If you’re planning to buy or sell a UK business in the next twelve months, it’s worth looking back at the key developments of 2024-2025 and exploring the forces shaping the year ahead.
After a prolonged period of volatility and caution, the UK lower midmarket has entered 2026 with a renewed sense of stability. Deal volumes softened through 2024 and 2025, but the fundamentals underpinning M&A activity have strengthened.
With confidence returning at the top end of the market, along with interest rates easing, market conditions are now shifting in a more constructive direction.
Looking back at 2024 and 2025
The past two years have been shaped by inflationary pressure and shifting tax policy. We wrote last year about how US import tariffs have influenced the M&A market and contributed to global economic instability. Combined with Brexit‑related trade barriers, and Europe‑wide inflation stemming from the war in Ukraine, this has created a cautious and at times unstable economic backdrop.
Domestically, uncertainty around tax policy led many business owners to delay exits, while buyers became increasingly selective. Even so, the market did not stall completely. High quality assets continued to attract strong interest, particularly in sectors with recurring revenue and robust cash generation.
Deal volumes in 2024 were skewed by the rush to complete transactions ahead of that year’s Autumn Budget, amid widespread speculation that capital gains tax would rise materially under the new Labour Government. According to Experian’s MarketIQ data, the number of UKtarget transactions completed in 2025 fell by 19%, from 6,757 in 2024 to 5,466.
In October 2024, 1,148 deals completed, which was 141% higher than the same month in 2023. Interestingly, October 2025 did not see a similar surge. This may reflect the fact that tax policy changes in 2024 were less significant than expected, reducing urgency in 2025. It may also suggest that the market is beginning to normalise risk and uncertainty.
This period of recalibration has ultimately strengthened the market. As we enter 2026, the market feels more balanced and more predictable than at any point since the postpandemic boom.
The four key drivers for 2026
1. Large deals kickstarting smaller deals
A notable trend emerging in late 2025 was the return of larger, headlinegrabbing transactions. December activity was particularly strong, in which seven £1bn+ sized transactions completed.
This is encouraging, as large deals can create direct opportunities in the lower-mid market, through, for example, carve-outs of non-core divisions acquired. They also often act as a catalyst, signalling renewed confidence and encouraging smaller businesses to revisit their own strategic options. As activity at the top end of the market increases, it typically cascades down through the value chain and investor sentiment becomes more bullish.
2. Private equity influence remaining strong
Private equity (PE) is expected to be the dominant force in the lower midmarket throughout 2026. With significant dry powder (i.e. cash, investments and other liquid assets) and a backlog of delayed exits, PE investors are returning to the market with renewed urgency.
Buyandbuild strategies remain particularly attractive, with platform acquisitions and bolton deals driving activity across business services, technology, and healthcare.
3. Falling interest rates improving deal economics
The gradual easing of interest rates throughout 2025 is one of the most important tailwinds for 2026. Rates have fallen from a peak of 5.25% in 2024 to 3.75% by December 2025, and economists broadly expect the Bank of England to continue this trajectory into 2026.
Lower borrowing costs should improve affordability for buyers, increase leverage capacity, and support higher valuations.
4. AI accelerating dealmaking efficiency
AI is beginning to reshape the dealmaking process. Corporates and investors are using AI tools to identify highpotential targets, conduct deeper and faster due diligence, and streamline postdeal integration. While still early in adoption, these efficiencies are expected to shorten deal timelines and increase throughput across the market.
The outlook for 2026
There is a hope that sellers will return to the market this year. Many business owners who delayed exits due to uncertainty or tax considerations are now revisiting succession planning. Partial exits, minority investments, and structured deals are becoming more common as founders seek flexibility while still accessing capital for growth.
Buyers remain focused on quality; strong cash conversion, resilient earnings and clear growth opportunities are essential. However, unlike the cautious stance of 2024-2025, buyers are now more willing to move decisively when the right asset becomes available. Competitive tension is returning, particularly in high-quality niches.
We expect several sectors to outperform in the year ahead:
1. Business services – recurring and/or contracted revenue, assetlight models, and consolidation opportunities continue to attract both trade and PE buyers.
2. Technology and digital transformation – Despite valuation resets, demand for software, IT services and automation remains robust as businesses continue to invest in efficiency and digital capability.
3. Energy transition and infrastructure – Government incentives and longterm investment themes continue to underpin activity in renewables, environmental services, and infrastructure support businesses.
4. Healthcare – constant demand, and continued pressure on public services driven by regulatory and demographic trends, offer long‑term growth opportunities to potential investors. Additionally, the highly fragmented sub-market lends itself to buyandbuild strategies, popular with PE investors.
A steady return of confidence
The UK lower midmarket is poised for a steady and confidence-led recovery in 2026. While the environment is not returning to the exuberance of the postpandemic boom, it is becoming more balanced, more predictable, and more conducive to sustainable dealmaking.
With improving financing conditions and strong PE appetite, 2026 is set to be a constructive year for both buyers and sellers. For many businesses, it may represent the most favourable window for a transaction since the post-pandemic boom in 2022.
How BKL can help
Our corporate finance team specialise in advising privately owned businesses and their owners – entrepreneurs, shareholders and management teams – on the full breadth of corporate finance transactions. These include mergers, acquisitions, disposals, due diligence and valuations. Our advice is based on a close understanding of your market and the economic conditions.
For a chat about how we can help guide your business through transactions and major change, get in touch with Daniel Shear or Jethro Barnsley, or send us an enquiry.
