UK M&A: Delayed by uncertainty, but never derailed

By every measure bar one, this should be a strong environment for deals. Economic conditions are favourable – interest rates are declining, there has been an improvement in market liquidity in recent months, and stock market indices around the world are at all-time highs. And yet many dealmakers have held back, despite knowing that deals need to be done to generate growth and support future fundraising. The key question is: Why?

The reason is uncertainty. The calm, stable conditions in which deals thrive have simply not existed. Economic conditions have improved considerably, but the steady run of disruptive geopolitical events, from conflicts to tariffs, combined with dramatic change led by AI and technological advances have persuaded dealmakers to keep a foot on the brake.

This is evidenced strongly in our latest M&A trends data for the UK: volumes fell by over 19% in the first half of 2025 compared with the first six months of 2024. Values fell by 12.3% to £57.3bn, although average deal value increased by 8.5%. Every sector apart from healthcare has seen a contraction in deal volumes in H1 2025 against the first six months of 2024, with deal values falling most sharply in the consumer markets sector (from £17.8bn in H1 2024 to £6.5bn in H1 2025).

Watch where the capital is flowing

Most M&A experts agree with our view that activity will pick up in the absence of future shocks. US investment banks Morgan Stanley and JP Morgan anticipate a rebound in activity as we move into 2026, with major investors seeing now as the right time to be driving value from investment decisions. It’s a view articulated by Lionel Assant, global co-chief investment officer at Blackstone, in a recent interview with Private Equity International, saying that times of uncertainty are ‘the absolute right moment to be on the front foot’.

In our view, it’s vital to look beyond the immediate data trends and focus on where capital is flowing and why. And when we do that, the story becomes more nuanced, and interesting:

• A huge number of assets await sale – with many PE funds beyond their natural exit point and assets needing capital to drive growth
• While some funds are alleviating this backlog through continuation funds and other recapitalisation vehicles, the market remains inherently sceptical of these as a mechanism for realisation
• Despite more constrained fundraising, PE still has significant dry powder to invest
• Corporates know that amid change, uncertainty and disruption, transformations can only be driven by transactions.

Some sectors – notably retail – continue to see a lack of deals activity due to a loss of market confidence. But, in other sectors, holding back risks missing out on a wave that will carry competitors ahead.  

The demand for infrastructure

Deal volumes in the energy, utilities and resources (EUR) sector fell between 2024 and 2025, but deal values have increased sharply from £5.4bn to £9.9bn in H1 2025. The industrials and services sector has also seen a strong increase in values, from £5.3bn in H1 2024 to £10.8bn this year. These are strong growth sectors, driven largely by the need to create infrastructure to support AI-led data requirements, net zero targets, and the dramatic increase in defence-spending being seen across the Western world.

Initiatives such as the UK Government’s focus on AI as a route to economic growth and its infrastructure strategy – which reduces friction for Nationally Significant Infrastructure Projects – are helping to improve the UK deals environment, particularly for large infrastructure projects. A recent survey of 850 global dealmakers by Bayes Business School and Taylor Wessing found that 71% believe that UK regulation is creating more favourable conditions for deals, compared with 56% who said the same for the US.

The Government is banking on attracting private capital to fund the huge amounts of investment required. Some mega-deals have been announced, including £38bn for the new nuclear power plant Sizewell C (funded mainly by the National Wealth Fund, with additional private investment from La Caisse, Centrica, EDF, and Amber Infrastructure). £14bn has been committed by Vantage Data Centres, Nscale, and Kyndryl to establish new datacentres in the UK, while Blackstone’s £10bn investment in a datacentre in Northumberland was confirmed at the end of 2024.

Powerful forces influencing activity

We pointed out last year that investment in AI is blurring the borders between sectors as technology disrupts business models across the economy. The professional services sector has seen a flurry of activity with new market entrants, backed by PE capital, hoping to disrupt what has historically been a relatively static market. And as AI continues to evolve, energy demands (especially from renewable sources) will increase significantly – which is why we are seeing tech businesses partner with energy companies, and big operators such as National Grid divesting businesses to free up their balance sheets.

Powerful trends will continue to shape and reshape sectors, creating new value and domains of growth. PwC's recent Value in Motion research found that more than US$7 trillion is changing hands in 2025 alone. And investors are getting impatient – we have seen a trend recently towards activism, where shareholders are asking if keeping big groups together is the right strategy for delivering value. A survey by Barclays found that 243 activist campaigns were launched globally in 2024, the highest number since 2018 – and M&A-related demands featured in 43% of campaigns.

Time to be bold and get ready

It’s more important than ever that you understand where your business fits into the wider story and where opportunities may appear.

• Understand where value is driven. In a challenging market, growth can only come through a strong value creation thesis. This means not just making the right investment but understanding what is needed to make that asset work – how to best develop the business, invest in the right areas, and drive transformation at pace.
• Become an active investor before the activists do. A decade ago, positive market conditions plus time were often enough to create value in a deal. With those days definitively over, management teams will need to make critical decisions on how to allocate capital, and whether all business activities are equally as important.
• Pay attention to sector-level developments. While technological change and geopolitical factors are affecting M&A activity across the board, each sector has their own micro-environments and factors driving change and opportunity. Specialism is increasingly important right across the economy.

The current M&A landscape presents a unique paradox: strong underlying fundamentals suggest significant potential for dealmaking, yet this promise is continually tempered by the shadow of unforeseen disruption.

The environment demands more than cautious optimism—it calls for boldness, clarity of vision, and confidence in action. Those who step forward with a well-defined strategy to create and unlock value should not only navigate uncertainty more effectively but will also position themselves to seize opportunities others may overlook. With volatility becoming a “new normal”, success won’t come from waiting for perfect conditions but from preparing early, being clear on strategy and taking advantage of the right opportunities as they present. We see significant value being generated from the current deals environment: but it will be no small feat realising it.