Amid intensifying geopolitical threats and growing pressure from NATO allies, Canada’s defense sector is undergoing its most significant transformation in decades.
Rebalancing Canada’s defense industrial base
By Matt Page and Eymeric Boyer
From fragmentation to sovereignty
To understand Canada’s role in the global defense supply chain, it is essential to examine the structure and capabilities of its domestic industrial base. Canada benefits from deep technical expertise and a broad, highly specialized supplier network, yet structural constraints limit its ability to scale quickly. Our overview outlines the composition, strengths, and limitations of the country’s defense ecosystem.
"Canada’s defense ecosystem is rich in capability, yet few firms have the balance sheet strength, systems maturity, and scale required by modern defense programs. Strategic consolidation, supported by targeted interventions, is essential to turn this fragmented base into globally competitive industrial champions."
Canada’s defense ecosystem is rich in talent but lacks scale. More than 600 companies comprise the sector, which generated approximately CAD 14.3 billion in revenue in the most recent audited year (2022). Together, these companies span a wide range of capabilities – from precision machining and surface treatments to electronics, components, and specialized services.
The core challenge is fragmentation. Most firms remain too small to meet the speed, volume, and systems-level complexity demanded by modern defense programs. Canada has the ingredients for a resilient, sovereign defense economy; what it lacks is the structure to turn these capabilities into globally competitive industrial champions. In this context, targeted support and consolidation are essential, not optional.
A bottom-heavy pyramid in a world that rewards scale
While Canada’s industrial base is remarkably diverse, it remains largely bottom-heavy. Most companies are small, owner-led, underfunded, and focused on niche skills. Few have the engineering expertise, financial stability, or integration capabilities to handle large projects – or to manage the associated risks.
The results were predictable. Program delivery slowed. Supply chains broke down. R&D investments fell behind. Canada became dependent on foreign primes, even as sovereign capability was more critical than ever.
Globally, successful firms are not the ones with the most locations – they are the ones with the most scale. Scale is built, not given.
What France and Italy show us about building champions
Other countries have demonstrated a model that Canada has yet to adopt. In France, clusters of machining and specialty-process shops evolved into globally recognized platforms by strategically combining complementary capabilities into integrated industrial ecosystems. In Italy, firms followed similar approaches – acquiring precision shops, consolidating operations, investing in governance, and building export-ready systems suppliers capable of outperforming their individual size. These companies did not grow by chance; they were deliberately built through strategic acquisitions, disciplined integration, and patient capital.
"We are seeing a shift in Canadian private equity’s approach to defence, with early platform investments and growing comfort with the sector. The next phase, however, is decisive: moving from isolated deals to coordinated consolidation that can genuinely reshape the supply base."
Canada has early leaders, but the scale is still too small
We are seeing early signs of similar momentum in Canada.
Several leading firms have shown that consolidation is effective – enhancing performance, expanding capabilities, and boosting resilience. However, these platforms remain too small to reshape the national industrial landscape. Deals are modest, integration is limited, and key adjacencies – advanced processing, electronics integration, and digital engineering – are often missing. The path forward isn’t incremental; it’s transformative.
Canadian private equity funds play a critical role in rebuilding and scaling Canada’s defense industrial base. With the ability to deploy patient capital, drive professionalization, and consolidate fragmented suppliers, large prive equity investors can act as architects of supply-base transformation – backing national champions, modernizing manufacturing and engineering capabilities, and aligning portfolios with long-term defense demand. Beyond capital, PE ownership can bring governance discipline, operational excellence, and access to global networks that help Canadian firms integrate into allied defense ecosystems. If Canada is serious about strengthening sovereign capability, its largest domestic investors must step forward to shape, scale, and future-proof the defense supply base.
The moment to build mid-tier champions is now
Canada has a group of subject matter experts with the potential to become the next generation of mid-tier integrators. They possess strong technical skills, established customer relationships, and ambition. What they need is:
- Capital to invest in modernization and acquisitions
- Governance to elevate operations from shop-level to program-level and increase visibility to key domestic and international stakeholders
- Integration support to develop multi-capability platforms
- A national strategy that rewards scale over fragmentation and supports the need for talent and workers, which are scarce
By integrating machining, composites, surface treatments, electronics, and sub-assembly functions into unified platforms, Canada can cultivate companies that are large and resilient enough to lead.
A blueprint for Canadian growth and sovereignty
A consolidation strategy would unlock benefits that go well beyond corporate size. It would help strengthen the national foundation for:
- NORAD modernization
- Naval recapitalization
- Arctic surveillance and protection
- Next-generation aerospace and mission system technologies
It would also ensure that Canada’s suppliers can meet the demands of global prime contractors, integrate into allied production lines, and remain competitive over the next decade. Most importantly, it would secure sovereign capability, a crucial element in today’s geopolitical landscape.
Why this matters for Canada’s industrial future
The global defense sector is changing rapidly. Countries are securing long-term suppliers, and OEMs are guaranteeing manufacturing capacity. Allied nations want partners who can deliver at scale, reliably, and with true integration capabilities.
This is Canada’s moment. If the country can strengthen, modernize, and professionalize its industrial base now, it can develop a new generation of mid-tier leaders who can compete globally and support national security at home. If it waits, others will fill the gap. Canada has the talent, the companies, and the opportunity. What it needs now is the will to build something greater.
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