6 Key M&A Trends for SMEs & Startups in 2026: Prepare Your Business for Sale or Acquisition

Our Corporate and M&A team examines six key trends that will shape deal activity for SMEs and startups in 2026, with practical guidance on preparing your business for a sale or acquisition.

After a recovery in 2025, we expect 2026 to see increased deal activity and improved access to funding. However, the market will remain selective, and successful outcomes will depend on strong preparation and a clear understanding of how the deal environment is evolving.

 

Executive summary

For businesses considering a sale or acquisition in 2026, the market is showing signs of recovery and creating opportunities for well prepared companies. Competition for the best businesses will be fierce. Understanding and acting on these six trends will be critical:

1. A tale of two markets

Large deals will dominate headlines, while the mid market recovery will be steady and selective.

Key consideration: Audit your financials, revenue model and growth story now.

2. Regulatory hurdles are rising

National security and competition checks are affecting smaller, technology led deals more often.

Key consideration: Seek specialist advice early. Add 3 to 6 months (minimum) to transaction timelines.

3. Portfolio reshaping creates opportunities

Large corporates are selling businesses that are not core, creating acquisition targets for agile SMEs.

Key consideration: Decide whether you are a buyer or a seller, and prepare accordingly.

4. AI and digital assets command premium valuations

Demand remains strong for AI, data rich and digital infrastructure businesses.

Key consideration: Document your data assets, IP and how AI creates value in your business.

5. Cross border deals offer strategic advantages

US interest in UK and European assets remains strong, often improving valuations for sellers.

Key consideration: Identify your most likely buyer’s geography early. It shapes your entire strategy.

6. Distressed assets present complex opportunities

Higher rates will push some highly leveraged businesses towards sales or restructurings, creating potential acquisition opportunities.

Key consideration: Assess opportunities carefully, and be realistic about complexity and the resources required.

Looking ahead to 2026, the market should be active but discerning. Quality, clarity and readiness will distinguish successful transactions. Whether buying or selling, early preparation, including tidy financials, realistic valuations, and appropriate legal and tax advice, will be essential.

 

Detailed analysis

1. A tale of two markets: prepare for selectivity

 

The trend

Headlines will be dominated by large deals from corporates and private equity, pushing up total deal values even if overall transaction volumes recover more slowly. For SMEs and startups, the focus should be on the mid market, where we expect a steady (but not explosive) rebound. Buyers will remain selective and disciplined on price.

For smaller companies, stronger appetite from banks and private credit providers should gradually improve leverage and financing options. However, detailed due diligence and firm views on valuation will remain the norm.

Key considerations for your business

To stand out in a market where buyers have more choice than during the 2021 peak, focus on demonstrating:

• Monthly recurring revenue (MRR) or predictable contracted revenue
• Clean financial records with clear audit trails
• Documented customer retention and growth metrics
• Credible three to five year growth projections, supported by evidence

Early engagement with your legal and financial advisers can help identify and address issues before they become obstacles in a transaction process.

 

2. Regulatory hurdles are rising: expect scrutiny

 

The trend

Deal reviews are taking longer, especially where data, digital platforms or sensitive technologies are involved. This now affects smaller transactions more frequently than many SMEs expect.

In the UK, the Competition and Markets Authority (CMA) and the National Security and Investment Act 2021 (NSI regime) have broader powers and are paying closer attention to data rich and technology led businesses, even at relatively modest deal sizes. Cross border deals, particularly involving US, Asian, or state connected buyers, require early planning to manage merger control and national security filings.

Key considerations for your business

If your business handles sensitive data or technology, seek specialist regulatory advice early, ideally before going to market. Build in a 3 to 6 month buffer (minimum) to your transaction timeline for potential reviews, and potentially 6 to 12 months for sensitive technology or complex cross border deals.

Founders and SME owners should be prepared to explain:

• How your data is collected, used, stored and protected
• Which technology or IP might be considered sensitive or strategic
• Whether you operate in sectors that may trigger national security review (for example defence, critical infrastructure, advanced technology, or data processing)
• Your customer base and any government or critical sector contracts

Early identification of potential regulatory issues creates time to develop mitigation strategies and reduce the risk of delay or deal failure.

 

3. Portfolio reshaping creates opportunities: buyer or seller?

 

The trend

Large corporates are under pressure to focus on their most profitable and strategic businesses. This means more businesses that are not core will be sold or spun out. That should create pipeline of assets and carve outs that well positioned SMEs and scale ups can acquire to add customers, technology or capabilities.

Lower borrowing costs and more flexible financing structures can make it easier for buyers to pay for quality assets, particularly where the value creation plan is clear.

Key considerations for your business

Consider whether you are positioned as a buyer or a seller:

If you’re a seller: Identify which parts of your business are genuinely core to your strategy. Consider divesting non core lines that could be more valuable to a strategic buyer. If a sale is a possibility, start separating business lines now with clear P&Ls, customer lists and systems. It reduces friction later and speeds up the process.

If you’re a buyer: Position yourself to move quickly on strategic bolt on acquisitions that strengthen your core business. Build relationships with advisers and lenders now so you can act decisively when the right opportunity appears. Proactively identify targets in your sector that may come to market.

Important note on carve outs: These transactions often involve operational complexity, including:

• Transition services agreements (TSAs), where you depend on the seller for IT, HR or finance for 6 to 24 months
• Stranded costs that were not apparent in the carve out financials
• Cultural integration challenges and retention risk for key people
• Hidden dependencies on the parent company’s systems, relationships or infrastructure

A buyer who plans integration early, and builds the right protections into the documents, is far more likely to achieve the value they underwrote.

 

4. AI and digital assets command premium valuations

 

The trend

Technology, AI and data rich businesses will remain at the centre of deal activity, with strong interest from strategic buyers and investors. Demand is particularly strong for businesses building or enabling digital infrastructure, such as software, data, connectivity, cyber security and AI tools that help other organisations operate more efficiently.

US buyers and funds are expected to remain active in UK and European technology and infrastructure, supported by favourable exchange rates and significant pools of capital.

Key considerations for your business

Buyers will scrutinise your data assets, intellectual property, how AI is embedded in your product, and whether you own your data or are dependent on third party platforms. Consider documenting:

• Data inventory: What data do you collect? How is it stored? Who owns it? What is the commercial value?
• AI integration: How does AI create value in your product? Is it proprietary or built on third party models? Can you evidence measurable customer outcomes?
• IP documentation: Patents, trade marks, proprietary algorithms and trade secrets, properly documented and protected
• Third party dependencies: Which critical functions rely on external platforms (for example Amazon Web Services or Open AI)? What is the lock in risk?

Even for traditional SMEs with modest technology footprints, demonstrating how you use data and technology to drive efficiency, customer insight or operational advantage will strengthen your position. Buyers increasingly expect credible digital capability, even outside the technology sector.

 

5. Cross border deals offer strategic advantages: think globally early

 

The trend

US companies and funds are likely to continue targeting UK and European businesses, attracted by relative value and sector expertise. At the same time, more UK and European buyers will selectively look at US targets to access scale and innovation. However, rules around foreign investment in some US sectors can be restrictive.

For UK sellers, stronger US interest generally improves the chances of running a competitive process and achieving better terms, especially in technology, specialist manufacturing and business services.

Key considerations for your business

From the start of your exit planning, identify whether your most likely buyer is domestic, European or US based. This shapes:

• Your financial story: US buyers often expect different metrics and different presentation formats
• Deal structure and terms: Earnouts, working capital mechanisms and indemnity packages can vary; understanding the norms for your buyer pool is essential
• Regulatory pathway: Cross border deals add complexity, but can also create competitive tension that improves terms
• Management expectations: Post deal roles, equity rollovers and growth investment plans may differ by buyer type

If you are targeting US buyers specifically, consider:

• Presenting financials in USD, or providing a clear USD translation
• Benchmarking against US comparables in your sector
• Understanding expectations on growth rates, unit economics and go to market strategy
• Engaging advisers experienced in transatlantic transactions

 

6. Distressed assets present complex opportunities

 

The trend

Some businesses that took on debt in 2021 and 2022 at low rates will struggle to refinance at today’s higher rates, even if interest costs begin to ease. This will lead to more lender led sales, restructurings and rescue deals, particularly in cyclical sectors, groups that are highly leveraged, and businesses exposed to supply chain disruption or geopolitical shocks.

Investors with available capital and sector knowledge are positioning to acquire or recapitalise these assets, often through complex structures and on compressed timelines.

 

Key considerations for your business

Well resourced SMEs with strong balance sheets may identify opportunities to acquire distressed competitors or complementary assets at attractive valuations. However, distressed M&A requires specialist expertise, speed and an appropriate risk tolerance.

Before pursuing distressed opportunities, carefully assess:

1. Internal capacity: Do you have management bandwidth to run a complex, time pressured transaction while operating the core business? Distressed deals can move quickly, sometimes in weeks rather than months.
2. Funding certainty: Do you have committed funding, such as cash reserves or pre arranged facilities, to move decisively? Distressed sellers typically cannot accommodate financing contingencies.
3. Specialist advisers: Do you have access to advisers experienced in distressed M&A, insolvency law and accelerated due diligence? Complexity is materially higher than in standard transactions.
4. Risk appetite: Are you comfortable with higher execution risk, potential hidden liabilities, and the possibility of walking away after investing time and fees?

If you are considering distressed opportunities, proactive planning and relationship building with insolvency practitioners, debt funds and restructuring advisers can provide early visibility of potential acquisitions.

 

Where fundraising fits into this in 2026

Although this article focuses on M&A, many of the same forces will shape growth capital and investor led deals in 2026.

• Investor selectivity will mirror buyer selectivity. Expect deeper diligence on customer quality, unit economics and the credibility of the growth plan, particularly for venture backed or tech enabled businesses.
• Regulatory screening is increasingly part of fundraising reality, not just acquisitions. If you operate in sensitive technology, critical infrastructure, defence adjacent sectors or data heavy markets, potential NSI issues should be identified early, ideally before you accept a term sheet.
• Cross border capital can improve terms as well as valuation. International investors may bring different expectations on governance, reporting cadence and protective provisions, so aligning early on market norms is key.

If you are raising in 2026, the same readiness themes apply:

• A clean cap table and option position
• Clear IP ownership and contractor assignment chains
• Defensible customer contracts and renewal dynamics
• Robust data governance and security posture
• A coherent equity story linking growth to execution capability

 

Looking ahead to 2026: the importance of preparation

Our assessment

2026 is shaping up to be more active than 2025 for UK and European M&A, though still more selective than the 2021 peak. Quality businesses with demonstrable growth, robust governance and credible digital strategies should attract strong buyer interest and achieve favourable valuations.

Preparation will be critical. The businesses that achieve the best outcomes will be those that invest time early in:

• Financial clarity: Clean accounts, clear revenue recognition, documented customer contracts, and audit trails that withstand detailed due diligence
• Realistic valuation expectations: Understanding current market multiples in your sector and the factors that drive premium valuations, such as recurring revenue, customer diversification, growth rates, and margin profile
• Early regulatory and tax planning: Identifying potential hurdles and optimising tax structure before going to market. Addressing these issues reactively is expensive and can derail transactions
• Flexible financing options: If acquiring, have committed funding in place. If selling, understand how buyers will finance the deal and structure accordingly.

Whether you are planning to sell, pursue acquisitions or raise growth capital, early preparation provides more options and better outcomes in what is likely to be an active but demanding market for SMEs and startups.

 

How we can help

Impact Lawyers advises SME owners and startup founders on sales, acquisitions and related transactions across a wide range of sectors. We can help you:

• Assess transaction readiness and identify priority issues
• Navigate regulatory considerations, including merger control and NSI implications
• Structure transactions to achieve your commercial and tax objectives
• Manage due diligence processes and negotiate transaction documents
• Coordinate with other specialist advisers (tax, accounting and technical)

For a confidential discussion about preparing your business for a transaction, please contact our Corporate and M&A team.

Kevin Withane – kevin.withane@impactlawyers.co.uk

 

This article is for general information purposes only and does not constitute legal advice. The information provided is correct as at 2 February 2026. For advice on your specific circumstances, please contact Impact Lawyers.