Company valuation changes in times of uncertainty 2025-2026
Here, we take a look at the evolving challenges that have faced the UK M&A market in recent history, and a forward-looking view over the next 18 months.
To do this we will look at historic deal volumes through past periods of uncertainty and recovery. We will also consider current macro-economic trends, regulatory and taxation changes, geo-political pressures and buyer behaviour and assess their implications for the valuation landscape in the UK M&A market.
Deal volumes over the past 15 years reflect cycles of recovery and uncertainty driven by major economic and geopolitical events
To begin, we look at 25,958 M&A transactions involving UK-based targets, reported by Experian from 2017 to 2024.
From this data, we have identified those transactions with a disclosed deal value within the £1m-£25m range. We have excluded any outlier transactions which we define as any having a negative Enterprise Value (EV) or with EV/EBITDA multiples above 25.
The graph below shows the volume of deals involving UK-based targets by half year, we have also shown separately the volume of deals within the £1m-25m range, excluding outliers.
UK target deal volume
After the 2008 economic crisis, deal volumes declined sharply, taking three years to approach pre-crisis levels. Subsequent to this recovery, were periods of decline and recovery, highlighting the uncertainty that remained due to the economic fallout from the crisis, as well as new uncertainty that surrounded the UK’s decision to leave the European Union.
Deal volumes did not significantly exceed 2008 levels until ten years later in 2018, the beginning of a surge in deal activity lasting until March 2020, which saw renewed uncertainty as a result of the COVID-19 pandemic. The aftermath of the pandemic brought with it high levels of inflation and a tightening of monetary policy.
After the slowdown brought on by the pandemic, deal activity surged in 2021 before a period of cooling in 2022 which continued to 2023. The boom in activity in 2021 was largely due to pent up demand created during the pandemic.
Private equity activity was particularly high, as firms looked to deploy dry powder that had accumulated through the 2020 slow down.
Subsequent interest rate hikes and inflation were the main drivers leading to reduced activity throughout 2022 and 2023; reducing risk appetite and increasing macroeconomic uncertainty.
Quality prevails: resilient multiples and sector polarisation in the lower mid-market
Average and median EBITDA multiples by calendar year
Using our sample with disclosed deal values between £1m-£25m, we have looked at how median and average EV/EBITDA multiples varied between 2017 and 2024.
Again, within this data set we have excluded any outlier transactions which we define as any having a negative EV or with EV/EBITDA multiples above 25.
We have presented the data using half years to gain a deeper understanding of the underlying trends driving the multiples.
Perhaps surprisingly, EBITDA multiples did not decline dramatically in the first half of 2020, the start of the pandemic, in fact median multiples increased slightly compared to the second half of 2019.
This does speak to the general resilience of the lower mid-market in general. However, there was also a bifurcation between premium and distressed businesses.
Many distressed businesses were forced to settle for a lower multiple whereas breakthrough businesses in certain sectors, notably technology, were able to command higher multiples.
This means when looking at the data as a whole, there is not a notable change in the median multiple.
As we move into 2021 the median remained relatively stable but the spike in average deal multiples is notable. This suggests an increase in values at the high end of the multiple range before considering outliers, which have been excluded.
This increased bullishness in certain sectors of the market was driven by low interest rates and the promise of future growth.
In the first half of 2022 there was a notable decline in the multiples recorded. 2022 saw the backdrop of increasing interest rates leading to increased price sensitivity among buyers.
A valuation gap started to manifest between sellers still expecting multiples at 2021 levels and buyers now having to factor in the extra risks associated with higher financing costs.
As is common, in times of uncertainty, deal timelines lengthened and negotiations became increasingly protracted as vendors and buyers alike paused to assess risk.
Throughout the period we see the strong performance of breakthrough businesses in certain sectors in times of uncertainty. The flip side is that underperforming businesses will also stand out and may have to settle for a lower value, particularly if the owners are in a rush to sell.
For businesses that have strategic features and capabilities above the median in their sector the opportunity to break through the unappealing value environment is very real and, ironically, is easier to access now as good businesses now clearly look stronger against the rest of the pack – the data and our experience both show lots of opportunity to access premium value, but the standards are rising. Many business owners who are catching up ultimately prefer to hold and hope, or look at alternative deal structures such as MBO or EOT, rather than chase the rising standards which, in many circumstances, is a sensible choice.
Average and median deal size by calendar year
Using our sample with disclosed deal values between £1m-£25m, we have looked at how median and average deal sizes varied between 2017 and 2024.
Again, within this data set we have excluded any outlier transactions which we define as any having a negative EV or with EV/EBITDA multiples above 25. We have used EV as the measure of deal size.
The pandemic and its immediate aftermath saw an increase in deal sizes that peaked in the first half of 2021 but since 2023-24 we are beginning to see a decline in deal sizes.
This makes sense considering the increasing rate of ‘bolt-on’ acquisitions being made to consolidate existing investments, as opposed to larger platform investments more common in the immediate aftermath of the pandemic.
Buyers utilising a bolt-on strategy are seeking to acquire smaller premium businesses to bolt-on to their existing operations to increase market-share and consolidate their overall position. Bolt-ons are particularly popular in sectors such as technology, healthcare and financial services.
Stabilising inflation and interest ates set the stage for renewed deal activity amid lingering global uncertainty
Now we are in January 2026. We appear to have weathered the high inflation which peaked in October 2022 at 11.1%. Inflation is currently at 3.5% as of November 2025, following a steady rise from the low of 1.7% seen in September 2024.
The UK Government’s target inflation is set at 2% but forecasters expect inflation to remain in the range of 3-4% before returning to near target levels in 2026. The Bank of England has been reducing its interest rate since August 2024 and it is now 3.75%, the longer-term trend is uncertain as much will depend on whether the economy broadly remains stable.
Price rises, economic growth and the number of people in work will all be considered as the bank looks to set rates going forward. If interest rates and inflation do continue to stabilise, this will lead to greater economic certainty for buyers and sellers alike and we would expect this to translate to an increase in overall deal volumes.
There is somewhat relative geo-political certainty following a large number of elections across the world in 2024 including in the US and the UK. There will now be greater political certainty for some years ahead.
However, this is somewhat offset by several negative geo-political headwinds, including ongoing conflicts in the Ukraine and the Middle East and increased trade tensions between the world’s two largest economies, the US and China.
Tariff uncertainty slows momentum, but high-performing businesses still command premiums
The tariff announcements from the US on 2 April 2025 have acutely increased uncertainty, particularly for businesses with a large presence in the US. In the face of such uncertainty, often the best course of action is to put plans on hold and take stock of the situation. This is no easy task in what at times can seem a continuously evolving environment.
We would expect in this environment, for companies that can demonstrate capabilities above the median in their sector, to continue to command higher multiples, such was the case in previous periods of uncertainty.
Given the need to carefully consider any changes, it is likely that many deals may take longer to complete, to allow all parties to appropriately assess the risks involved.
Aside from valuation impact, there may also be a need to consider deal structuring to give buyers the confidence they need to progress with a deal and protect them if forecasted growth doesn’t materialise, even for premium businesses.
This is a very real threat in a business where any tariffs could substantially affect the outlook going forward. Scenario planning in forecasts will become more important, but ultimately it is for any buyer to consider the level of risk they are willing to take on.
Taxation and regulation to drive deal volumes
The UK Autumn Budget in 2024 contained a number of changes that will directly impact M&A transactions. Higher rate CGT rates, relevant in most mid-market deal transactions have increased from 20% to 24%. It was also announced there will be a scale back in Business Asset Disposal Relief (BADR). The rate of tax on the first £1million of qualifying gains increased from 10% to 14% in April 2025.
Deal volumes in the second half of 2024 were much higher than the first half of the year, likely impacted by sellers wishing to complete transactions before the rise in BADR rates in April 2025.
The month-by-month data offers even greater insight. Per Experian, in October 2024, 769 deals were completed, but in September and November 2024 only 300 deals were completed in each month.
We expected a similar rush to complete transactions prior to April 2026 when the BADR rate increased from 14% to 18%.
Delaying a disposal past April 2025 also meant a delay in the deadline for payment of the CGT liability from Jan 2026 to Jan 2027. A not insignificant cash flow consideration, especially given the increase in interest rates which could mean putting proceeds on deposit could in some circumstances offset the tax rate increase.
These changes to taxation are likely to have a negative effect on Company valuations in the short to medium term. Any surge in deal activity ahead of tax increases could create a more competitive environment but the higher tax rates will ultimately reduce the net proceeds for the seller, leading to sellers showing more caution.
The April tax changes were planned increases and we saw a steady increase in deal volumes up to April 2025 but nothing as pronounced as the increase in October 2024 where there were high levels of uncertainty around what would be announced in the Budget.
Compared to the reforms of the 2024 Budget, the Budget 2025 introduced fewer changes, focusing mainly on adjustments to allowances, incentives, and tax rates rather than wholesale policy shift.
Of note was the expansion of the Enterprise Management Incentive (EMI) where a range of thresholds were increased. Designed to support employee retention, we can see advantages for scale ups which are surpassing the previous EMI limits, potentially boosting earnings and valuations.
The Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) – both schemes designed to make investment in early-stage businesses more attractive – have seen an increase in their annual and lifetime investor limits, potentially increasing access to capital as part of larger funding rounds, however VCT tax relief has been reduced.
Another key change concerns Employee Ownership Trusts (EOTs). Previously, vendors could claim 100% relief on disposal of an EOT but the Budget has reduced this relief to 50%. This negatively affects net proceeds from an EOT exit, and will likely have knock- on effects on valuation expectations both on the buy and sell side.
Other Budget changes, such as the increase in the national minimum wage will directly impact the earnings of businesses in certain sectors that rely heavily on a minimum wage labour force such as retail and hospitality. There will be an increased need to show these cost increases can be ultimately passed on to end users if businesses are to safeguard their value during a sale process.
Regulatory changes are anticipated to influence M&A transactions. Growing focus on Environmental Social and Governance (ESG) is driven by both risk mitigation and value creation motivations.
Companies with strong ESG credentials can expect to command higher multiples for their businesses.
The UK National Security and Investment Act has added a new layer of consideration for inbound deals although to date c.96% of deals reviewed have been cleared with no conditions, which should at least provide some assurance to overseas buyers considering a UK acquisition.
AI adoption and dry powder peak drive premium valuations for high-quality businesses
Another area that is significantly altering Company valuations is Artificial Intelligence.
There is the potential for Companies that adopt AI and utilise it in the correct way, to benefit from increased operating efficiencies and in turn enhanced productivity.
The relevance of AI to Company valuations will depend somewhat on the sector, with technology sectors likely to lead the charge.
That is not to say that Company’s in other sectors will not benefit.
If AI can be adopted and successfully used to boost the underlying earnings of a business, this will translate directly into a higher valuation. Investors will increasingly be looking at the broader digital strategy of a business when considering value.
We must also consider relative ‘dry powder’, the committed but uninvested capital firms are holding. As of mid-2025 UK managed private equity and venture capital funds have £190 billion of dry powder to deploy.
This is a relatively high level.
Like the aftermath of the 2020 slowdown there will undoubtedly be pressure from investors to see this dry powder utilised effectively.
However, how the capital deployed will be different from 2021 with firms now tending to be more selective. It means that for top-tier businesses, particularly in sectors seen as attractive, there will increased competition amongst buyers driving up valuation multiples.
Final thoughts
Over the next 18 months, we can expect to see a confluence of factors influencing Company valuations. Companies in the mid-market that are able to position themselves positively and breakthrough the competition are likely to be able to continue commanding premium valuations compared to other companies in their sector, as was seen during the uncertainty that surrounded the COVID-19 pandemic.
Although not all the changes in the UK 2024 Autumn budget may be welcomed by business, they do provide a backdrop of relative certainty, and framework around which to plan. We can expect to see increases in businesses selling before April 2026, when changes to BPR take effect. If as forecast, interest rates stabilise, this will also offer more certainty for buyers. Although, for the mid-market where financing for deals is not such an important factor, the impact may not be as pronounced.
The global economic environment remains uncertain. Companies should prepare for these uncertainties by focusing on the financial health of their business. Good cash flow management, cost control and long-term strategic planning can go along away in providing a resilient defence against unexpected external economic shocks. For companies exposed to US tariff changes, there will be additional considerations in marketing their businesses for sale and vendors and buyers alike should be prepared for longer deal timelines to allow for adequate risk assessment, which will likely involve robust forward looking financial modelling and scenario planning. Businesses that can demonstrate inherent resilience in times of uncertainty can expect to achieve higher valuation multiples as a result.
Digital strategy and transformation should focus high on the agenda for many businesses. Companies able to leverage advances in technology and translate them into increased earnings through efficiency gains and leaner operational models stand to benefit the most from the premiums that can be commanded against a backdrop of uncertainty.
So, is now the right time to sell your business? Many business owners when considering a sale in times of economic uncertainty will prefer to wait, hoping that economic conditions improve along with overall market sentiment. Our analysis shows for the mid-market that generally median deal multiples have been decreasing from the highs seen in 2023. However, with the potential of stabilising interest rates at least in the short term, potentially now may be good time to sell for the right business that has been able to position itself favourably in light of the economic turbulence of the past five years. In addition, depending on individual circumstances, there may be tax considerations that act as further motivation to sell in the short term.
If you would like to learn more about how valuations are changing, join our webinar series where, each quarter we will provide an update on valuation multiples and share stories of recent M&A negotiation and valuation experience.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information on this page is intended as a general guide only. While we work to keep our content accurate and up to date, we cannot guarantee that it reflects the position at the time you are reading it. No responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm. For more information on our editorial process, click here.
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