The UK M&A market presents a mixed picture as we enter the final months of 2026. Capital is available and acquirers remain active, but we are still waiting for recovery in transaction volumes across the whole market.
PwC reported that UK M&A the number of announced deals fell 13% to 1,301 in H1 2026.
The lower mid-market, which is reflects sub-£150m deals, presents a more positive picture. Deal suite reported higher transaction activity in H1, and the average number of serious buyers per company rose from 7.9 to 8.5.
Deal suite went on to report that many advisors considered seller valuation expectations too high in nearly 1/2 of potential transactions. A quality advisor will always have a well-informed view of value and will ensure that their client understands their rationale. When a client feels the value is greater than we believe we can deliver, Polestar declines the appointment. Preparing and marketing a company for sale is a huge undertaking and starting with differing value expectations is a recipe for all parties being very disappointed.
The view in the market is that many businesses owners are holding out for improved business valuations. However, despite pressure to deploy capital, buyers and investors are, in many cases, waiting for vendors’ valuation expectations to align.
Will that alignment happen over the next six months? This will depend on company performance, market sentiment, debt markets, tax policy and changing shareholder expectations / personal circumstances.
Your business and shareholder objectives rather than the direction of the wider M&A market will likely have the most significant effect on timing.
Corporate buyers (especially overseas) and Private equity funded buyers are active. However, PE deployment has shifted to bolt-on’s, which KPMG reports accounted for 61.8% of UK mid-market private equity transactions in H1 2026 (up from 56.1% in H1 2025). Whilst this may be more of a reflection on the lack of platform deals available, it is good news for many sellers, with realistic price expectations, whose buyers are likely to be PE backed consolidators on a buy and build strategy.
So, the M&A market looks good for smaller firms (say sub £100m) and trickier for larger firms. This is reflected in the 30% reduction in PE exits in H126 over H125. Only 96 UK PE exits completed in H1 2026, almost 30% fewer than a year earlier. Trade acquirers accounted for 51% of those exits. Could this be behind the burgeoning number of continuation vehicles?
For you as a shareholder, the question is therefore not simply whether there are buyers in the market.
It is whether your business has sufficient strategic or financial value to create competition between credible acquirers. We work with a number of business owners in preparing their businesses for a transaction through our Eddystone Club. Recent club members have had time to ensure their businesses are transaction ready, and when the timing became right for them personally, they made successful exits.
Polestar’s recent transactions provide examples of UK lower mid-market businesses sold to trade, private equity and PE-backed acquirers in the UK and overseas.
As outlined above valuation remains one of the clearest barriers to transactions.
Where a valuation gap exists for those businesses that have gone to market, seller expectations exceed perceived market value by an average of 23%. In a quarter of those cases, the valuation difference caused the transaction to fail.
At the end of the day, a business’s value is driven by what a buyer believes it will deliver in future cashflow / exit value. So, the misalignment is not always about the multiple, or the earnings to which that multiple applies, it is based on the buyer’s confidence that the forecasts can be achieved.
Customer concentration, management structure, working capital, future capital expenditure as well as it’s competitive position and market size all effect that assessment. Sellers invariably place a lower level of risk on these matters; the aim of the process is to demonstrate to buyers why they should share that view.
As it stands, we do not see multiples materially improving for businesses in the near future.
If you are one of those who have been waiting to do a deal in anticipation of a higher price that has not come through but wish to exit you have a difficult choice. Either accept the value the market will support today or improve the business and seek to increase value through higher earnings, stronger margins, lower concentration or greater management depth – A decision to retain the business may increase value, but shareholders retain the risk that earnings, markets or valuation conditions move the other way.
That is why the decision to sell should start with a realistic assessment of value today and what could materially enhance the quality and/or scale of your earnings.
Yes. As we have seen from the last two budgets Capital Gains Tax changes have materially and adversely affected the net proceeds shareholders receive from a sale. Those that rushed to complete before the budgets got to keep a greater slice of their pie (after we had all enjoyed some sleepless nights). There is plenty of noise in the press about more negative changes on the way, although the treasury’s own figures suggest this would lead to a reduction in the tax collected!
As reminder – The headline CGT rate for individuals selling shares in their company is 24% whilst the rates for gains that qualify for Business Asset Disposal Relief is 18% on a £1m lifetime limit.
With the next Budget on 28 October 2026 – who knows what awaits us – But if rates were to rise again from 6 April 2027, we expect there will be another completion rush.
Tax, however, is only one part of the decision.
A sale accelerated for tax reasons can have commercial consequences if the business is not ready, potential acquirers have not had sufficient scrutiny or shareholders accept weaker terms to meet a particular date.
A rushed transaction can sacrifice more value than a shareholder seeks to preserve through securing a lower tax rate.
Valuation, deal structure and shareholder objectives should remain central to the decision.
But how could the Autumn Budget 2026 changes to Business Asset Disposal Relief and Founders’ Relief affect what shareholders take home from a sale?
The Bank of England held Bank Rate at 3.75% in September 2026. Six members of the Monetary Policy Committee supported that decision, while three preferred an increase to 4%.
For acquirers using debt to fund the transaction any rise will lead to higher debt costs, which in turn may reduce the amount of debt available. The natural consequence is either a reduction in the price or an increase the equity required to fund a transaction, which then reduces the expected equity returns.
The implication for sellers is important. A business with resilient earnings and strong cash conversion may support more debt than one with volatile earnings, heavy working capital requirements or significant capital expenditure.
Debt capacity is often a key component of the valuation equation.
Senior debt, asset-backed facilities and mezzanine can each play a role according to cash flow, asset backing and risk. Polestar’s Debt Advisory team advises on these structures.
Trade acquirers may approach the same business differently. Cost synergies, customer access, geographic expansion or additional capabilities can create value that does not depend on financial leverage alone.
Two acquirers can therefore look at the same EBITDA and reach different conclusions on value. This job of your adviser is to find the buyers who have the most to gain.
If you plan to sell in 2027, establish how buyers are likely to assess your business before a sale process starts.
Begin with maintainable EBITDA. Understand the adjustments you expect to present and test whether they will withstand financial due diligence.
Aim to demonstrate how consistent profit converts into cash, the level of working capital the business requires and whether future growth will require material capital expenditure. These factors affect debt capacity, enterprise value and the proceeds ultimately available to shareholders.
Identify material commercial dependencies before an acquirer does. If due diligence finds the issues first, buyers will be armed with negotiation points, be those over price, warranties, earn-outs or other transaction terms.
A major customer, key supplier, reliance on an individual shareholder or a gap in the management team may not prevent a transaction. Each can, however, affect risk, price or deal structure.
Apply the same discipline to your forecasts.
If your plan depends on additional management, technology, capacity, acquisitions or geographic expansion, establish the investment required and the evidence behind the expected return.
An acquirer is more likely to pay for forecast growth when sufficient evidence allows it to assess that growth with confidence.
Strategic fit can however help ameliorate any issue, so long as they have been signposted in advance. Polestar’s sale of Schoolblazer to Australian-listed Hancock & Gore provides one example of a UK business that attracted an overseas strategic acquirer, whose valuation reflected the highlighted benefit to them of Schoolblazer funding a new warehouse.
For shareholders considering a transaction in 2027, predictions about the M&A market the next six months matter less for than the actions you can take to strengthen your position before you enter a process.
The key question is:
What would an acquirer pay for your business today, where would they challenge the valuation case, and what could materially change that answer before you enter the market?
If you do not know the answers, understand them before a sale process starts. That assessment can influence the decisions you make about growth, investment, management and capital over the next 12 months.
We have found the time we spend working with business seeking to exit, and preparing properly for the sale, often using the framework of Eddystone.club enables the shareholders to reap significant rewards.
How is Capital Gains Tax calculated when I sell a business?
Capital Gains Tax generally applies to the taxable gain rather than the total sale proceeds. That is to say it is the disposal value less any acquisition cost, allowable costs (such as your advisors’ fees), available reliefs etc.
You should obtain specialist tax advice long in advance of any transaction.
Who qualifies for Business Asset Disposal Relief on a business sale?
Business Asset Disposal Relief, BADR, is available to an individual shareholder if the person satisfies a fairly specific set of tests.
For at least two years immediately before the sale, broadly:
BADR is subject to the £1m lifetime limit.
How is an earn-out taxed on a business sale?
The tax treatment can vary according to the structure of that consideration and whether it takes the form of cash, shares or securities. HMRC has specific rules for deferred and unascertainable consideration.
With careful planning you can chose to pay the tax at the prevailing CGT rate on completion, or at a future rate. Without careful legal drafting there is a risk that earnout may fall under employment taxes – so make sure get specialist tax advice before you agree the transaction terms.
Is the tax treatment different for a share sale and an asset sale?
Yes. An individual who sells shares will pay Capital Gains Tax on the disposal and can benefit from BADR.
Where a limited company sells business assets (or shares), the company will instead face Corporation Tax on chargeable gains – Currently 25%. Remember BADR is only available to individuals.
Further tax consequences may arise when proceeds pass to shareholders. Again, careful tax planning is required to ensure the deal is tax efficient depending on your personal circumstances.
Is the headline sale price the amount shareholders receive?
Surprisingly rarely!
Enterprise value and the cash you receive are different measures. The cash you receive is the headline price adjusted for matters such as debt, cash, working capital, transaction costs, deal structure and of course tax.
So, in reality there is a fairly complex price adjustment mechanism which needs to be negotiated and can often change the real cash in your pocket by a substantial percentage of the headline price.
The devil is in the detail – get good support for this aspect of the negotiation and prepare far in advance to ensure matters such as the working capital of the business have been optimised.
