The next phase for UK dealmaking: Private equity and M&A activity in transition

In 2025, the PE and M&A landscape in the UK was a subdued one. Deal volumes across the UK, including within London’s typically active mid‑market, remained markedly lower than in previous cycles as market participants found themselves navigating an environment shaped by economic uncertainty and higher debt costs. While activity persisted in resilient sectors such as technology, healthcare and energy transition, the broader dealmaking landscape reflected a period of restraint.

Why the slowdown? A reset in expectations

Macroeconomic instability has been a central drag on market confidence. Markets often don’t adjust well to periods of instability and one of the practical impacts of that is significant gaps between buyers and sellers as to where valuations sit, often with sellers reluctant to accept the realities of a tighter market.

Another reason is elevated interest rates. In the UK particularly, rates have remained higher for longer and a consequence is debt financing becomes a lot less attractive and the ability to structure competitive deals and leveraged transactions nationally and in London’s dealmaking corridors suffers as a result.

Tax changes and geopolitical tensions added further complexity. But while 2025 posed challenges, the more compelling question for dealmakers is where the market is heading next.

What’s driving the shift in 2026?

Despite ongoing geopolitical risks, early 2026 has brought some optimism. There are still headwinds, exacerbated by recent events in the Middle East, but there are also clear signs that 2026 could mark a turning point.

From an inflation perspective, the UK is still economically vulnerable (as most western European nations are) to events such as the developing conflict in Iran. However, it’s clear that structural inflationary pressures have shown signs of easing which tends to bode well for the medium-long term.

At the same time, there is also a well-established feeling that private equity funds are sitting on significant levels of dry powder and the pressure to deploy capital and return it to limited partners is mounting, and sponsors are increasingly motivated to transact.

This dynamic in particular is expected to drive an increase in new investments and exit activity, with sponsors exploring a range of routes to liquidity including secondary buyouts, IPOs and strategic trade sales.

The UK’s deep and liquid capital markets remain highly attractive for domestic and international participants and its well-established legal and regulatory framework continue to underpin confidence among global dealmakers.

Opportunities — but with a note of caution

The outlook is far from risk‑free. Escalating geopolitical tensions or renewed inflationary pressure could delay the recovery. But the prevailing view across the advisory community is that 2026 represents a potential turning point and shows signs of a more active year ahead.

For corporates, founders and investors, this is a critical moment. Those who invest time now in strategic planning, transaction readiness and early engagement with advisers will be best placed to take advantage of improving market conditions. Whether preparing for an acquisition, exploring a sale, or assessing capital‑raising options, proactive steps taken today will unlock greater opportunity as momentum builds across both London and the wider UK market.