Capital squeeze forcing sharper deal discipline

June 2026  |  FEATURE | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

June 2026 Issue

2025 was a notable year for dealmaking. The first half of the year saw volatility and uncertainty, driven by geopolitical challenges and confusion caused by sweeping tariffs introduced by the Trump administration early in the year. This temporarily derailed acquisitions and initial public offerings. But activity rebounded strongly in the second half, as confidence returned across global markets.

According to McKinsey, transactions accelerated sharply in the third and fourth quarters of 2025, with total deal value finishing the year up 43 percent at $4.7 trillion, compared with $3.3 trillion a year earlier, and 20 percent above the 10-year average of $3.9 trillion. While overall deal volume remained flat, megadeals valued at $10bn and above became more prominent. Cleary Gottlieb reported that 2025 saw 11 transactions announced with values above $30bn, compared with seven such transactions in 2024 and four in 2023. Private equity (PE) firms and sovereign wealth funds also played a significant role in the dealmaking landscape.

PitchBook similarly reported that the total value of dealmaking activity surged by nearly 40 percent to a record $4.9 trillion in 2025, surpassing the previous high of $4.86 trillion set in 2021. Activity was supported by central bank interest rate cuts, improving valuations and increased corporate investment in artificial intelligence (AI) and generative AI (genAI).

From resurgence to restraint

While the global M&A boom that defined 2025 has carried into 2026, as companies reassess their portfolios and AI-led demand continues to drive large-scale transactions, other structural forces are becoming increasingly influential. Chief among these is a tightening capital pool, which is forcing executives and prospective acquirers to become more selective.

Capital constraints are driving a highly discerning approach to dealmaking, with buyers prioritising high-quality assets closely aligned with strategic objectives. Although narrowing valuation gaps, cautious lenders and greater visibility on interest rates are supporting deal activity, this support is concentrated on targets with strong fundamentals and clear value-creation potential.

The result has been intense competition for premium assets, while liquidity backlogs and slower fundraising cycles have reinforced discipline across both PE firms and corporate acquirers. At the same time, creative financing structures and persistent geopolitical uncertainty are reinforcing a market in which conviction, strategic clarity and rigorous due diligence determine which transactions proceed.

Companies are having to adapt to a period of significant change disrupting large parts of the global economy. Technology-driven disruption remains a powerful force and, in an increasingly post-globalised environment with shifting profit pools, businesses are required to strike a delicate balance between growth, resilience and capital efficiency.

Quality over volume reshapes dealmaking

Buyers are prioritising fewer, higher-conviction transactions rather than pursuing deal volume. More limited and more expensive funding has increased the imperative to allocate capital efficiently, with quality supplanting volume as the defining metric of M&A success. This shift is reflected in tighter underwriting standards, deeper scrutiny during due diligence and more conservative valuation approaches, which have often resulted in persistent gaps between buyer and seller expectations.

Financing conditions are central to this shift. Higher interest rates and reduced debt availability have constrained leverage, reducing the scope for financial engineering and placing greater emphasis on the resilience of target businesses. Investor pressure has intensified as slower fundraising and reduced liquidity push firms to avoid marginal transactions and focus on opportunities with defensible value-creation strategies. Capital is increasingly tied up in existing investments due to slower exit activity, reducing redeployment options. As a result, only transactions meeting higher return thresholds and strategic criteria are progressing.

Discipline defines the winners

In this more selective environment, acquirers are fundamentally rethinking how they identify and evaluate targets. The shift is away from pursuing growth at almost any price and toward more precision-based investment. Leading acquirers are responding by tightening both their acquisition criteria and evaluation frameworks. This means moving from broad deal pipelines to highly curated, thesis-driven target selection, whether the objective is to fill capability gaps, strengthen core markets or accelerate proven business lines.

A capital-constrained environment also increases pressure on financial scrutiny and due diligence. Buyers are applying higher return thresholds, emphasising resilient cash flows and recurring revenues, and stress-testing transactions against downside scenarios and tighter financing conditions.

Beyond deal completion, acquirers are placing greater emphasis on integration risks and their potential impact on value creation. As a result, many companies are beginning to favour smaller, bolt-on acquisitions over larger and more transformational transactions which, while potentially impactful, can strain already stretched organisational and financial resources.

Valuation discipline is hardening. Acquirers are increasingly willing to walk away from competitive auctions and instead pursue proprietary opportunities or alternative structures such as earn outs and staged investments. M&A is being treated as one option within a broader capital allocation framework, competing directly with organic investment and balance sheet repair.

Despite ongoing economic and geopolitical challenges, there remains an expectation that 2026 will be a strong year for M&A activity. Growth is expected to be driven by AI and genAI, alongside other technology-oriented sectors accounting for an increasing share of total deal value.

However, one conclusion is clear: 2026 is likely to present a challenging dealmaking environment, characterised by continued geopolitical uncertainty and potential impacts on growth. In this context, discipline, selectivity and execution focus are more important than ever. As emphasis shifts away from scale or optionality and toward delivering clear, risk-adjusted value, acquirers will need to pursue the right deals – those that are the right strategic fit.

© Financier Worldwide

BY

Richard Summerfield