Leonardo's Cybersecurity Play: Positioning for Geopolitical Uncertainty and Sector Dominance

In a world where cyber threats loom large and geopolitical tensions escalate, Leonardo S.p.A. (LDO) is repositioning itself as a European leader in cybersecurity through strategic acquisitions and divestitures. The Italian defense giant's recent moves—securing a stake in SSH Communications Security and offloading its Underwater Armaments & Systems (UAS) business—highlight a deliberate pivot toward high-growth cybersecurity markets critical for defense and critical infrastructure protection. This shift is not merely tactical; it reflects a broader industry consolidation trend and a race to mitigate risks in a fragmented digital landscape.

The Strategic Shift: Acquisitions as Catalysts for Growth

Leonardo's 24.55% stake in SSH Communications Security, acquired through a EUR 20 million directed share issue, is a cornerstone of its cybersecurity strategy. By paying a 49.6% premium over SSH's recent trading price, Leonardo signals confidence in the Nordic firm's cutting-edge offerings: PrivX (Zero Trust Privileged Access Management) and NQX (Quantum-Safe Network Encryption). These technologies are critical for securing defense systems, governments, and critical infrastructure against evolving threats, including quantum computing-based attacks—a priority for NATO and EU institutions.

The partnership grants Leonardo exclusive rights to SSH's solutions outside the Nordic region, enabling it to build a “Made in Europe” Zero Trust ecosystem. This integration aligns with Leonardo's Industrial Plan (2024-2028), which targets double-digit growth in cybersecurity through acquisitions and partnerships. The deal's ROFO and ROFR clauses further solidify Leonardo's control, ensuring it remains a long-term stakeholder in SSH's expansion.

Divestitures: Focusing on Core Competencies

Leonardo's sale of its UAS business to Fincantieri in early 2025 reduced Group Net Debt by 27.5% to €2.125 billion, freeing capital for high-priority sectors. This move exemplifies sector consolidation, as Leonardo streamlines operations to focus on its core strengths: defense electronics, aerospace, and cybersecurity. The UAS divestiture also underscores a strategic reallocation of resources toward markets with higher growth potential, such as quantum-safe encryption and Zero Trust architectures.

Financially, the decision paid off: Q1 2025 results showed orders up 19.7% YoY to €6.9 billion, revenue rising 13.5% to €4.2 billion, and a 23.7% increase in net profit. These metrics reinforce the efficacy of Leonardo's pivot.

Synergies and Regulatory Tailwinds

The SSH partnership creates synergies that amplify Leonardo's value proposition. By combining SSH's quantum-resistant encryption with Leonardo's domain expertise in defense systems, the duo is building solutions for multi-domain warfare, where cyber, physical, and information domains intersect. This is a priority for NATO and EU members seeking resilient infrastructure amid rising state-sponsored cyberattacks.

Regulatory support further propels this shift. The EU's push for cybersecurity standards in critical infrastructure (e.g., the Network and Information Systems Directive 2) and its focus on European tech sovereignty align with Leonardo's goals. Additionally, the transaction's compliance with Finland's foreign investment monitoring act highlights the geopolitical significance of cybersecurity—a sector now treated as strategic infrastructure.

Market Demand: The Multi-Domain Growth Engine

The cybersecurity market, particularly in defense and critical infrastructure, is primed for growth. Global spending on Zero Trust architectures is expected to hit $29.6 billion by 2027, while quantum-safe encryption solutions will be essential as quantum computing matures. Leonardo's acquisitions position it to capture this demand:

• SSH's NQX addresses the urgent need for quantum-resistant encryption in defense and energy sectors.
• Axiomatics (a reported acquisition target) adds attribute-based access control, strengthening Leonardo's ability to deliver multi-layered security solutions.

These technologies are foundational to multi-domain warfare strategies, where seamless integration of cyber defenses with physical systems is critical. As geopolitical tensions drive spending on defense and critical infrastructure, Leonardo's offerings are well-timed.

Investment Considerations: Risks and Rewards

While Leonardo's strategic moves are compelling, risks persist. Regulatory approvals for the SSH deal remain pending, and execution of partnerships like the Strategic Partnership Agreement could face delays. Additionally, geopolitical volatility may skew defense budgets unpredictably. However, the sector tailwinds—including EU funding for cybersecurity and NATO's digital transformation initiatives—mitigate these risks.

As of July 2025, Leonardo's stock has outperformed its sector peers by 15% over the past year, reflecting investor confidence in its cybersecurity pivot. With a robust Order Backlog of €46 billion and a 16% orders growth target through 2028, Leonardo is positioned to capitalize on its strategic bets.

Conclusion: A Leader in Cybersecurity's Golden Age

Leonardo's strategic moves—acquiring SSH, divesting non-core assets, and expanding its cybersecurity portfolio—paint a clear picture of a company repositioned for dominance in a sector primed for growth. By leveraging Zero Trust, quantum-safe encryption, and multi-domain solutions, Leonardo is not just adapting to geopolitical risks but defining the future of European defense technology. For investors, this represents a rare opportunity to capitalize on a consolidation-driven, high-margin growth story with strong regulatory and demand tailwinds. As cyber threats escalate, Leonardo's ecosystem could become the backbone of critical infrastructure protection in Europe—and beyond.