The UK deals market has generally been subdued over the first half of 2025, with figures showing a decline in activity compared to 2024. KPMG’s analysis of private equity-backed deals in the mid-market, for example, finds a fall in H1 of 11.3% year on year.
Volatility and uncertainty during H1
The reasons for this are not hard to fathom. Businesses need stability in order to make long-term investment decisions – but that stability has been in short supply. Internationally, the new trade tariff regime being introduced by the US administration has caused significant uncertainty and some alarm. Even for those businesses that don’t export to the US, the possible ramifications on secondary costs and the wider impacts on market buoyancy have dented confidence. Ongoing regional conflicts in the Middle East and Ukraine have also continued to undermine stability.
Domestically, meanwhile, increases to employers’ National Insurance announced in last year’s Autumn Budget hit balance sheets from April and have probably had an effect on many private enterprises’ desire or appetite to invest in an acquisition or other deal. Capital gains tax (CGT) was also increased and, while anticipation of this led to a spike in activity in the run-up to the Budget, it has dampened activity since. Increases to inheritance tax (IHT), which are set to come into effect from April next year, are likely to have the opposite effect – leading more family businesses in particular to look for ways of creating liquidity to settle obligations – but this will take time to feed through.
Stabilisation of conditions
However, looking ahead we see the prospect of a slightly more positive picture. The initial ‘shock and awe’ of headline-grabbing US tariff announcements has begun to moderate as everyone has become more accustomed to the operating style of the new US administration.
The UK has also negotiated its own trade deal with the US, providing significantly greater certainty for our businesses. At home, increases to NI are now running through the system and businesses are acclimatising.
Confidence and liquidity amongst private enterprises
Indeed, looking at the private enterprise market specifically, KPMG’s latest research reveals a sector full of confidence and growth ambition. Our KPMG Private Enterprise (KPE) Pulse survey of 1,500 private enterprise leaders finds that 93% are confident about future prospects. Expansion and diversification is very much on the cards, with three-quarters planning to launch new products or services and nearly two-thirds planning on entering new markets. Nearly a third say that they may grow their businesses via acquisition in the coming years.
They also have the cash strength to fund growth and M&A – with 62% saying that they intend to fund diversification from their own balance sheets. It’s a sign that, despite often challenging external conditions, many small and medium-sized businesses have been able to continue trading at a profit and put cash reserves aside. Of those planning to obtain external financing, private equity is the prime destination (44%) followed by capital market fundraising such as an IPO (36%). Interestingly, traditional bank debt comes some way behind (22%).
These findings are in fact very similar to those from our first wave of KPE Barometer research, published six months ago. That also suggested that a pick-up in M&A could be around the corner – something that a combination of US tariff bombshells and the actualisation of the Autumn Budget’s NI increases effectively put paid to. Nevertheless, mid-market activity in some sectors – particularly professional and business services – has been robust.
Improved outlook moving forward
Now, however, conditions feel different. The global and domestic environment is more stable. Interest rates have fallen over the last 12 months and are expected to drop further in the coming 12-18 months, making financing cheaper. There is excellent availability of capital too – across both debt and equity. For those businesses looking for private equity investment, PE houses continue to have significant levels of capital to deploy. High-quality assets are trading quickly and at good prices – although investors are cautious and prepared to walk away if any significant risks or uncertainties surround a potential deal.
That perhaps summarises the outlook for the market as a whole. The fundamentals are in place for market activity to rebound and deals to be agreed. But a sense of caution remains. In particular, UK businesses are concerned that there should be no further tax and operating cost rises in this year’s Autumn Budget.
For those private enterprise or family business leaders looking to create value through either an acquisition or a disposal/exit, or to raise capital to fund growth or derisk, the stabilisation of conditions means that now may be a good time to start preparing the ground. It takes time, patience and planning to bring about a successful transaction. There must be clear synergies and a strategic fit with any target business, and thorough due diligence, robust risk management and strong governance processes are all pre-requisites. At KPMG, we have an extensive track record supporting the private enterprise sector in their growth and value creation journeys – get in touch if there is anything you’d like to discuss.
