From slowdown to rebound: UK mid‑market acquisition finance shows signs of revival

Confidence is returning to the mid-market acquisition finance sector in 2026, building on last year’s recovery.

The UK mid-market acquisition and leveraged finance sectors is welcoming a rebound in acquisition activity, driven by falling interest rates, competitive pressure among lenders and a shift towards more flexible, covenant-lite structures similar to large-cap deals (those involving companies with a market capitalisation exceeding $10 billion).

The shift continues towards disciplined, private credit-driven structured deals favouring unitranche solutions (debt combining senior and subordinated loans to help banks compete more efficiently with private debt funds).

With interest rates expected to ease, lenders and sponsors are demonstrating increased confidence, focusing on acquisitions where they see clear growth opportunities, alongside bolt-on strategies.

Despite ongoing macro-economic and regulatory uncertainty, the market remains resilient with strong demand for strategic acquisitions in sectors like tech, healthcare and business services.

Corporate lending

This year, more perhaps than any other in a generation, UK corporate banks are operating in an environment defined by rapid technological change, sustained competitive pressure and increasingly exacting regulatory expectations.

For mid-market and regional corporate lenders in particular, the challenge is balancing innovation and growth with operational resilience, cost control and regulatory compliance.

From our extensive experience advising banks, lenders and financial services businesses across the UK, the institutions best positioned for the years ahead are those taking a measured, legally grounded approach to transformation, embedding regulatory expectations into strategy rather than responding to them reactively.

Key trends and expectations for 2026

• Activity type:
  • A rebound in M&A is expected as rates decline, moving beyond the refinancing-heavy environment of previous years
  • Due to high valuation gaps for new platforms, many private equity firms are prioritising bolt-on acquisitions to expand existing portfolio companies
  • With few maturities in 2026–2027, the market is focusing on extending maturities, although a significant wall of debt matures in 2028–2029.
• Interest rates: Market sentiment is leaning towards a fall in rates, which will improve affordability and financing conditions.
• Lender competition:
  • Private credit continues to gain momentum, promoting its ability to offer flexible, bespoke and faster-closing structures, while banks are heavily competing to finance a smaller number of higher-quality assets
  • A growing pool of undeployed capital is fuelling competition. This is forcing lenders to offer more borrower-friendly terms, including ‘high water marking’ (setting performance metric limb of the grower basket at the highest performance achieved by the borrower during the life of the facility), portability provisions and mandatory PIK (payment-in-kind)
  • Lenders are maintaining strict scrutiny on financial covenants, with leverage and debt service cover ratios becoming standard in the mid-market. EBITDA adjustments are permitted, subject to clear controls and caps. To obtain greater flexibility, especially on longer investments, sponsors are pushing for grower baskets and voluntary and automatic, ratchet-based covenant resets.

• Structured finance solutions:
  • There is high demand for unitranche and club-style facilities (specialised and non-traditional lending structures), which offer flexibility in structures like delayed draws and earn-outs
  • Rise of insurance capital: While insurance firms are becoming more active in providing direct, long-term capital on larger deals, they are less active in the lower mid-market.

• From AI testing to deployment:
  • Banks are transitioning from a concerted period of testing AI-driven technology to its practical deployment across lending, risk management and customer service
  • Digital ecosystems: banks are creating unified digital ecosystems that blend traditional banking with embedded finance and API connectivity to third-party providers.

• Sustainable finance: While the integration of ESG factors into investment and lending continues, with a focus on supporting the transition to net zero in bigger deals, this isn’t a significant factor in the lower mid-market.

Conclusion

As 2026 unfolds, the picture across mid‑market acquisition finance and corporate lending is one of measured momentum. While challenges remain, from regulatory demands to sector‑specific pressures – lenders, sponsors and borrowers are increasingly equipped to navigate them with discipline, flexibility and strategic focus.

The UK continues to be seen a good value for overseas money, with the US remaining the largest source of foreign direct investment (FDI) into the UK.

Despite some year-on-year volatility in total project numbers, US investors continue to make high-value, long-term commitments in key sectors like technology, financial services and defence.

With easing rates, renewed competition and ongoing innovation in both structures and technology, the year ahead offers genuine opportunities for those ready to adapt and position themselves for sustainable growth in a market that is cautiously, but unmistakably, on the rise.