The UK lower mid-market M&A segment experienced a subdued first half of 2025, shaped by macroeconomic uncertainty, cautious investor sentiment, and regulatory transition. However, the second half of the year presents a cautiously optimistic outlook, with improving financial conditions and strategic momentum returning to the market.

Market drivers

• Economic & geopolitical uncertainty: Global tensions and tariff concerns delayed deal completions and extended transaction timelines
• Private equity strategy shift: PE firms focused on bolt-on acquisitions, avoiding new platform investments
• Valuation gaps: Misalignment between buyer and seller expectations continued to suppress deal flow
• Regulatory complexity: Anticipated Labour-led reforms in tax and employment law added friction to deal structuring
• Interest rate impact: High rates early in the year dampened financing appetite despite easing inflation

Sector performance

• Healthcare: Resilient with 134 deals; strategic buyers dominated
• Business services & tech: Continued to attract interest due to scalability and stable revenue models
• Regional variations: South West saw increased activity; South East and Scotland experienced notable declines

• Median EV/EBITDA: 6.2x (flat vs. H1 2024)
• Median EV/revenue: 1.2x (down from 1.3x)
• Median deal size: £6.3m (vs. £7.5m in 2024)
• Sector contributions: I&BSS led with 44% of deals; Consumer rose to 23%

Note: Data is provisional and subject to revision. Sector classifications and owner-managed adjustments may influence accuracy.

Positive indicators

• Macroeconomic stabilisation: Falling inflation and interest rates are improving financing conditions
• Government investment: Labour’s £113bn infrastructure budget is boosting market confidence and Sterling strength
• PE capital deployment: Pressure to deploy dry powder is expected to drive bolt-on and strategic acquisitions
• Valuation realignment: Sellers are adjusting expectations; buyers are willing to pay premiums for quality assets
• Cross-border momentum: Strong inbound interest from North America and Asia, particularly in tech and healthcare

Risks to monitor

• Policy uncertainty: Potential changes to inheritance tax and business reliefs may affect seller behaviour
• Labour market tightness: Talent shortages and wage inflation could impact valuations and deal appetite
• Due diligence intensity: ESG scrutiny and regulatory compliance are extending transaction timelines

• Sellers: Businesses with strong fundamentals and sector resilience should consider exploring exit opportunities in H2
• Buyers: Prepare for increased competition and more rigorous diligence; creative structuring will be key
• Advisors: Tools such as earn-outs and indemnity insurance will be essential to bridge valuation gaps and close deals