April 10 2026 | Deals | M&A Advisors | Corporate
Key Takeaways: UK mid-market M&A in 2026
- Valuation gap persists: Rising operational costs and a heavier tax burden are dragging valuations down, while founders seek higher prices to offset reduced net proceeds, creating a widening bid-ask spread.
- Founder hesitancy: Uncertainty around UK fiscal policy, the cost of living, and geopolitical instability is making founder-led companies reluctant to enter the market.
- Private equity moves down-market: With abundant dry powder and pressure to deploy capital, PE firms are increasingly looking at smaller assets that may previously have been considered too small.
- ESG still matters in Europe: While ESG has slipped down the priority list in the US, European investors remain committed, particularly around energy transition and efficient consumption.
- AI is reshaping pre-deal activity: AI is already being used for market mapping, sourcing, and benchmarking in the pre-deal phase, though a lack of consistent training data will limit industry-wide AI deal tools in the near term.
"Given the uncertainty surrounding potential changes to fiscal policy in the UK, founder-led companies may be hesitant to enter the market. However, I still see opportunities for long-term investors and hands-on buyers."
Why are UK founders reluctant to sell their businesses in 2026?
The UK mid-market M&A environment in 2026 is defined by a tension between available capital and seller hesitancy. According to Nike Gustavsson, founder-led companies are holding back due to a combination of fiscal uncertainty, inflation, and shifting tax policy.
"Given the uncertainty surrounding potential changes to fiscal policy in the UK, founder-led companies may be hesitant to enter the market," Gustavsson says. "No other reflections on politics, but it is important to note that uncertainties related to wars, the cost of living, immigration, and other factors may lead to diminished focus by government on policies that support business and growth."
For many founders, a business sale represents their retirement funding. But recent inflation and an increased tax burden on exits mean their net proceeds won't stretch as far as they once did — pushing them to demand higher headline prices even as operational pressures compress underlying valuations.
"With smaller companies, they're waiting to see what's happening and whether it's worth selling or not. In general, the mood has been a little more wary than we would have expected at the start of 2025, and that may not change in 2026."
What is causing the valuation gap in UK M&A deals?
The valuation discrepancy in UK mid-market deals stems from two converging forces: sellers need more, and buyers can justify less.
On the sell side, the combined effect of inflation and changes to wealth tax means the real-term value of exit proceeds has declined. Founders are recalibrating their expectations upward to compensate.
On the buy side, rising operational costs, particularly energy and labour, have compressed EBITDA margins, pulling valuations downward. The result is a persistent bid-ask spread that requires significant "push and pull" to bring deals across the line.
Despite this tension, buyers are not in short supply. Private equity firms with significant dry powder are actively seeking EBITDA acquisitions to boost portfolio multiples, and this competition for quality assets will intensify.
Are private equity firms looking at smaller UK deals in 2026?
Yes. Private equity funds are increasingly looking down-market for value, considering assets that might previously have been deemed too small. With a plethora of PE-owned firms seeking to boost their multiples by acquiring EBITDA, competition for quality mid-market assets is growing.
While interest rate reductions will give European markets a boost, Gustavsson believes a confluence of other factors, migration concerns, energy costs, the wars in Ukraine and Gaza, and cost-of-living pressures, may constrain overall activity and suppress values.
"Discussions around migration levels, the cost of living, the wars in Ukraine and Gaza, energy costs... there are so many uncertainties affecting the market, diverting focus from business and growth, and for UK businesses that's like taking a step back," she notes.
Does ESG still matter for M&A deals in Europe?
While ESG has moved down the priority list for US investors, it remains a significant consideration for European dealmakers. Gustavsson is clear that attention to energy efficiency and climate-related issues is not only relevant but increasingly urgent.
"We really need to pay more attention to investing in efficient energy consumption and how we deal with energy transition and mitigating climate-related issues," Gustavsson says.
The AI boom is adding to this urgency. Increased data consumption and processing demands are driving up energy costs, making sustainable infrastructure investment more pressing for deal valuations and long-term operational efficiency.
"It's very costly to service, and further investment in this area is needed to bring the costs down."
How is AI being used in M&A transactions today?
AI is already being deployed in the pre-deal phases of M&A transactions, primarily for market mapping, sourcing, and benchmarking. Gustavsson confirms this from direct experience: "In deals I have participated in, we have mainly been using AI as a pre-deal tool for market mapping, sourcing, and benchmarking."
However, the development of a comprehensive AI-powered deal-making application remains limited by a lack of consistent data on which to train models. Financial institutions and private equity firms are more likely to build proprietary AI tools rather than rely on industry-wide solutions.
What's the outlook for UK mid-market M&A beyond 2026?
The UK market in 2026 demands patience and structural creativity. For founders, the decision to sell is no longer just about the headline price — it's about net proceeds after an increasingly aggressive tax regime.
For buyers, the challenge is finding quality EBITDA in a market where operational margins are under pressure from energy and labour costs.
Success in this environment will go to those who:
- Utilise AI for superior target sourcing and benchmarking
- Integrate ESG-efficient operations to drive down long-term costs
- Bring patience and creative deal structuring to bridge the valuation gap
While the "push and pull" continues, the mid-market remains the most fertile ground for dealmakers willing to navigate the UK's complex fiscal landscape.
Frequently asked questions
What is driving valuation discrepancies in UK M&A in 2026?
Rising operational costs (energy, labour) are compressing EBITDA and dragging valuations down, while founders are demanding higher prices to offset reduced net proceeds from inflation and increased tax on exits.
Are UK founders still selling businesses in 2026?
Some are, but many founder-led companies, particularly smaller ones, are adopting a wait-and-see approach due to fiscal uncertainty and the perception that net sale proceeds have declined in real terms.
Is private equity active in the UK mid-market?
Yes. PE firms have significant dry powder to deploy and are increasingly looking at smaller assets. Competition for quality EBITDA acquisitions is expected to intensify.
How is AI changing M&A deal processes?
AI is currently being used in pre-deal phases for market mapping, sourcing, and benchmarking. Broader AI-powered deal-making tools are limited by inconsistent training data, so most firms are building proprietary solutions.
Does ESG still influence European M&A decisions?
Yes. Unlike in the US, European investors continue to prioritise ESG factors, particularly around energy transition and efficient consumption, and this is expected to remain a consideration in deal evaluations.
