Deals Dispatch - UK Technology

In our Q1 report, we noted that macroeconomic uncertainty and rapid advances in AI were prompting buyers to take a more selective approach to technology investments. Against that backdrop, we are not surprised to see a mixed picture emerging in Q2 2026. While sentiment towards parts of the software sector has become increasingly cautious, deal activity remained healthy, supported by both active strategic acquirers and PE investors, and continued competition for high-quality assets.

For owner-managers, the implications are becoming clearer: buyers remain willing to place attractive valuations on differentiated businesses with strong recurring revenues and clear growth strategies but are increasingly focused on the durability of earnings and competitive advantage in an AI-enabled world.

The UK economic backdrop remained relatively stable through much of Q2, with CPI holding at 2.8% through April and May and the Bank Rate remaining at 3.75%. While both domestic political and global geopolitical uncertainty increased towards the end of the quarter, the impact on technology M&A activity so far appears limited, with buyers continuing to focus on long-term growth opportunities.

UK technology M&A activity remained healthy during Q2 2026, with 164 transactions recorded during the quarter. While quarterly volumes have fluctuated, underlying activity has remained relatively stable over the past three years. This is particularly noteworthy given the range of events that have affected financial markets during that period, including the announcement of US "Liberation Day" tariffs in April 2025. Despite periods of uncertainty, buyers have continued to actively pursue technology assets, underpinned by the sector's attractive long-term growth characteristics.

Total disclosed deal values for the quarter were £6.7 billion, down 42% on Q1 and 29% year on year, reflecting the absence of the larger transactions that had driven Q1's £11.4 billion total. The mean disclosed deal value was also down 42% quarter on quarter at £58 million.

Private equity activity remained particularly strong, with deal volumes increasing 12% quarter on quarter (to 29 transactions) and 61% year on year. PE deal values, however, fell 52% year on year to £2.0 billion (see Observations below).

• Carve-outs feature more prominently: Large corporates continue to assess divisional performance and capital allocation, leading to a growing number of non-core disposals. There have already been eight UK technology carve-outs announced in H1 2026, compared with ten across the whole of 2025, suggesting the trend is gaining momentum. An example this quarter was the Inspirit Capital backed carve-out of the UK division of IT solutions business Converge Technology Solutions from its Canadian parent.
• UK AI expertise attracts global buyers: OpenAI's acquisition of Edinburgh- and London-based AI consultancy Tomoro marks the foundation of its new Deployment Company, a venture backed by more than $4bn of capital from TPG, Bain Capital and Brookfield. Combined with Accenture's acquisition of Faculty earlier in the year, these transactions reinforce the strength of the UK's AI talent pool and highlight continued strategic demand for businesses that can help enterprises deploy and operationalise AI solutions at scale.

• PE volume and value are telling different stories: Private equity deal count increased 61% year on year, while disclosed deal value fell 52% over the same period. Rather than signalling a pullback in activity, the data suggests sponsors are pursuing more niche opportunities and bolt-on activity, while remaining selective around larger platform investments. This reflects a market that remains active, but one where investors continue to scrutinise growth durability, particularly across software businesses navigating the implications of AI-driven disruption.
• UK capital markets show signs of life, though the backdrop remains challenging: UK IPO proceeds more than trebled in H1 2026 compared with the prior year, supported by listing reforms and measures aimed at improving market competitiveness. For technology businesses, however, the more notable development may be the emergence of private liquidity solutions. Moneybox's £45 million employee share sale on the London Stock Exchange's new PISCES platform, following Wayve's £63million transaction in early July, suggest founders and employees are taking advantage of the opportunity to access liquidity in advance of, or as an alternative to, pursuing a traditional IPO or trade sale.
• Valuations continue to reward differentiation: The gap between premium and average assets remains pronounced across the technology sector. Buyers continue to place a premium on businesses with clear differentiation, recurring revenues and defensible market positions, while more commoditised providers face greater valuation pressure. In IT managed services, for example, sub-scale providers can trade at 3-6x EBITDA, whereas acquisitions bringing specialist capability, sector expertise or strategic value can attract multiples of 8-10x EBITDA.

Against the backdrop of continued technological disruption and evolving buyer priorities, we expect lower mid-market technology M&A activity to remain healthy over the next 12 months, albeit with increasing selectivity.

The emergence of AI is likely to widen the gap between winners and losers across the sector. Businesses with proprietary data, deep sector expertise and mission-critical customer workflows should continue to attract strong buyer interest and premium valuations, while more commoditised providers may face increasing scrutiny around differentiation, pricing power and long-term growth prospects.

As a result, we expect valuation dispersion to remain a defining feature of the market. While overall multiples may not change materially , we anticipate a polarisation effect with high-quality technology businesses demonstrating clear strategic relevance and durable competitive advantages continuing to achieve strong outcomes.

Artificial intelligence is reshaping the software landscape, but not all businesses are equally exposed. While public market valuations for many horizontal SaaS companies have come under pressure amid concerns over AI-driven disruption, vertical software providers have proved more resilient. Businesses that own industry-specific data, support regulated processes or sit at the centre of critical customer workflows continue to benefit from strong competitive positions.

This is particularly relevant for lower mid-market software businesses, many of which have been built around deep sector expertise rather than breadth and scale. A compliance platform serving the health and social care sector, for example, benefits from years of accumulated regulatory knowledge and workflow integration, while a specialist construction management solution may hold unique project and operational data that becomes more valuable when enhanced by AI. In these cases, AI is often strengthening the existing proposition rather than replacing it.

The theme is increasingly evident in M&A activity. Buyers are placing greater emphasis on defensible market positions, customer stickiness and ownership of valuable data, while businesses offering more generic functionality face greater scrutiny around long-term differentiation. For owner-managers, the challenge is no longer simply adopting AI, but demonstrating how it improves customer outcomes, automates high-value workflows and reinforces an already defensible market position. Businesses that can do both are likely to remain attractive acquisition targets in an evolving market.

• Strong performance for AI-linked equities, weaker for UK domestics: the Nasdaq-100 rallied over 20% in Q2, its best quarter since 2020, driven by AI infrastructure and semiconductor demand, while the FTSE 250 traded a narrower range as domestic inflation and rate uncertainty weighed on sentiment. Software names generally held up better than the broader UK index. The spike in the BVP Cloud emerging index at the end of May was mainly due to company specific results in the index including Snowflake.
• Capital markets recovery remains fragile: While UK listing markets are showing tentative signs of improvement, supported by increasing IPO activity and initiatives such as PISCES, they remain some way from providing a compelling alternative to private ownership for many technology businesses. No UK technology take-private transactions were recorded in Q2, although continued inbound M&A interest highlights the attractiveness of UK technology assets to overseas buyers. This suggests the slowdown in take-private activity reflects market timing rather than a fundamental shift in investor appetite for the sector.

*Excludes deals with no reported deal value. 

• Overall lower mid-market activity cooled quarter on quarter but remains well ahead year on year: Deal volume and value both eased from Q1 levels but remained significantly above Q2 2025, outperforming the year-on-year growth seen across the wider market. The lower mid-market continues to benefit from a larger pool of founder-owned businesses pursuing succession and growth-capital transactions, as well as strong demand from cash-rich trade acquirers and PE-backed platforms seeking bolt-on acquisitions.
• PE activity surged in the lower mid-market: Unlike the broader UK tech market, where PE deal value declined year on year, lower mid-market PE volume and value increased strongly both quarter on quarter and year on year, pointing to a concentration of investor appetite at the smaller end of the market. This reinforces the continued depth of buyer appetite for high-quality lower mid-market technology assets.
• Most active sectors: IT consulting was the most active sub-sector this quarter with 24 deals, continuing to lead deal count across the wider UK technology market. Examples include Acora's acquisition of HANDD, Logiq's acquisition of Savient and YFM's investment in Swanky.

Sources for the article: Bank of England, ONS, Nasdaq, Morningstar, Megabuyte.