State of the Quarter: UK M&A Activity

It's no secret that the first half of 2025 has presented choppy waters for both domestic and global M&A. The US administration's Tariffs, sticky inflation, and UK tax policy changes have created significant uncertainty and taken the wind out of the sails of deal activity, with global deal volume down by 9% in H1 2025 from H1 2024 [1].

The UK has been particularly hard-hit by this uncertainty - with total value and volume dropping by 12 and 19%, respectively, despite an increase in inbound investment. This has led the UK to observe the same lower volume, higher value phenomena witnessed in the global market, with average UK deal value up 8.5% compared to H1 2024 [2].

These trends have persisted throughout the third quarter, with improved activity in markets such as Australia, which has experienced a 147% increase in inbound deal flow volume [3], driving more buyers than ever before to pastures new.

Deal complexity has continued to plague the environment in Q3, with fixed income volatility and higher rates placing a damper on aggressive LBO financing techniques that, until recently, were commonplace. The UK economy suffers more than others in such an environment, as, unlike the US, UK acquirers lack the market depth to pursue Paper for Paper or mixed consideration deals.

This has further driven reliance on Private Credit (PC), which last year accounted for a decade-high 77% of LBO financing globally [4]. To deploy some of the record amount of capital and beat competition, PC deals are increasingly covenant light (cov-lite) with generous deferred interest arrangements.

This comes as liquidity pressure is building on Private Equity (PE) firms, and GPs seek to divest from larger portfolio companies at discounts to return capital to LPs who are increasingly frustrated by ageing portfolios and continuation vehicle usage. In the last 3 years, this has caused exit EBITDA multiples to fall consistently behind held-asset multiples for the first time since the GFC [5]. As a result, it is likely that smaller, specialised roll-up and bolt-on opportunities will be sought.

These two factors combined are likely to fuel new dealmaking well through the final quarter, particularly in technologically-focused, mid-market deals, as owners seek exits sooner rather than later in an increasingly adverse tax environment brought on by recent and planned Labour budgets.

Looking ahead, activity is likely to be bifurcated into fewer, larger deals in AI, technology, healthcare and green energy; and more frequent, consolidation deals in industries such as Real Estate and Financial Services - the likes of which have been seen frequently in recent years with prolific buyouts of Independent Financial Advisors and Veterinary Practices.

Although leaders in these sectors have voiced restraint in respect of their 2026 M&A ambitions, it is probable that improving macro conditions will revive appetite for further deal making for a strong year-end and 2026.

References:

[1]: PwC (2025) Global M&A Industry Trends. Available at: https://www.pwc.com/gx/en/services/deals/trends.html (Accessed: 05 October, 2025)

[2]: PwC (2025) UK M&A: Delayed by uncertainty, but never derailed. Available at: https://www.pwc.co.uk/services/value-creation/insights/mergers-and-acquisitions-trends.html (Accessed: 05 October, 2025)

[3]: JP Morgan (2025) 2025 Global M&A Mid-Year Outlook. Available at: https://www.jpmorgan.com/content/dam/jpm/cib/documents/2025_Global_M_A_Mid_year_outlook.pdf (Accessed: 05 October, 2025)

[4]: S&P (2025) Private debt's share of buyout financing hits decade high. Available at: https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/2/private-debts-share-of-buyout-financing-hits-decade-high-87373500?utm_source=chatgpt.com (Accessed: 10 October, 2025)

[5]: MSCI (2025) Troubling Signals for Private-Equity Exits. Available at: https://www.msci.com/research-and-insights/blog-post/troubling-signals-for-private-equity-exits (Accessed: 11 October 2025)