Can 2026 live up to 2025’s initial hype?
After a volatile 2025, what will dealmaking look like in 2026? As we approach year-end, mergers and acquisitions (M&A) trends from 2025 reveal key insights into the factors that could shape the 2026 dealmaking landscape.
Q4 check-in: What’s the status of dealmaking activity?
Buoyed by a series of megadeals, dealmaking has rebounded in recent months, accelerating the muted pace that followed a promising start to 2025. Although total deal volume remains below historic highs, deal value has soared.
What is driving this resurgence? Strong fundamentals combined with reduced business uncertainty.
Would-be dealmakers sat on the sidelines after Q1 due to volatility stemming from tariffs, geopolitics, and the outcome of key domestic tax policy legislation. That uncertainty has receded and interest rates have come down slightly, meaning conditions are now favorable for pent-up dealmaking demand to manifest. Additionally, private equity (PE) and private credit funds hold record levels of dry powder that they are eager to deploy, and corporate balance sheets and public company stock prices remain strong despite tariff headwinds and increasing inflation.
2025 Recap: How did we get here? What can 2025 tell us about 2026?
2025 began with promise
Record levels of dry powder, strong liquidity, and expectations that a new presidential administration would foster a more favorable dealmaking environment led to high hopes for M&A in 2025. U.S. M&A activity surged 43% year-over-year in Q1, validating this optimism and setting expectations that momentum would continue.
Policy uncertainty introduced complications
Fresh uncertainty ground dealmaking to a halt. The Trump administration’s sweeping tariff announcements on April 15, 2025, introduced new complications into business planning. The broad scope of the tariffs and high rates imposed on both adversaries and close allies created hesitation around major new investments, especially transactions. Geopolitical tensions also escalated, particularly between the U.S. and China, disrupting supply chains and leading to new sanctions and export restrictions.
Domestic tax policy shifts also played a role. Businesses were unsure what form the coming reconciliation bill, now known as the One Big Beautiful Bill Act (OBBBA), would ultimately take. Without clarity around how policies would change, leaders were unable to plan effectively.
Legacy issues remain
The persistent valuation gap between buyers and sellers compounded these external challenges. For the past few years, since public company valuations soared in 2021, divergent expectations around valuations have complicated dealmaking. Many companies opted to remain on the sidelines, and PE firms held onto aging portfolio companies, unable to find exit opportunities that achieved their target returns.
What has changed since?
The enactment of the OBBBA on July 4, 2025, and additional progress on new trade deals have helped foster a more predictable business environment, increasing executive confidence about pursuing deals. Although new deals have not been finalized with all major trading partners, those struck to date have established a pattern in which final tariff rates tend to be lower than opening positions.
Institutional banks have also returned to M&A financing, complementing the private debt market and expanding financing options for dealmakers. These shifts have given PE funds greater confidence in their ability to exit long-held portfolio companies.
Key tax policy changes
While no single change in the OBBBA has had significant direct impacts on dealmaking volume, several provisions may strengthen business performance in key industries and create a more favorable setting for M&A:
- The restoration of 100% bonus depreciation and full immediate expensing of domestic research costs will significantly boost cash flow for industries like manufacturing, technology, and life sciences.
- The Qualified Small Business Stock (QSBS) exclusion was expanded in several ways, significantly increasing interest. The OBBBA’s raising of the eligible company threshold to $75M aggregate gross assets, with the benefit of sophisticated tax planning, expands this strategic investment committee consideration to a much wider segment of the domestic middle market. The OBBBA also increased the QSBS exclusion limit and created partial exclusions for QSBS held for three or four years.
Importantly, the OBBBA did not include two changes that would have likely had adverse impacts on dealmaking. The first would have been a change to the tax treatment of carried interest, which could have had significant implications for private equity. The second would have introduced Internal Revenue Code Section 899 (often called a “revenge tax”) for foreign countries that impose discriminatory or extraterritorial taxes, complicating Pillar II and impacting foreign-owned corporations operating in the U.S.
2026 M&A outlook
Several factors will define the U.S. dealmaking landscape in 2026.
- The state of uncertainty: The most critical variable for dealmaking in 2026 will be whether overall business uncertainty remains stable, lessens, or escalates — particularly regarding geopolitical tensions and tariffs.
Any extended geopolitical conflict or escalation, especially between the U.S. and China, could trigger supply chain disruptions or trade restrictions that would impact business performance. Similarly, renewed tariff volatility could deter companies from making major investments, including transactions. - Narrowing the valuation gap: The gap between buyers and sellers has begun to narrow, due to a realignment of expectations around valuations and use of creative deal structures. Dealmakers are exploring structures such as earnouts and multiples on invested capital (MOIC) earnouts to make deals work. Sellers are recalibrating valuation targets to align with current market realities and focusing more on the “second bite at the apple” via meaningful rollover. One notable exception to this trend: competition among PE funds for a limited supply of high-quality “A” level assets, which is driving up prices and seller expectations.
- International buyer interest: International buyer activity emerged as a bright spot in 2025, as foreign companies seek to establish their U.S. market presence. Tariffs did not significantly impede these transactions, and interest from international buyers is expected to continue in 2026.
- AI-driven dealmaking, though it is not the only game in town: Artificial intelligence (AI) will remain a significant driver of M&A activity across multiple sectors. In the technology industry, companies will look to continue acquiring AI capabilities to strengthen their competitive edges. AI also has implications for energy, driving interest in renewables and nuclear, as well as power storage and transmission infrastructure, to meet the massive power demands of data centers. The data center boom also has implications for the real estate and construction industries, as it relates to the acquisition of necessary land and building of data centers.
Outside of AI-driven dealmaking, activity will likely increase in areas such as:- Cybersecurity, as the threat landscape evolves and the frequency and complexity of cyber attacks continue to intensify
- Financial services, specifically in areas like digital payments, cryptocurrency, banking, and specialty lending
- Healthcare, where significant opportunities exist for transformation through service consolidation and technology adoption
- Aerospace, defense, and government services, supported by sustained federal defense spending
Could 2026 live up to the promise that 2025 once held?
The fundamentals that initially made 2025 a promising dealmaking year — record levels of dry powder and strong corporate balance sheets — remain in place. Given greater policy and operating clarity, buyers and sellers can finally act on pent-up dealmaking demand in 2026.
To succeed in 2026, businesses must understand the core drivers of their M&A strategies and identify deals and deal structures that align with their strategic objectives. This approach is key for businesses to achieve exits at target valuations, and for acquirers to secure the right opportunities at prices that make both strategic and financial sense.
Ready to discuss your dealmaking plans? Contact us to discuss your 2026 roadmap.