Leonardo expects more deals as Europe ramps up defense spending

Leonardo's new CEO told CNBC he expects to pursue further acquisitions to support the company's long-term growth, as Europe's defense spending boom gathers pace."The ramping gap in how we fulfil the demand is really the key element to deliver to our customers what they need… both for our European arm and for the U.S. arm," Lorenzo Mariani told CNBC's Carolin Roth in Rome, pointing to M&A, including over the past few days, as an area of opportunity.Europe's defense industry is scrambling to meet soaring demand for new military equipment, amid Russia's full-scale invasion of Ukraine and increased NATO spending targets. Alongside investment in factories and hiring, contractors are using acquisitions to add technologies, secure supply chains and expand industrial capabilities more quickly."What really matters today is accelerating all our processes," Mariani said.Defense dealmakingMariani said the company would continue pursuing acquisitions and strategic partnerships to support long-term growth. His comments come as Leonardo has broadened its defense portfolio through acquisitions in land systems, cybersecurity and AI-enabled mission software.It completed a 1.6-billion-euro ($1.8 billion) acquisition of Iveco Defence Vehicles in March. Its U.S. subsidiary Leonardo DRS this week agreed to buy software company Raft for $450 million to expand its AI and mission software capabilities.Earlier this year, the group also agreed to acquire British cybersecurity company Becrypt. More defense news‘Project Firepower’: Inside Rheinmetall’s gunpowder expansion as Europe races to replenish its ammunitionEurope’s defense boom faces a new test: Can it actually deliver weapons?Ukraine’s drone playbook is wreaking havoc in Russia — and upending where NATO wants to investTank maker KNDS postpones IPO amid market struggles for defenseDefense stocks plummet on reports Germany is scrapping warships; Rheinmetall stock down 18%Why Europe is suddenly betting big on dronesLeonardo's Italian peer Fincantieri recently unveiled what CEO Pierroberto Folgiero described to CNBC as the company's "second M&A wave," announcing major stakes in four underwater technology companies as part of plans to build an international leader in the rapidly expanding underwater defense sector.Meanwhile, German defense electronics maker Hensoldt this year acquired Dutch optronics specialist Nedinsco to secure supply chains and expand production capacity.Record order backlogLike most of its peers, Leonardo reported a record order backlog in its earnings on Thursday, rising 30% year-on-year to 59 billion euros by the quarter ended June.The partly Italian state-owned company hiked its full-year guidance after reporting a 45% rise in new orders in the first six months of the year. It now sees earnings before interest, tax, and amortization of 2.21 billion euros, up from 2.03 billion euros previously.Leonardo is in a perfect position to benefit from increased European defense spending due to its multi-domain approach and differentiated offering, Mariani told CNBC. Defense stocks have been under pressure this year after a years-long boom following Russia's full-scale invasion of Ukraine. Stock Chart IconStock chart iconDefense stocks' performance over the past 12 months. As government spending translated to soaring order books for defense companies, some investors now question whether valuations have run ahead of the industry's ability to ramp up production.Leonardo shares are up about 11% year-to-date, similar to the gains of the pan-European blue-chip index Stoxx 600.In its earnings, Leonardo said it now sees full-year new orders at 28.2 billion euros, up from 25 billion euros previously. Leonardo is leaning heavily into defense technologies as wars in Ukraine and Iran exemplify how modern war has changed, with an increasing emphasis on unmanned systems and AI-powered weapons.