M&A outlook: What can we expect in 2026?

M&A in 2025: A tale of two halves

As far as the Mergers and Acquisitions (M&A) market is concerned, 2025 turned out to be a tale of two halves. The year began very positively with a downward trajectory in inflation and interest rates expected throughout 2025, and a pro-business deregulatory stance anticipated in the US under the second Trump presidency. Much of the political uncertainty that had impacted 2024 eased with the election of new leaders in several major economies, each with a clear mandate to prioritise economic growth. Commentators were generally positive about the fundamentals for the M&A market in 2025 after muted years in 2023 and 2024. But while early signs in the first quarter of 2025 were promising, the outlook for M&A shifted in early April.

The second quarter of 2025 began with uncertainty resulting from US tariff policy, the response of the affected economies, and the consequent outlook for global trade more generally. The immediate impact was chilling with M&A activity grounding to a halt in the second quarter with “deals in flight” being abandoned or materially delayed, and the usual M&A deal creation cycle almost ceasing as dealmakers assessed the impact of the tariff war on global economic activity. This change in sentiment was analysed in our annual M&A Trends and Risks Survey.

However, the M&A market has proved remarkably resilient. After a very slow second quarter of 2025, the market came roaring back in the second half of the year with increased activity from strategic investors and private equity players finding their stride. The tariff war subsided and dealmakers re-focused on the positives – falling inflation, moderating interest rates, abundance of capital, and a generally deregulatory policy stance, as politicians around the world talked up the growth agenda against a moderating geopolitical environment. The second half of the year was among the most active six-month periods for dealmaking in recent history, with the outcome that 2025 will be remembered as a record year with both the strategic players and private equity engaging in transformative M&A.

What six themes shaped the M&A market in 2025 and are they expected to continue in 2026?

So, what has shaped the M&A market this year, and do we expect these trends to continue in the year ahead? A number of themes really stand out:

1. A strong market recovery

2025 saw the market recover in the second half of the year with deal volumes surging principally because of a very strong second six months characterised by mega-deals by strategic players and private equity dealmakers. This was in stark contrast to 2023 and 2024 when the M&A market was impacted by geopolitical tensions, rising inflation and interest rates prompting hesitancy amongst dealmakers. This hesitancy evaporated in the second half of 2025. The market recovery we saw in the second half of 2025 should continue into 2026, but possibly not at the same pace.

2. Favourable financing conditions

Interest rate cuts in late 2024 and 2025 have lowered borrowing costs and this, combined with the general availability of capital, has meant that dealmakers have had ready access to capital to fund M&A activity. Bank and private credit balance sheets are strong and these will be further bolstered in 2026 with changes to regulatory capital requirements in the banking sector.

3. Pro-growth policy and deregulation

A number of political leaders who came to power in 2024 and early 2025 have prioritised the growth agenda and the need to support that with a deregulatory policy stance, particularly when it comes to antitrust policy. We have seen that trend, particularly in the US, UK, India and Japan. Leaders who have focused on the growth agenda will need to deliver on that in 2026 and this will help economic sentiment and support the M&A market.

4. Private equity returning to the scene

Private equity (PE) sponsors deployed record levels of capital in 2025 as they continued to monetize ageing portfolios through sponsor-to-sponsor transactions, continuation funds and the emergence of strategic players looking for transformative assets which were held by private equity. As a result, PE players go into 2026 with record levels of “dry powder” at their disposal, which should support a strong M&A market.

5. The AI agenda

The AI agenda has accelerated for all companies as they are under pressure to deploy AI, cloud security and digital infrastructure to remain competitive in a fast-evolving economic environment. For many companies, the options are “digitize or die” and as result many are turning to M&A to address this strategic imperative. Anecdotal evidence suggests that the need to address the impact of AI is now at the very top of the boardroom agenda and so we should expect to see more deals with an AI angle in all sectors.

6. Strategic transformation

Corporates have woken up to the need for portfolio optimisation, scale and resilience amid a broader de-globalisation movement driven by geopolitical risks which have become increasingly apparent since the Covid pandemic.

If these trends continue, what can we expect for overall M&A deal activity in 2026? The M&A market is very sensitive to one-off events, as we saw in the second quarter of 2025 with the tariff war, but it is also a very resilient market. The expectations for 2026 are that inflation and interests rates will continue to moderate, strategic and private equity players continue to be optimistic about global growth and the deregulatory policy stance in the major economies will continue – all of this points to another good year for M&A in 2026 but possibly not as good as 2025 actually turned out to be.