Record M&A Activity Signals Investor Appetite for UK Assets

The UK dealmaking market has hit a 26-year high in the first two months of 2026, marking a significant turnaround in merger and acquisition activity. The surge has been driven predominantly by foreign buyers racing to acquire British companies, suggesting that international investors view UK assets as attractive despite the challenging domestic environment.

This resurgence in dealmaking activity comes at a time when UK businesses face considerable headwinds. The domestic economy remains fragile, with retail sales rebounding only modestly, rising 2.7% in January but remaining 1.5% below pre-pandemic levels. Meanwhile, borrowing costs have remained persistently elevated, with 10-year gilt yields at 4.53% and 30-year yields at 5.35%, constraining financing conditions for businesses.

Foreign Capital Capitalises on Valuation Opportunities

The wave of foreign takeovers suggests that international acquirers are capitalising on valuation opportunities in the UK market. Recent high-profile transactions include NatWest's £2.7bn acquisition of Evelyn Partners, which combines £128bn in assets under management and is expected to deliver a 20% boost in fee income alongside £100m in annual cost savings.

Sterling weakness has also played a role in attracting foreign buyers. The pound has faced persistent pressure, weakening against the euro to €1.1484 amid political uncertainty and signals that the Bank of England could cut rates as early as March. A softer pound makes UK assets cheaper for overseas acquirers while raising import costs and squeezing margins for domestic businesses.

Market Sentiment Improving Despite Underlying Fragility

UK and European shares have pushed higher, with industrials and tech sectors leading gains, pointing to improving sentiment among investors. However, this equity optimism has not yet translated into faster customer payments or easier trading conditions for small and medium-sized enterprises, which continue to face significant pressures.

The dealmaking surge contrasts sharply with the challenges facing SMEs, where one in eight pubs is now in severe financial distress and businesses face potential cost burdens from proposed regulatory changes. Nevertheless, the record M&A activity demonstrates that larger corporate assets and financial services businesses remain attractive to international capital seeking exposure to the UK market.