While 2025 saw a continued slowdown in private equity (PE) buyout activity, the year ended on a more positive note, with Q4 emerging as the strongest quarter in terms of completed PE buyout deals, signalling early signs of renewed momentum heading into the coming year, where confidence returns and liquidity events move back into focus.

The story isn’t one of a lack of capital as dry powder remains near record highs. Instead, PE portfolios include a significant number of long-held assets awaiting exit. That backlog is now the defining feature of the 2026 outlook. After a few years of a slower pace of distributions, many limited partners (LPs) are approaching the upper end of their allocation ranges, limiting their ability to recycle capital until exits increase. As a result, 2026 is expected to be shaped far more by exits than by fundraising.

Private equity: navigating portfolio opportunities

PE activity in 2025 has been a story of resilience as megadeals returned, middle-market activity remained robust and carveouts and add-ons gained ground as practical ways to grow.

The middle market remains the backbone of UK dealmaking, accounting for the majority of transactions and showing steady growth in deal values. The £500m to £1bn range increased from 22.3% of total deal value in 2024 to 35.1% in 2025, showing the appetite for scalable but manageable deals.

Add-on acquisitions continue to dominate buyout strategies, offering sponsors a lower-risk way to invest capital and build value through consolidation. Carveouts are also on the rise, reflecting both corporate divestiture trends and sponsor interest in operational transformation. Notable transactions such as Finastra’s Treasury and Capital Markets carveout and Iberdrola’s UK Smart Metering business illustrate the complexity and potential of these deals.

Secondaries are emerging as the pressure valve for delayed exits. Inflexion’s £2.3bn multi-asset continuation vehicle, Europe’s largest to date, highlighted how sponsors are finding practical ways to return capital to investors while maintaining exposure to high-quality assets. Expect more transactions like these in 2026 as firms seek ways to achieve liquidity outside traditional IPOs and trade sales.

Against this backdrop of active portfolio management, the focus is increasingly on improving performance within existing assets. The ‘value-creation playbook’ is evolving. Sponsors are relying less on market-driven gains and more on direct, day-to-day performance improvements, from operational efficiencies to digital and commercial levers.

Exits: the critical focus for 2026

While deal activity rebounded, exit volumes have lagged, with companies staying private for longer. So, UK exit activity continues to trail the rest of Europe, largely due to near absence of IPOs. Sponsor-to-sponsor transactions and secondaries now dominate the exit landscape, and the deals-to-exits ratio has widened significantly, an indicator that the exit funnel is still clogged.

But 2026 could be the turning point. Improved capital markets, stabilising interest rates and pent-up demand from LPs for liquidity should drive a gradual acceleration in exits. Sponsors will likely pursue a mix of strategic sales, continuation vehicles, and structured secondary solutions to create value.

US investors driving UK deals

Perhaps the most defining feature of UK dealmaking in 2025 has been the surge in US investor participation. In the first half of the year, US firms were involved in roughly half of the top 20 deals by value, accounting for over 31% of total deal volume.

With intense competition and elevated valuations at home, US PE firms are looking overseas for scale and opportunity. The UK stands out as a natural destination: a transparent, well-regulated market with deep pools of management talent and a sophisticated legal framework. The UK clearly remains a gateway for transatlantic deal flows, with US investors not just passively participating, but actively driving activity.

Deal market outlook for 2026: a year to unlock value

2026 is shaping up to be a year of measured optimism. The fundamentals are strong with resilient businesses, stabilising rates and deep pools of private capital. The challenge, and the opportunity, will be to unlock liquidity through exits, creative structures and strategic divestitures.

Expect continued strength in middle-market activity, ongoing momentum in add-ons and carveouts, and robust transatlantic investment. For dealmakers, the focus will shift from simply deploying capital to realising it, an evolution that should bring about a healthier and more dynamic market.

To explore what these developments could mean for your organisation’s deal strategy in 2026, please get in touch with Salik Chaturbhai.

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