M&A is gathering momentum in 2026, but the recovery is still running on two tracks. In the first eight months of the year, aggregate deal value rose by 15% compared with the same period in 2025, and the volume of megadeals (those valued at $10 billion or more) surpassed the highs of the previous boom. Beneath those headline numbers, however, the picture is more subdued: activity remains concentrated in the largest transactions, while deal volumes across much of the market have yet to return to longer-term norms. BCG’s M&A Sentiment Index tells a similar story: at 83, global sentiment has improved since the start of the year but remains well below its long-term average of 100.
The contrast is striking because several conditions for a stronger recovery are already in place. Capital remains available, financing conditions are workable despite rising interest rates, and pressure on both companies and financial sponsors to reshape portfolios is building. Yet many potential transactions struggle to move forward. Valuation gaps persist, attractive assets remain scarce, and uncertainty around business models and future performance can make deals hard to justify. AI adds another layer of uncertainty, rapidly reshaping competitive positions, revenue pools, and the outlook for entire business models.
The constraints on dealmaking are shifting from buyer appetite and available capital to execution. The key question now is whether enough attractive opportunities can overcome the economic, operational, and regulatory hurdles between intention and closing. How well the market copes with these execution constraints may determine whether today’s recovery remains concentrated at the top or finally broadens.
Large-Scale M&A is Driving the Recovery
The global M&A market continues to demonstrate resilience and momentum, with activity steadily increasing despite ongoing challenges. Aggregate deal value in the first eight months of 2026 increased by 15% year over year and exceeded the 10-year average by 11%. (See Exhibit 1.)
Although headwinds such as geopolitical tensions and shifting tariff policies initially caused some dealmakers to pause, many have since returned to the negotiating table, particularly on the corporate side. The number of large-scale deals (those valued at greater than $1 billion) is near a record high level, but the market has yet to fully recover. Still, deals driven by strategic growth, capability enhancement, or improved resilience continue to advance. Once again, North America has been the most active region for acquisitions by value, and the technology sector has continued to lead among industries. (See the sidebar, “Region and Sector Insights.”)
Region and Sector Insights
The picture changes, however, for deals valued at $250 million to less than $1 billion—and even more so for those under $250 million. Deal volumes in these segments remain below their longer-term averages, indicating that the global M&A market has not yet regained normal levels of breadth. These deal-volume figures are not adjusted for inflation, which means that the shortfall in smaller transactions relative to the longer-term average is even more pronounced. This pattern is consistent with broader market sentiment and aligns with the BCG M&A Sentiment Index, which forecasts activity across the M&A market.
Regional and Sector Performance
North America continued to lead global M&A activity over the first eight months of 2026, accounting for more than half of aggregate global deal value and posting significant year-to-date gains. Meanwhile, Europe recorded the strongest percentage growth, but Asia-Pacific experienced a decline. (See the second exhibit.)
- Deals involving targets in North America had a total value of $1.2 trillion, an increase of approximately 17% versus the first eight months of 2025. The vast majority of these deals (worth $1.1 trillion) involved targets in the US, which accounted for 54% of overall global M&A activity. US companies acquired most of these targets. Activity in Canada was broadly stable compared with last year (+3%) and remained above average.
- Activity in South and Central America fell by 22%, returning to average levels. This followed an exceptionally high level of activity in 2025 that was inflated by an announced and subsequently withdrawn transaction involving Panama Ports Company and CK Hutchison’s non-Chinese port assets.
- European M&A value totaled $541 billion, a 43% increase compared with the first eight months of 2025. The UK remained Europe’s largest M&A market, with deal value rising by 85% to $178 billion. Deal value also increased strongly in Germany (149%), Ireland (127%), the Netherlands (79%), France (27%), and Spain (19%). In contrast, aggregate deal value declined in Switzerland (–36%), the Nordics (–15%), and Italy (–7%).
- In Africa, the Middle East, and Central Asia, aggregate M&A deal value increased by 102%, returning to average levels. Even so, activity remained significantly below the peaks recorded in 2019 and 2021.
- Deal value in Asia-Pacific declined by 27% to $245 billion, after an uptick last year. Bright spots included Malaysia (300%), Indonesia (105%), Singapore (79%), Hong Kong (23%), and Taiwan (18%). However, these gains were not enough to offset declines in mainland China (–55%), Japan (–44%), South Korea (–23%), and India (–13%). Australia was essentially flat (1%).
Most other sectors showed positive momentum as well. Consumer goods deal value rose by 20%, recovering from the lows of recent years, while energy increased by 16%, extending its recent strength. Technology, media, and telecommunications rose by 11% and continued to lead all sectors in aggregate deal value, supported by large transactions in media and telcos. Financial institutions and real estate also advanced, with more and larger deals lifting deal value by 12%. Industrials was the only sector to record a decline, with deal value down 20% compared with the first eight months of last year, when the sector was one of the stronger performers.
Private equity (PE) has continued to reemerge as a driver of global deal activity in 2026, building on its rebound in 2025. Sponsor-backed M&A deal value grew by 11% in the first eight months of the year, driven in large part by stronger PE activity in Europe and North America. At the same time, concerns about potential stress in private credit markets and the outlook for software-heavy portfolios continue to weigh on the sector. Venture capital, meanwhile, remains heavily concentrated in AI, which is attracting capital at a pace reminiscent of previous technology booms.
For an in-depth discussion of sector trends, see BCG’s midyear 2026 M&A update.
Data and Methodology Note
Our analysis draws primarily on data from LSEG, supplemented by the BCG M&A Sentiment Index, BCG M&A Explorer data, and other data sources as indicated. For our analysis of aggregate M&A value and volume, we include all announced majority transactions, including pending, partially completed, completed, unconditional, and withdrawn deals. We exclude self-tenders, recapitalizations, exchange offers, repurchases, acquisitions of remaining interests, minority-stake purchases, privatizations, and spinoffs. We apply transaction-size thresholds where indicated, based on deal value including assumed liabilities. Year-to-date figures cover the period from January 1 through August 31 of each named year.
Improving Sentiment and Outlook
BCG’s M&A Sentiment Index strengthened during 2026. The index combines fundamental drivers—including business confidence, valuation levels, and interest rates—with GenAI-based analysis of corporate communications. The global reading of 83 marks an improvement from 79 at the beginning of the year, but sector-level results illustrate how uneven the recovery remains. Sentiment is strongest in financial institutions (108), health care (100), and energy and utilities (96). Industrials (66), consumer (64), and technology (52) showed weaker sentiment. (See Exhibit 2.) Technology reflects a deal market shaped by AI: sentiment remains below average amid scrutiny of software business models exposed to disruption, even as AI-native assets attract strong demand.
The drivers behind these headline numbers are fairly clear. Corporate balance sheets and private equity (PE) funds still hold substantial dry powder, and financing conditions remain workable even though interest rates have stayed well above their post-2020 lows. At the same time, the need to transact is increasing: companies face growing pressure to realign their portfolios through acquisitions and divestitures, and financial sponsors are under mounting pressure to exit portfolio companies and return capital to limited partners.
However, persistent headwinds offset these tailwinds. Geopolitical risk remains a defining constraint in 2026. Energy price volatility, trade frictions, and conflict-related uncertainty complicate deal underwriting and extend transaction timelines, especially for energy-intensive and cross-border deals. The market’s sensitivity to financing and macroeconomic conditions could be tested if central banks raise interest rates beyond current expectations or if the outlook for growth weakens.
Why the M&A Recovery Remains Uneven
Looking beyond the headline numbers, our analysis and transaction experience point to several forces that are contributing to the uneven recovery in M&A.
The middle is missing. Near-record deal value is not synonymous with a full market recovery. Although large deals have returned with force, small-cap and midcap transactions remain below longer-term norms.
M&A sentiment, boardroom appetite, available capital, and financing conditions suggest that demand is not the primary constraint. The harder problem lies in the opportunity set itself: too few assets are coming to market with the combination of price, quality, readiness, and visibility that would enable buyers to underwrite a deal with conviction. In some cases, the valuation gap is too wide; in others, the asset is not sufficiently prepared, the quality is in question, or the outlook is too uncertain.
AI-related disruption adds another layer of complexity in parts of the market, making it harder to assess the durability of business models, the quality of earnings, and ultimately what an asset is worth.
Conviction determines what clears. The market is bifurcating not only on the basis of transaction size, but also in terms of asset quality and the strength of the underlying deal thesis. Buyers are willing to compete aggressively in situations where they can underwrite growth, competitive advantage, cash generation, and a credible path to value creation. The difficulty lies elsewhere: businesses with uncertain business models, ambitious seller expectations, or value creation cases that rest on too many assumptions can struggle to generate competitive tension—or to clear at valuations that sellers are prepared to accept.
In that sense, a “missing middle” of conviction is compounding the “missing middle” of assets. Capital is available, but it is flowing disproportionately toward transactions where buyers can get comfortable with both the downside and the upside. Where that conviction is absent, even well-capitalized buyers may prefer to wait.
A widespread tendency toward cautious selectivity can create an advantage for strategic buyers in certain situations. A corporate acquirer that can underwrite buyer-specific cost, revenue, or capital synergies may have valuation headroom that a financial buyer, relying primarily on the standalone investment case, does not. That advantage can be especially important for sponsor-owned assets that are mature or have been held beyond the typical exit window but must come to market while caught in persistent valuation gaps. It is not universal—because PE still brings substantial capital and transaction flexibility—but in a more selective market, strategic value that is specific to a particular buyer can make the difference between an asset that remains stuck and one that clears.
AI is fueling M&A but also making some deals harder. AI is becoming a double-edged sword in M&A. It encourages investment and deal activity in some parts of the market, including within the AI ecosystem itself and among non-AI companies acquiring AI capabilities. At the same time, it injects new uncertainty into the durability of business models, revenue pools, competitive positions, and cost structures. For assets exposed to AI-driven disruption, uncertainty can make business plans harder to underwrite, widen the range of plausible outcomes, and increase the valuation gap between buyers and sellers. The sharp correction in software-company valuations earlier this year, coupled with a decline in PE deal activity in software, offers an early indication of this dynamic. In short, AI is both creating new acquisition opportunities and making parts of the existing asset universe harder to price and harder to transact.
Private equity still faces headwinds. PE firms continue to hold substantial dry powder and access to capital, but the industry’s capital-recycling engine is not yet running at full speed. For PE to contribute more extensively to a broader M&A recovery, sponsors need to exit more portfolio companies, return more capital to limited partners, and restart the buy–hold–exit–reinvest cycle.
The growing inventory of mature assets shows how far that process has to go. According to PitchBook, PE firms held more than 33,500 unsold portfolio companies as of June 30, up from about 32,500 at the end of last year and more than double the level of a decade ago. Holding periods are stretching, too: according to Gain.AI, the median holding period among US portfolio companies sold by PE firms in 2025 was 5.3 years, up from 4.3 years for companies sold in 2020. In Europe, median holding periods increased from approximately 4.6 years to 5.8 years over the same period, and roughly one-third of PE-owned assets have now been held for more than seven years. More favorable financing conditions could help unlock some of this backlog, but persistent valuation gaps and uncertainty about the outlook for certain portfolio companies continue to constrain exits.
The result is a substantial stock of mature sponsor-owned assets that lie outside the normal recycling process, holding back an important source of transaction supply for the broader M&A market.
Regulatory risk is shifting rather than receding. Conventional antitrust scrutiny may be less restrictive than in the past in parts of the market. Regulators are blocking fewer transactions and making greater use of conditional approvals and remedies, which has resulted in fewer abandoned deals. But the regulatory burden has not disappeared; instead, the emphasis has shifted. National security screening, industrial policy considerations, foreign investment controls, and foreign subsidy reviews are playing a larger role in determining whether and on what terms a transaction can proceed.
Europe illustrates this shift: the European Commission is revising its merger guidelines to place greater emphasis on considerations such as competitiveness, resilience, innovation, and efficiencies, while the EU Foreign Subsidies Regulation has added another layer of scrutiny for qualifying transactions.
For dealmakers, regulatory executability doesn’t depend only on whether a transaction can ultimately secure approval. The time required, the remedies and commitments imposed, and any resulting constraints on the business can affect the economics of the transaction and in some cases determine whether the original deal thesis still holds.
Factors That Will Shape the Next Phase of the M&A Cycle
Our reading of current market dynamics points to three hypotheses about the shape of the next phase of the M&A cycle.
Dealmakers must clear the execution hurdles. Large transactions and rising aggregate deal value have been the primary drivers of the recovery in headline M&A activity, but the recovery has not yet broadened fully across the market. That pattern points to a shift in the constraints on dealmaking. In recent years, limited confidence, higher financing costs, and a relatively tight supply of capital were among the biggest obstacles. Today, with capital and strategic intent more readily available, the harder question is whether dealmakers can identify enough attractive transactions to value, finance, separate, approve, and close on acceptable terms.
Five gates determine whether a transaction is executable:
- Asset Availability and Readiness. Is there a willing seller, and has the seller adequately prepared the asset for a transaction, by gathering reliable financial and operational data, establishing a clear perimeter, and completing the necessary preparations for separation or exit?
- Economics and Market Clearing. Can the buyer and seller agree on a price that supports a credible investment case and path to value creation, particularly when business models and forecasts remain uncertain?
- Financial Resilience. Can the buyer fund the transaction on terms that remain robust under plausible downside scenarios, including refinancing and syndication risks?
- Organizational Capacity. Do the parties have the leadership attention and resources necessary to conduct due diligence, navigate the period between signing and closing, and execute the required integration or separation?
- Regulatory Clearance. Can the transaction clear antitrust, foreign investment, foreign subsidy, and sector regulation requirements on acceptable terms?
In our view, asset availability and economics are currently the most important constraints on a broader recovery, while regulatory complexity remains a particularly important test of executability for large and cross-border transactions. Financing and organizational capacity seem to be less constraining at the market level today, but they can still determine whether individual deals move forward.
A broader recovery will depend on the market’s ability to convert strategic intent and available capital into transactions that can clear the necessary hurdles and close. Dealmakers need to test the five gates as part of the deal thesis itself, rather than addressing them sequentially only after a preferred transaction has emerged.
Portfolio rotation can broaden the recovery. The binding constraint likely is supply, not demand—and not merely the number of assets, but their readiness. Corporate divestitures are bringing mature and noncore businesses to market in a form that buyers can underwrite, while releasing capital and management capacity for the businesses where the company can win. For financial sponsors, exits do the same work. Ultimately, the market will see supply catch up with the demand potential waiting for it, rather than capital chasing a limited set of quality assets.
Evidence points in this direction. Companies are increasingly using divestitures as tools for reshaping portfolios rather than as reactive disposals, and capital reallocation and strategic focus are among the main motivations behind this trend. At the same time, pressure to revisit portfolio choices is rising: Lazard’s analysis of shareholder activism in the first half of 2026 identifies M&A and capital allocation as the most prevalent campaign objectives.
Alternative deal structures can bridge uncertainty. Strategic urgency often favors prompt action, even when uncertainty makes full ownership hard to justify. A well-chosen transaction structure can help dealmakers navigate that uncertainty. Rather than choosing between a 100% acquisition and no transaction, buyers and sellers can use minority investments, joint ventures, staged acquisitions, earnouts, and rollover equity to share risks relating to valuation, control, regulation, and technology.
Different structures solve different problems. Earnouts and rollover equity bridge valuation gaps. Minority stakes and joint ventures provide strategic access without immediate control. Staged acquisitions preserve options in situations where an asset’s future value or strategic importance remains uncertain. A modular approach is particularly visible in AI, where companies combine equity with partnerships and contractual rights rather than relying solely on conventional control transactions.
In a market where transactions face a greater number of execution hurdles, dealmakers need to consider ownership, economics, governance, and the path to control or exit collectively, rather than as separate decisions. Alternative structures can make otherwise difficult transactions possible, but they can also introduce additional governance and operational complexity. The goal is not simply to get a deal signed, but to choose a structure that will continue to support the strategic objective over time.
The next phase of the M&A cycle is unlikely to be defined by whether large-scale deals continue to raise aggregate deal value. The more important question is whether the recovery broadens—and whether more assets come to market and transact on terms that create value for buyers and sellers. Achieving that broader recovery will require discipline. Competition for scarce, high-quality assets could push valuations higher even as less attractive businesses struggle to find buyers, heightening the importance of distinguishing between genuine strategic conviction and market exuberance.
As deal activity accelerates, buyers will have to deliver on the promise of value creation that justified those deals. Advantage in the next phase of M&A may therefore belong not to those with the most capital or the greatest appetite for deals, but to those that can identify the right opportunities, structure deals for success, and deliver the value they envisioned.
