Executive Summary
The European M&A market enters 2026 with cautious optimism tempered by significant headwinds. According to CMS's 2026 European M&A Outlook, half of dealmakers expect European M&A activity to increase over the next 12 months, with 85% of European dealmakers expecting to engage in M&A activity. However, considerable market volatility, financing challenges, and trade-related disruptions present meaningful obstacles.
European M&A value through early December 2025 reached USD 746 billion, representing a 12% increase over the whole of 2024. The second half of 2025 showed particular strength, with deal value up 23% versus the first half. The UK remained Europe's largest M&A market by value at USD 181.3 billion, while the Netherlands showed the highest percentage increase at 171.6%, followed by Spain (63%) and Belgium (57%).
This report examines the key drivers, regional hotspots, sector dynamics, and financing challenges shaping European M&A in 2026. Our analysis draws on proprietary deal data, institutional investor sentiment, and macroeconomic research to provide actionable insights for principals, shareholders, and investors evaluating transaction opportunities.
Key Market Drivers for 2026
Sell-Side Drivers
Dealmakers expect the greatest sell-side drivers of M&A activity to be non-core asset sales from larger companies (42% of top-two votes) and distress-driven M&A (38%). Private equity divestments (36%) are also expected to feature prominently, with funds under increasing pressure from limited partners to return capital. The combination of aging portfolios and LP demands for distributions is creating urgency for exits across vintage years.
Buy-Side Drivers
On the buy-side, dealmakers expect a variety of factors to propel M&A activity, including undervalued targets (31%), turnaround opportunities (31%), the drive toward greater digitalisation (30%), and supply-chain security (27%). The search for AI transformation capabilities continues to drive technology-focused acquisitions, while industrial buyers increasingly prioritize supply chain resilience following recent disruptions.
The "European Champions" Agenda
The call for "European champions" in the Draghi report is fueling anticipation of intra-European transactions, particularly in energy, financial services, and telecommunications. Regulators are increasingly amenable to wider "pro-growth" policy goals and may be more open to large-scale mergers that enhance European competitiveness on the global stage.
Regional Hotspots: Where Activity Will Concentrate
The Benelux region is expected to see the highest growth in M&A activity over the next 12 months (38% of top-two votes), followed by the UK & Ireland (29%) and Austria and Switzerland (27%). Respondents highlight the Benelux region's supportive investment ecosystem, strong logistics capabilities, and concentration of high-quality mid-market targets.
Europe and the wider EMEA region are heading into 2026 with sharp economic divergence-rising industrial stress in the North and accelerating growth in the South. Sovereignty agendas, from semiconductor fabrication to localized EV supply chains, are reshaping strategic priorities and creating both opportunities and challenges for cross-border transactions.
Germany showed a 17.8% increase in deal value in 2025, signaling a potential bottoming of the industrial downturn. Italian and French markets also demonstrated resilience, with deal values up 4.3% and 4.8% respectively. These markets offer attractive opportunities for acquirers seeking quality assets at reasonable valuations relative to historical norms.
Sector Analysis: Where We See Opportunity
Technology
Technology was the leading sector by deal count in 2025, as buyers targeted digital capabilities and assets to support their AI transformation initiatives. Enterprise software, cybersecurity, and data infrastructure businesses continue to command premium valuations. The integration of AI capabilities is increasingly becoming a prerequisite for strategic relevance, driving both organic investment and M&A activity.
Energy Transition and Infrastructure
Energy transition and infrastructure transactions have been particularly prominent, supported by regulatory mandates and improving project economics. Renewable energy developers, grid infrastructure providers, and energy storage companies attract significant investor interest. The sector benefits from long-term contracted cash flows and strong policy support, though competition for quality assets has intensified valuations.
Healthcare and Life Sciences
Healthcare remains a resilient sector for M&A activity, supported by favorable demographic trends and continued consolidation across the value chain. Provider platforms, clinical laboratories, and healthcare technology businesses see particular strength. Large pharmaceutical companies continue pursuing acquisitions to replenish pipelines facing patent expiration headwinds.
Financial Services
Financial services consolidation is expected to accelerate, particularly in banking and asset management. The push for European champions and scale advantages in an increasingly competitive environment is driving strategic combinations. Fintech businesses with strong unit economics and clear paths to profitability continue to attract both strategic and financial buyer interest.
Financing Environment: Challenges and Adaptations
Most respondents (78%) expect financing conditions in Europe to worsen over the next 12 months, with 34% identifying financing difficulties as a major hurdle to their M&A plans. Cash reserves are expected to be the most available source of finance (51%), followed by debt capital markets (38%). This shift reflects both tighter lending standards and the premium being placed on balance sheet strength.
Two-thirds of respondents (67%) are considering using alternative deal structures, such as convertible instruments and earnouts, as part of their M&A financing strategy. These structures help bridge valuation gaps between buyers and sellers while allocating risk appropriately across the transaction lifecycle.
Private credit continues to play an important role in European M&A financing, particularly for middle-market transactions. Direct lenders offer certainty of execution and flexibility that can be valuable in complex or time-sensitive situations. However, pricing and terms have tightened, reflecting broader market conditions and lender discipline.
Risks and Strategic Considerations
Trade-related disruptions are emerging as a significant concern, with 26% of respondents describing them as a major obstacle to M&A, up from just 10% last year. The evolving tariff landscape and geopolitical tensions are creating uncertainty for cross-border transactions and supply chain-dependent businesses.
Regulatory scrutiny continues to intensify. Foreign investment review regimes have expanded in scope, particularly for transactions involving technology, infrastructure, and healthcare assets. The EU's updated FDI Regulation, expected to take effect in 2027, will make screening mandatory across all member states and partially harmonize national rules.
For principals and shareholders considering a transaction in 2026, thorough preparation remains essential. Early engagement with experienced advisors, comprehensive vendor due diligence, and realistic valuation expectations are critical success factors. The competitive environment for quality assets means that well-prepared businesses running efficient processes will continue to achieve premium outcomes.
Conclusion
The European M&A market enters 2026 facing a complex mix of opportunities and challenges. While half of dealmakers expect activity to increase and 85% plan to engage in M&A, financing headwinds, trade disruptions, and regulatory complexity will require careful navigation. The markets that thrived in 2025- Benelux, UK, Germany-are positioned for continued strength, while technology, energy transition, and healthcare remain the most active sectors.
For business owners and shareholders, 2026 presents both risks and opportunities. Stabilizing interest rates, large volumes of private equity dry powder, and continued strong interest in quality assets create an environment where well-positioned businesses can achieve compelling outcomes. However, success will require realistic expectations, thorough preparation, and skilled execution.
Palmstone Capital's advisory team stands ready to assist principals and shareholders in evaluating their strategic options and executing transactions that achieve their objectives. Our combination of deep sector expertise, global relationships, and disciplined execution enables us to deliver exceptional outcomes for our clients in any market environment.