Despite a reasonably strong start to the year, private equity deal activity declined significantly in Q2 2026, leaving first-half volumes 3.4% lower than the same period last year. While the uncertainty caused by the conflict in Iran put the brakes on activity, concerns around the wider impact of AI across many sectors was also a contributing factor for the slowdown, according to KPMG UK’s mid-year Private Equity pulse.
Of the 888 deals completed in the first half of 2026, 455 with a total value of £38.2 billion took place over the first quarter of 2026. This equated to a 25% increase in values and 3.9% increase in volume on the same period the previous year. In contrast, in the second quarter deal volumes decreased by 10% year on year, with values decreasing 0.7%.
Healthcare was the only sector to see an increase in M&A volumes over the first half of the year, rising 9.3% albeit from a low base. While business services and technology, media and telecoms (TMT) accounted for 64% of all deals over the period but both saw falls of 5.9% and 3.7% respectively. The biggest fall in deals was seen in consumer goods and retail at 17.2%.
Bolt-ons remain the largest component of private equity activity accounting for over 60% of all deals (61.8%), in response to valuations in certain sectors remaining low. While uncertainty in the market, particularly around the risk of AI disruption, dragged on the volume of exits that got over the line, creating a significant backlog which could continue to impact the market in the second half of the year. More positively, those exit deals that did complete were higher in value, and with a total value of £23.4 billion were double that of the year before.
Commenting on the findings, Alex Hartley, Head of Corporate Finance at KPMG UK, said:
“While uncertainty caused by the conflict in Iran led many private equity houses to re-assess or delay deals, the defining feature of the market this year has been concern over AI’s impact on certain sectors. As dealmakers gain confidence around this and potential impacts on valuations, overall volumes should lift as the year progresses. But we will also see investors looking for assets that are less exposed to AI, with greater focus on blue collar services and industrials that offer secure, recurring revenues.
“While the new Prime Minister and Cabinet bring a renewed sense of political and economic direction, speculation about potential tax changes could rise again ahead of the autumn budget, particularly if investors anticipate changes to capital gains tax. This could trigger a flurry of activity, as we saw at the end of 2024.”
