How the Iran war is affecting business and M&A
The effects of ongoing geopolitical events involving Iran and the Middle East reach far across the global economy, including UK lower midmarket for mergers & acquisitions.
For potential buyers and sellers, how is the impact likely to take shape?
The M&A market in the UK
M&A activity has generally been cautious in the UK over the past 18 months. Recent data highlights that UK M&A volumes fell by over 10% during 2025.
SME activity remains the backbone of the market, accounting for around 88% of transactions by volume.
Against this already fragile backdrop, the escalation of Middle East conflict has added further pressure to M&A activity.
Increased uncertainty and market volatility
Geopolitical tensions linked to the conflict have contributed to instability across global markets, particularly through energy price volatility and supply chain disruption.
For lower midmarket companies, this can be especially challenging. These businesses are often more exposed to cost shocks and have less capacity to absorb prolonged uncertainty.
In M&A terms, this environment typically results in delayed processes, extended due diligence, and wider valuation gaps. Many buyers and sellers are adopting a wait-and-see approach, holding off on transactions until geopolitical developments and economic consequences become clearer.
Impact on valuations
Market conditions linked to the conflict are contributing to changes in valuations through rising input costs and operational risk.
Energy prices, logistics disruption, and supply chain uncertainty can all erode margins forSMEs. Continued disruption to key shipping routes, including the Strait of Hormuz, is increasing scrutiny from buyers, who are often seeking price reductions or enhanced deal protections.
This reinforces the UK market’s divergence between high-quality assets and the rest. While overall volumes have declined, capital continues to flow towards resilient, well-prepared businesses, often at premium valuations.
For more marginal businesses, however, valuation pressure is likely to intensify.
Opportunities for strategic acquisitions
Despite the challenges, periods of geopolitical disruption often create opportunities for well-positioned buyers:
Resilient businesses as premium targets: Companies with strong pricing power, diversified supply chains or lower energy dependency are likely to command strong interest.
Distressed or pressured sales: While challenging for many businesses, rising costs and uncertainty may push some to market at reduced valuation, creating acquisition opportunity for buyers.
Buy-and-build strategies: Private equity investors continue to pursue consolidation strategies in fragmented sectors, particularly where scale can mitigate risk.
For financially strong lower midmarket businesses, this environment may present a rare opportunity to acquire strategically valuable assets at attractive entry points.
Potential impact of de-escalation or stabilisation
Any stabilisation in the situation in the Middle East, particularly if it reduces energy volatility, could boost M&A activity.
Market data suggests that confidence is highly sensitive to macro and geopolitical conditions. While volumes declined in 2025, deal pipelines have begun to rebuild, with expectations of increased activity into 2026 as conditions stabilise.
A more stable environment could drive:
- Increased investor confidence: Reduced geopolitical risk would likely narrow valuation gaps and accelerate stalled processes.
- Improved valuations: Lower input costs and improved earnings visibility could support stronger pricing.
- Enhanced deal flow: A release of pent-up supply, particularly from sellers who delayed transactions, could increase activity across the lower midmarket.
How BKL can help
While the conflict involving Iran has introduced uncertainty, the fundamentals of the market remain intact: strong SME activity, significant investor capital and continued strategic demand. Professional advice is critical to understanding the opportunities, managing risk and completing transactions.
BKL’s corporate finance specialists advise entrepreneurs and management teams at every stage of the business lifecycle, from M&A strategy and due diligence to valuations and exits.
Working closely with BKL’s specialists in transaction tax and commercial finance, we provide extensive guidance throughout the deal process.
For a chat about how we can help you achieve your business ambitions in uncertain times, please speak to your regular BKL contact or Daniel Shear using the form below.
Contact Daniel
Frequently asked questions: Iran conflict and UK M&A activity
How is the conflict involving Iran and the wider Middle East affecting UK M&A activity?
Geopolitical conflict is increasing uncertainty, which is slowing decision-making and delaying deals.
Buyers and sellers are taking longer to complete transactions due to volatility in energy prices, supply chains, and financial forecasts.
This often results in extended due diligence and wider gaps between buyer and seller expectations on price. For many lower midmarket businesses, this uncertainty makes timing a transaction more challenging, particularly if profitability is exposed to cost shocks or global disruption.
Why are valuations under pressure for some businesses but not others?
Valuations are becoming more selective, with a clear gap between resilient and more exposed businesses. Companies facing rising costs, supply chain disruption, or margin pressure may see reduced valuations or more cautious buyer terms. In contrast, businesses with strong pricing power, diversified operations, and stable earnings can still attract premium valuations. Buyers are placing greater emphasis on risk, sustainability of earnings, and operational resilience when assessing deals.
What should business owners do if they were planning to sell in the next 12–18 months?
Business owners should focus on demonstrating resilience, visibility of earnings, and risk management.
This includes strengthening supply chains, managing cost exposure, and preparing robust financial forecasts. Early preparation can help reduce valuation discounts and improve deal certainty. Even if a sale is delayed, taking steps now can position the business more competitively when market conditions stabilise. Professional advice can also help assess the optimal timing and deal strategy.
Are there still acquisition opportunities for buyers in this market?
Yes. Periods of disruption often create attractive buying opportunities for well capitalised businesses. While challenging for many businesses, lower valuations, distressed situations and motivated sellers can offer strategic entry points. Private equity and trade buyers are continuing to pursue acquisitions, particularly through buy and build strategies in fragmented sectors. Buyers with a clear strategy and access to funding may be able to secure high quality assets at more favourable terms than in more stable market conditions.
How are private equity investors responding to current market conditions?
Private equity remains active but more selective and disciplined in its approach. Many investors still have significant capital to deploy, but they are focusing on businesses that can demonstrate resilience and growth potential despite external pressures. There is also continued interest in consolidation strategies, where scaling operations can help manage risk and improve efficiency. Deal structures may also become more complex, with increased use of earn outs or protections to manage uncertainty.
What happens to M&A activity if the situation in the Middle East stabilises?
Stabilisation could support a rebound in deal activity. Reduced volatility in energy prices and improved economic visibility would typically increase investor confidence, narrow valuation gaps, and accelerate delayed transactions. There is already evidence of pent up demand, with deal pipelines building as businesses prepare to transact when conditions improve. This could result in a noticeable increase in deal volumes across the UK lower midmarket.
Is it better to delay a transaction until markets recover?
Not necessarily. The right timing depends on the specific business and its circumstances.
While some sellers may benefit from waiting for improved market conditions, others may face increased risk from ongoing cost pressures or uncertainty. In some cases, transacting in a quieter market can reduce competition and create strategic opportunities.
A careful assessment of business performance, sector dynamics, and buyer demand is essential before deciding whether to proceed or delay.
How does geopolitical risk affect due diligence and deal structures?
Geopolitical risk is leading to more detailed and cautious due diligence processes. Buyers are scrutinising supply chains, customer dependencies, energy exposure, and financial resilience more closely. This often results in longer deal timelines and more complex deal structures, including deferred consideration, earn outs, or contractual protections. These mechanisms help buyers manage uncertainty while still progressing transactions where there is strategic value.
Are SMEs and lower midmarket businesses more exposed to these risks?
Yes, smaller and mid sized businesses are often more vulnerable to external shocks. They typically have less capacity to absorb cost increases, fewer resources to restructure supply chains, and more limited access to capital. This can make them more sensitive to geopolitical disruption and economic volatility.
However, well managed SMEs with strong fundamentals can still attract significant buyer interest, particularly if they can demonstrate adaptability and stability.
Is it a misconception that M&A activity stops during periods of global conflict?
Yes. M&A activity does not stop, but it does become more selective and strategic.
While overall volumes may decline, deals continue to take place, particularly where there is a strong strategic rationale or compelling value opportunity. In fact, periods of disruption can accelerate certain types of transactions, such as distressed sales or consolidation plays. The key difference is that execution becomes more complex and requires more careful planning and expert guidance.
