Navigating the New M&A Landscape in 2026

23 January 2026

The mergers and acquisitions landscape is experiencing a significant transformation as we move through 2026. Recent regulatory changes, particularly those introduced in the Autumn Budget 2025, combined with evolving foreign investment scrutiny and a resurgent deal market, are creating both challenges and opportunities for businesses contemplating transactions.


At Paddle & Cocks LLP, we're seeing increased activity across sectors as companies capitalise on improved market conditions. However, the legal and tax implications of today's M&A environment are more complex than ever. Whether you're considering acquiring a competitor, selling your business, or exploring strategic partnerships, understanding these changes is essential to protecting your interests and maximising value.



This guide examines the key developments affecting M&A transactions and provides practical insights to help you navigate this evolving landscape successfully.


The M&A Market Rebounds: What's Driving 2026 Deal Activity


After several years of subdued activity due to economic uncertainty, geopolitical tensions, and elevated interest rates, the M&A market is showing strong signs of recovery. Recent data indicates that global M&A activity surged in late 2025, with eight megadeals valued over $10 billion closing in Q3 alone—the highest quarterly total since 2018.


Several factors are fuelling this resurgence:


  • Improving Economic Conditions – The Bank of England has reduced base rates, signalling greater confidence in inflation control. With rates expected to fall to 3% by early 2026, borrowing conditions are becoming more favourable for debt-financed acquisitions.
  • Private Equity Firepower – Private equity funds are holding approximately £178 billion in uncommitted capital ('dry powder'). This substantial war chest is driving competitive bidding for quality assets, particularly SMEs with stable revenues.
  • Strategic Portfolio Optimisation – Companies are pursuing 'buy and build' strategies, making smaller complementary acquisitions rather than transformative mega-deals. This approach allows for rapid expansion while minimising integration risk.
  • Sector-Specific Momentum – Technology, healthcare, financial services, energy, and defence sectors continue to attract significant deal activity as businesses seek capabilities in AI, digital transformation, and sustainability.


For business owners: This resurgent market creates compelling opportunities to realise value, whether through outright sale, merger, or securing investment. However, competition for the best deals means buyers are conducting more rigorous due diligence and negotiations are becoming more sophisticated.


The Autumn Budget 2025: Critical Tax Changes Affecting M&A Transactions


Chancellor Rachel Reeves' Autumn Budget 2025, delivered in November, introduced several tax measures with significant implications for corporate transactions. While businesses largely escaped the headline-grabbing changes that affected individuals, several technical amendments will fundamentally alter how deals are structured and valued.


New Anti-Avoidance Rules for Share Exchanges

Perhaps the most impactful change for M&A practitioners is the introduction of a targeted anti-avoidance rule (TAAR) affecting share-for-share exchanges. Previously, share exchanges could proceed tax-neutrally provided the transaction had genuine commercial reasons and tax avoidance wasn't a main purpose.


What's changed: Effective 26 November 2025, the new TAAR applies where a person has entered into arrangements relating to a share exchange and obtaining a tax advantage is a main purpose—or one of the main purposes—of those arrangements.


Practical implications:


  • Greater scrutiny of transaction structures that historically benefited from rollover relief
  • Increased importance of obtaining advance HMRC clearance before completing transactions
  • Clearance applications can take up to 30 days, impacting transaction timetables
  • Need for careful documentation demonstrating commercial rationale independent of tax benefits


Business Asset Disposal Relief (BADR) Rate Increases


The capital gains tax rate under Business Asset Disposal Relief is increasing from 14% to 18% in April 2026. This follows a previous increase from 10% to 14%, representing a significant escalation in the tax burden on business sales.


Strategic considerations:


  • Business owners contemplating exit should consider accelerating transactions before April 2026
  • The increased rate may influence valuation negotiations as sellers seek to maintain after-tax proceeds
  • Alternative structures, such as earn-outs or deferred consideration, require careful tax planning


Employee Ownership Trust (EOT) Relief Restriction


For disposals to Employee Ownership Trusts made on or after 26 November 2025, only 50% of capital gains qualify for relief from capital gains tax, down from the previous 100% relief.


While this reduces the tax advantage of EOT structures, they remain an attractive succession option for business owners seeking to preserve company culture and reward long-term employees. However, the economics now require more careful analysis compared to traditional sale structures.


Expert guidance essential: These tax changes underscore the importance of sophisticated legal and tax advice early in the transaction planning process. What might have been straightforward structuring decisions six months ago now require careful analysis of multiple scenarios to optimise after-tax outcomes.


Transfer Pricing Reforms: New Compliance Burden for Cross-Border Deals


The Autumn Budget 2025 also introduced significant reforms to the UK's transfer pricing regime, with implications extending beyond routine compliance to affect transaction structures and valuations.


Key Changes:


  • International Controlled Transactions Schedule (ICTS) – Beginning with accounting periods starting on or after 1 January 2027, multinationals with cross-border transactions exceeding £1 million annually must file detailed annual reports. The Government estimates this will affect approximately 75,000 taxpayers.
  • Expanded Participation Conditions – The definition of 'related parties' now encompasses arrangements with common management or closely aligned objectives, even where parties are otherwise independent.
  • UK-to-UK Exemption – Transfer pricing requirements between UK entities are repealed where there's no risk of tax loss to the Treasury, reducing domestic compliance burden.
  • Implicit Guarantee Recognition – The new rules explicitly recognise implicit guarantees in intragroup loan pricing, aligning UK practice with international standards.


M&A Impact:


  • Due diligence must now scrutinise existing transfer pricing policies and potential historic exposures more thoroughly
  • Post-acquisition integration planning must account for ICTS reporting obligations and ongoing compliance costs
  • Transaction structures involving intellectual property transfers or intercompany financing require enhanced documentation
  • Valuations may need adjustment to reflect increased ongoing compliance requirements


Heightened Foreign Investment Scrutiny: What Cross-Border Acquirers Need to Know


Foreign investment screening has become a critical consideration in M&A transactions, with both UK and international regimes becoming more assertive in protecting national security interests.


UK National Security and Investment Act (NSI Act)


Since its introduction in 2022, the NSI Act has embedded itself firmly within the UK M&A process. The regime requires mandatory notification of acquisitions in 17 sensitive sectors, including defence, critical infrastructure, advanced technology, and artificial intelligence.


What triggers scrutiny:


  • Acquisitions of entities operating in designated sensitive sectors
  • Transactions providing control over sensitive activities, even if below ownership thresholds
  • Acquirers with 'higher risk characteristics' based on jurisdiction or ownership structure
  • Deals involving access to sensitive data, intellectual property, or dual-use technologies


Critical consideration: Transactions that complete without NSI Act clearance where mandatory notification applies are void. This creates significant risk for both buyers and sellers, making early assessment of notification requirements essential.


EU Foreign Subsidies Regulation (FSR)

The European Commission's Foreign Subsidies Regulation, which came into force in 2023, continues to evolve with new Guidelines published in January 2026. This regime targets distortions to the EU internal market caused by foreign government subsidies.


Key FSR requirements:

  • Mandatory notification for concentrations where the EU target has turnover exceeding €500 million and parties received foreign financial contributions exceeding €50 million in the prior three years
  • Particular scrutiny of transactions financed by state-linked lenders or where preferential lending terms may constitute subsidies
  • Assessment of whether subsidised financing enables buyers to outbid competitors or sustain purchase prices that couldn't be justified absent the subsidy


Planning point: For UK businesses with significant EU operations or those being acquired by non-EU buyers, FSR compliance must be considered alongside UK NSI Act requirements, potentially extending transaction timelines and increasing complexity.


US CFIUS and Cross-Atlantic Implications


The Committee on Foreign Investment in the United States (CFIUS) remains highly active, with investigations increasing by 50% and enforcement actions up 300% since 2020. Recent developments include the introduction of a 'Known Investor Program' to streamline reviews for trusted allied investors.


For UK companies with US operations or those acquiring US assets, CFIUS review is increasingly likely, particularly in sectors involving advanced manufacturing, semiconductors, AI, and critical minerals. The US has also shown willingness to intervene in global deals even without obvious US nexus where national security concerns arise.


Strategic advice: Early engagement with foreign investment specialists can help identify potential issues, structure transactions to minimise regulatory risk, and develop mitigation strategies to address concerns before they become deal-breakers.


The Evolution of M&A Due Diligence: What Buyers Are Scrutinising in 2026


Due diligence in 2026 has become more comprehensive and sophisticated than ever. Buyers are conducting deeper investigations across a broader range of issues, reflecting both increased regulatory complexity and lessons learned from transactions that encountered post-completion challenges.


Enhanced Due Diligence Focus Areas:


  • Tax and Transfer Pricing Exposures – Given the new TAAR and ICTS requirements, buyers are demanding detailed analysis of historic tax positions, transfer pricing policies, and potential exposures that could crystallise post-acquisition.
  • Employment Costs and NIC Implications – With National Insurance costs rising and the National Living Wage increasing to £12.71 per hour from April 2026, acquirers are scrutinising workforce costs and their impact on margins, particularly in labour-intensive sectors.
  • Supply Chain and Tariff Risk – UK buyers are interrogating targets with significant US-facing exports or US-dependent supply chains, conducting granular analysis of tariff pass-through models and exposure to future protectionism.
  • Technology and Data Assets – As AI capabilities become increasingly valuable, buyers are conducting enhanced technical due diligence on proprietary algorithms, data sets, AI safety protocols, and intellectual property portfolios.
  • Regulatory Compliance – From cybersecurity requirements to environmental regulations, buyers are demanding evidence of robust compliance frameworks and assessing the cost of any required remediation.
  • ESG and Sustainability – Environmental, social, and governance factors are no longer ancillary considerations. With the UK Carbon Border Adjustment Mechanism taking effect in 2027, carbon-intensive businesses face particular scrutiny.


For sellers: Preparation is paramount. Conducting vendor due diligence, addressing identified issues proactively, and organising comprehensive data rooms can expedite transactions and support stronger valuations. Buyers reward transparency and penalise surprises.


Sector Hotspots: Where M&A Activity Is Concentrated


While M&A activity is recovering across sectors, certain industries are experiencing particularly intense deal flow in 2026:


  • Technology & Software – AI capabilities, cloud infrastructure, and cybersecurity assets remain in high demand. However, software companies face increased pressure from AI disruption, creating acquisition opportunities at attractive valuations.
  • Healthcare & Pharmaceuticals – This sector remains 'always-on' for M&A, with particular focus on obesity treatments, gene therapies, and medical technology. Competition for promising targets is fierce, with multiple bidders common.
  • Financial Services – Banking consolidation is finally gaining momentum, with notable European activity. Payments, asset management, and fintech businesses continue to attract strategic and financial buyers.
  • Energy & Infrastructure – The transition to renewable energy and increased defence spending are driving acquisitions in these traditionally capital-intensive sectors. Government policy support enhances deal certainty.
  • Professional Services – Private equity continues to roll up professional services firms, particularly in legal, accounting, and consulting sectors, where fragmentation creates consolidation opportunities.


Strategic Guidance for M&A Success in the Current Environment


Successfully navigating today's M&A landscape requires careful planning, expert advice, and sophisticated execution. Here's our guidance for both buyers and sellers:


For Buyers:


  • Start Early with Regulatory Assessment – Identify potential NSI Act, FSR, or CFIUS issues at the outset. Factor review timelines into your acquisition schedule.
  • Model Multiple Tax Scenarios – The new TAAR and transfer pricing changes mean transaction structures require careful optimisation. Engage tax advisors early to evaluate alternatives.
  • Enhance Due Diligence Scope – Don't limit investigations to traditional financial and legal areas. Technical, regulatory, and ESG due diligence are now essential.
  • Plan for Integration Complexity – New compliance obligations (like ICTS reporting) and operational challenges mean post-completion integration requires more resources and attention than previously.


For Sellers:


  • Conduct Pre-Sale Preparation – Vendor due diligence identifies and addresses issues before buyers discover them, supporting better pricing and smoother negotiations.
  • Consider Timing Carefully – With BADR rates increasing in April 2026 and market conditions currently favourable, the timing of your exit could significantly impact after-tax proceeds.
  • Organise Comprehensive Documentation – Tax clearances, transfer pricing documentation, employment contracts, and intellectual property registrations should all be current and accessible.
  • Anticipate Buyer Concerns – If your business has US operations, cross-border relationships, or operates in sensitive sectors, prepare for foreign investment scrutiny from the outset.


Why Expert Legal Guidance Is Essential in Today's M&A Market


The confluence of regulatory changes, tax complexity, and heightened foreign investment scrutiny means that M&A transactions in 2026 require sophisticated legal support from inception through completion and beyond.


How Paddle & Cocks LLP Supports M&A Transactions:


  • Strategic Transaction Planning – We help clients evaluate acquisition opportunities or exit strategies, considering not just legal and tax implications but also commercial alignment with business objectives.
  • Regulatory Navigation – Our team manages NSI Act notifications, coordinates with tax specialists on HMRC clearances, and works with international counsel on cross-border regulatory requirements.
  • Comprehensive Due Diligence – We conduct thorough legal due diligence, identifying risks and opportunities that affect valuation and deal structure, and coordinate specialist investigations where required.
  • Deal Documentation and Negotiation – From heads of terms through purchase agreements, disclosure schedules, and ancillary documents, we ensure your interests are protected while maintaining commercial momentum.
  • Post-Completion Support – M&A doesn't end at completion. We assist with integration matters, dispute resolution, and any post-completion adjustments or claims.
  • Tax-Efficient Structuring – Working closely with our tax specialists and external advisors, we develop structures that optimise outcomes while ensuring full compliance with the latest regulations.


Local insight, sophisticated execution: Based in Cornwall and London, we combine deep regional knowledge with the technical sophistication required for complex M&A transactions. Our clients value our practical, commercial approach and our commitment to achieving their objectives efficiently.


Looking Ahead: M&A Trends to Watch in 2026


As we progress through 2026, several trends are likely to shape the M&A landscape:


  • Continued 'Buy and Build' Focus – Expect more mid-market consolidation as companies pursue complementary bolt-on acquisitions rather than transformative mega-deals.
  • AI Integration Scrutiny – As AI moves from impressive to expected, buyers will increasingly scrutinise whether targets have effectively integrated AI capabilities or face disruption risk.
  • Regulatory Complexity Management – With the UK Carbon Border Adjustment Mechanism launching in 2027 and ongoing evolution of foreign investment regimes, regulatory strategy will become increasingly central to deal success.
  • Private Equity Deployment – The substantial dry powder held by PE funds will drive competitive dynamics, potentially supporting valuations for quality assets.
  • Cross-Border Complexity – Geopolitical tensions, tariff uncertainty, and diverging regulatory regimes will make international M&A more complex but potentially more strategic for companies seeking supply chain resilience.


Partner with Experts Who Understand Today's M&A Landscape


Mergers and acquisitions represent pivotal moments in business evolution—opportunities to accelerate growth, realise value, or achieve strategic transformation. In today's environment, success requires not just financial acumen but sophisticated legal guidance that addresses the full spectrum of regulatory, tax, and commercial considerations.


At Paddle & Cocks LLP, we've guided businesses through successful transactions for over 50 years. Whether you're contemplating your first acquisition, planning a business sale, or considering complex cross-border structures, our team provides the strategic counsel and technical expertise needed to navigate today's M&A landscape effectively.


We can help you:


  • Evaluate acquisition opportunities or exit strategies
  • Navigate the Autumn Budget 2025 tax changes affecting M&A
  • Manage foreign investment screening requirements
  • Structure transactions to optimise tax efficiency
  • Conduct comprehensive due diligence
  • Negotiate and document complex transactions


Contact Paddle & Cocks LLP Today


Don't let regulatory complexity or tax uncertainty derail your M&A objectives. Our experienced corporate team is ready to help you achieve your transaction goals while protecting your interests at every stage.


Corporate & M&A Services: www.paddleandcocks.co.uk/business-services

Meet Our Team: www.paddleandcocks.co.uk/our-people

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Whether you're navigating the complexities of the Autumn Budget 2025, managing foreign investment scrutiny, or simply seeking strategic guidance on your next corporate transaction, Paddle & Cocks LLP offers the expertise, commercial insight, and client service excellence to help you succeed.


For further information, please contact Islam Abdelal at law@paddleandcocks.co.uk or call 0203 7456535.