2025 was a year of selective optimism for the private equity market. Whilst deal values rebounded, deal volumes remained flat, creating a two-speed market: premium assets attracted strong multiples, while mid-market transactions relied on creative structuring.
Published 9 January 2026
The market did not experience the boost anticipated from lower interest rates and greater political stability following the 2024 elections. We also did not see the expected uptick in exit activity to unlock liquidity for investors, amid continued economic and political headwinds.
Looking ahead, the market is again optimistic about 2026 and expects increased activity, supported by regulatory reforms, financing flexibility, and sector tailwinds – but success will hinge on agility and operational excellence. In this piece, we explore the above themes in more detail below.
2025: key themes
Deal flow
Whilst aggregate deal value improved, volumes were fairly static (albeit more resilient in the UK & Ireland than wider Europe, with the UK & Ireland’s demonstrating leadership in terms of deal volume, value, and fundraising, maintaining its position as Europe’s PE powerhouse despite macroeconomic uncertainties according to data from PitchBook). Deal volume in early 2025 was affected by macroeconomic conditions, but larger transactions led growth. According to Global Data, PE buyouts in Q1 2025 fell sharply (down 36% from Q4 2024 and down 18% from Q1 2024), as investors frontloaded deals in Q4 of 2024 ahead of UK tax changes and global economic uncertainty. However, the data also shows that the average size of deals increased notably, and the presence of several high-value deals indicated a flight to quality assets.
Buy-and-build strategies continued to dominate mid-market activity, as investors sought growth opportunities within existing portfolios amid subdued exit activity. According to PitchBook, add-ons made up circa 56% of European PE deals in 2025 by deal count. Holding periods for sponsors have lengthened and now stand at circa 5.3 years (compared with circa 4.1 years in 2020), according to gain.pro. Consumer and industrial assets appeared hardest hit, with other sectors most impacted by volume declines in Q1 2025 being healthcare/life sciences (-57%), financial services (-46%), and technology/media (-41%), according to Global Data.
Valuation dynamics
Despite the reduction in the cost of capital and expectations of more moderate sell-side valuation levels after the “Covid deal boom”, valuation gaps persisted. These gaps drove longer processes and increased use of earn-outs, deferred consideration, larger vendor rollover percentages, ratchets, and other performance-related conditions attached to sweet equity awards, creating further complexity in negotiations and deal timelines.
It appears that some investments made during the “Covid deal boom” under accelerated timelines have not performed as anticipated, which may be driving continued nervousness around valuation and an increased focus on due diligence.
Sector hotspots
Unsurprisingly, we continued to see heavy investment in the technology sector, with a premium placed on revenue-visible and AI-enabled businesses. Investors have also looked at creatively structuring deals in this sector, including cherry-picking customer subscriptions from within a wider business, with consideration based on the ARR successfully transitioned to a buyer.
Business services also made a strong appearance – including law firm and accountancy firm acquisitions, which appear to be gaining traction in other jurisdictions. For example, Shoosmiths advised Azets on its acquisition of Ensors, one of East Anglia’s oldest and most respected firms of Chartered Accountants Energy and infrastructure continued to gain momentum throughout 2025.
In the business services sector, regulatory approvals from professional authorities such as the FCA and SRA were a key feature and contributed to longer processes in 2025.
Exit environments
Despite the anticipated “rebound of the exit”, we saw only a modest recovery in PE-backed IPO activity in 2025, and less so in the UK market. However, sentiment remains positive. Continuation funds and the GP-led secondaries market are here to stay and, given their expected record-breaking year, continue to be a vital part of sponsor strategy amid increased holding periods, market uncertainty, and growing investor demand for liquidity.
Financing trends
The same pattern of stiff competition for strong deals follows in debt finance transactions. Lenders have competed heavily for quality deals in the last 12 months, typically to PE’s favour. Sponsors often have reputation and trust on their side when running a process; that can help drive better pricing, but it more obviously translates into flexibility in other deal terms – often around permitted acquisitions (to support the buy and build strategy), further flexibility in upstreaming payments to sponsors and holdco management, extending CAF purposes to finance earn out and deferred during the term, as well as flexibility for continuation vehicles to step in given the ongoing length of holds and portability on a change of control.
2026 Outlook: What’s next for UK PE?
Deal activity
Cautious optimism is likely to remain a theme in 2026. Deloitte’s 2026 M&A Trends Survey shows that 90% of PE respondents expect to increase deal counts and aggregate value in 2026, while 2025 ended with high deal value but flat volumes. Public-to-private momentum may pick up in 2026, as UK mid-caps remain attractively valued. Sponsors continue to feel pressure to return liquidity to investors, so we remain optimistic that we may finally see the exit uptick in 2026. The legal market should be prepared to assist clients with exit readiness to ensure smoother and speedier processes.
Exits
Whilst we are hopeful that exit momentum will pick up in 2026, and we and the CF community are seeing businesses prepare ahead of expected exit processes, continuation vehicle transactions are anticipated to remain a mainstream option for returning liquidity to investors. Analysts expect circa 20% of distributions in 2026 to result from these transactions, according to Cambridge Associates.
There is also optimism that IPO reforms in the UK – which will result in streamlined prospectus rules and shorter disclosure periods – may make listings more attractive, especially when combined with stamp duty incentives on new LSE listings. This could continue the growth of private equity-backed IPOs, which more than doubled in the first three quarters of 2025, with proceeds rising by 68%, according to City AM.
Financing landscape
Competition is likely to continue, with credit available for quality deals. Anecdotally, we’re seeing several of the challenger banks and alternative lenders start to adapt their products and their teams, with a view to being able to offer more dynamic terms akin to the sponsor backed market. We expect continued competition on pricing and terms for quality new lends, but with refinances and recaps remaining commonplace until the uptick in exits comes to fruition.
Sectors
Technology is expected to continue attracting premium valuations for category leaders, with a particular focus on AI as an operational enabler ripe for growth amid global adoption. Healthcare and essential services are expected to remain important sectors, with recurring revenue models central to mid-market PE strategies. Energy and infrastructure are also anticipated to attract attention from PE investors, with some predicting it will be a top-three sector through 2030.
We also expect continued interest in business services, not just in the mid-market but also in the upper mid-market, as already demonstrated by the announcement of the acquisition by Bridgepoint of Interpath from H.I.G Capital as we kick off 2026.
Conclusion
2025 demonstrated that resilience and creativity remain the hallmarks of the UK private equity market. While deal values rebounded, persistent valuation gaps, elongated holding periods, and subdued exit activity underscored the need for sponsors to stay agile. The year highlighted a clear flight to quality, with premium assets commanding strong multiples and mid-market deals relying on innovative structuring to bridge expectations.
Looking ahead, 2026 offers cautious optimism. Regulatory reforms, financing flexibility, and sector tailwinds – particularly in technology, energy, and essential services – are expected to support increased activity. However, success will depend on operational excellence and readiness for exits, as sponsors face mounting pressure to return liquidity. Continuation vehicles and creative financing will remain integral, while IPO reforms may reinvigorate public listings.
In short, the UK PE market enters 2026 with opportunity on the horizon. Those who combine strategic foresight with disciplined execution will be best placed to thrive in an environment that continues to reward adaptability.