.

- That will ruin the way they want to operate, he said. 

- And I think that at least to some extent stops some of the agility they have.

Lie argues that startups and defence primes bring different strengths to the table. Young companies often develop niche technologies and new ideas. Larger contractors contribute customers, programmes and access to defence markets.

- We have the broader defence context and better market access than new comapanies, he said.

- Startups and primes need each other.

At one of Kongsbergs competitors, the Nordics' largest defence company Saab, the challenge is no different.

Defence Nordic spoke to Saab's Head of Business Development Fredrik Gustafson  who jokingly described the company as an "industry dinosaur" when compared with many of the startups now entering the defence sector.

The joke carried a serious point.

Large defence companies bring decades of operational experience, customer relationships and technical expertise. But they also carry layers of processes, requirements and institutional habits that startups simply do not have.

- Startups don't carry the backpack of history, Gustafson said. 

- They don't carry the processes, they don't carry all the legacy, but can continuously think outside the box.

Ukrainian innovation

According to Gustafson, the war in Ukraine has highlighted that difference more clearly than ever.

- The things I hear from Ukraine basically every day: 'Why didn't we think of that?', he said.

For Saab, that realisation has led to a different approach. Rather than automatically integrating innovative companies into the core organisation, Saab has increasingly used Saab Ventures to keep startups and spin-outs separate from the group's main business.

Startups and primes need each other

Eirik Lie, CEO at Kongsberg

Gustafson said the company places a number of these ventures in what he described as a "special box", allowing them to operate under different conditions while Saab continues to support their development.

The model emerged from experience.

- We learned the hard way, Gustafson said.

The comments from Kongsberg and Saab suggest that Europe's defence primes are becoming more cautious about how they handle innovation.

The goal is no longer simply to acquire promising technologies. It is to gain access to the speed, creativity and unconventional thinking behind them - without destroying those qualities in the process.