Recent events in the Middle East have created uncertainty for UK Private Equity activity. The impact of these global events is still unclear and will depend on how long the conflict lasts and how it affects energy supply chains and borrowing costs. A recovery in UK dealmaking this year hinges on a quick stabilisation of the geopolitical environment. Despite global volatility, improving debt markets and record levels of "dry powder" (i.e. committed capital to PE funds which has not yet been deployed into investments), are creating conditions for increased activity in 2026. Against that backdrop, several themes are expected to shape the year ahead.
A renewed focus on exits
A defining feature of 2026 is the pressure to unlock liquidity. Many funds are carrying assets well beyond their intended holding periods, and limited partners are signalling a clear need for distributions before committing further capital. As a result, exit activity is expected to accelerate whether via trade sale, sponsor-to-sponsor transactions (i.e. secondary buyouts where one private equity firm sells a portfolio company to another) or continuation vehicles (designed to extend the holding period of assets beyond the typical life span of a fund). Portfolio companies that can demonstrate resilient performance and credible growth plans are likely to attract strong buyer interest, even where valuation expectations remain disciplined.
Deployment picks up, but caution remains
While confidence is returning, investors remain selective. Market outlook suggests a significant proportion of private equity firms intend to increase deployment this year, but with a continued emphasis on rigorous diligence and downside protection. Deal processes are taking longer, and structures such as earn-outs, minority stakes and hybrid capital solutions are increasingly used to bridge valuation gaps. This reflects a market that is active, but not exuberant.
Buy-and-build and operational value creation
Buy-and-build strategies continue to dominate, particularly in fragmented sectors where bolt-on acquisitions can deliver scale and margin improvement. Alongside this, operational value creation remains central. Digital transformation, data-led decision-making and efficiency programmes are now standard components of investment agreements. AI-enabled productivity gains and technology-driven integration tools are expected to play a growing role in 2026.
Sector specialisation deepens
Across the market, sharper sector focus is emerging. Business services, especially accounting, legal and tech-enabled platforms, remain highly attractive due to predictable revenues and consolidation opportunities. Healthcare, TMT and infrastructure-adjacent assets also feature prominently in 2026 outlooks. Investors are prioritising businesses with resilient cashflows, strong management teams and clear pathways to sustainable growth.
Evolving fund structures
As PE Firms seek greater transparency and liquidity, fund structures continue to evolve. Continuation funds, NAV-based financing and other hybrid solutions are becoming more mainstream, offering fund managers flexibility to support follow-on investment while managing ageing portfolios. This trend reflects a maturing market where alignment and optionality are increasingly important.
In summary, 2026 is expected to be a year of renewed momentum for UK private equity. Those who adapt their strategies, balancing disciplined investment, due diligence, and risk assessment with targeted sector expertise and operational value creation, are likely to be best placed to capitalise on the opportunities ahead.
Increased use of AI
AI is drawing substantial investment into the infrastructure that supports its growth such as data centres, energy systems and semiconductors while also reshaping how private equity values and underwrites deals. Investors are increasingly favouring technology and data‑rich businesses that are clearly AI‑enabled or resilient to disruption and applying greater scrutiny to software as a services model seen as exposed to AI‑driven margin or competitive pressure. At the same time, private equity firms are embedding AI across sourcing, diligence and portfolio management, and those that integrate it deeply into core decision‑making are positioned to gain a durable competitive advantage.
Brodies are acknowledged experts in transacting private equity deals and in providing private equity focused legal and deal management services. We act for private equity and venture capital houses, sovereign funds, family offices, management teams, and for buyers, sellers, and owners of businesses who may have involvement with private equity investors in the course of M&A, development capital, and capital release activity. We also advise private equity managers on the fundraising of associated deal finance and on the structuring, establishment, marketing, and ongoing day to day operation of private equity funds. Our deep knowledge of the private equity industry and the associated structures involved allows us to provide first rate legal and commercial input.
Should you need any advice in respect of your business, please get in contact with your usual Brodies contact or one of the contacts listed below who will be happy to assist.
