2025 was anticipated to be a recovery year in global deal making, driven by greater economic and political stability following US and UK elections in late 2024, and expected interest rate cuts as inflation eased. However, 2025 proved more challenging than anticipated. Economic uncertainty, geopolitical tensions and new tariff announcements created hesitation in the market, with many deals paused early in the year as buyers and sellers waited for clarity.

The industry remained the UK’s second most active industry by volume, but headwinds slowed activity. UK TMT deal volumes fell 4% year-on-year to September 2025, broadly in line with Europe’s 3% decline. Deal value dropped more sharply, down 19% from £37.9bn to £30.6bn, while Europe saw a 25% fall. In contrast, the US market strengthened – deal volumes held steady, but average deal size rose from $151m to $209m, driving total value up 37% to $565bn. Private equity buyouts accounted for about 40% of UK TMT deal volume, and 75% of these were add-ons to existing platforms (up from 73% last year), underscoring PE investors’ continued appetite for buy-and-build strategies.

The bar for investment has increased but capital remains available

In 2025, capital remained available, but investors were more selective. Appetite for strong TMT businesses persists however, the threshold for what investors consider to be good has noticeably increased. Investors now prioritise profitable growth, strong unit economics and resilience in a higher cost-of-capital environment. This represents a clear shift from the ‘grow at any cost’ approach in the era of low interest rates.

Our recent tech survey shows businesses responding by focusing on profitable customer cohorts, streamlining operations through automation and AI, and reducing sales and marketing spend. While overall deal volumes fell, competition for high-quality assets pushed valuations up and extended diligence timelines.

The UK and London remain Europe’s tech hub

Despite the small decrease in deal activity, the UK remained Europe’s largest market for TMT deals representing 22% of deals to September 2025 (LTM), ahead of DACH (19%) and Nordics (14%). London led with 40% of England’s TMT activity.

US investors stay highly engaged – 29% of UK deals involved US sponsors versus 15% across Europe. This reflects our survey findings of growing enthusiasm for US partnerships.

AI, cyber security and vertical SaaS assets are in highest demand

• AI remained the dominant theme, attracting 53% of global VC investment in H1 2025 (Pitchbook). AI-native platforms command premium valuations, often 25–30x revenue, especially for mission-critical functions. Buyers demand robust models, retention of key engineers, and evidence of adoption, reflecting concerns after an MIT study found 95% of enterprise AI pilots failed to deliver measurable impact.
• Cyber security proved resilient, supported by regulations like NIS2, DORA, and the UK’s Cyber Security and Resilience Bill. These rules make cybersecurity a legal requirement, creating stable, regulation-driven revenue streams. Deals remain strong despite higher rates, with notable transactions such as Sophos’ $859m acquisition of SecureWorks.
• Vertical SaaS platforms such as JobLogic (field service management) and Learnosity (edtech) – both supported by RSM in 2025 exits – continued to attract premium multiples due to strong retention and cross-sell potential. Demand is expected to remain high into 2026.

AI is adding complexity and driving a change in the way software businesses price

AI adoption is disrupting the traditional SaaS model of predictable recurring revenue. Vendors are experimenting with hybrid pricing, combining subscriptions with usage, credit, or outcome-based pricing. While these models can strengthen customer alignment and retention, they add complexity for investors assessing revenue predictability and valuation.

Other factors continued to shape TMT deal-making:

• Tougher regulatory environment – major tech transactions, particularly those involving AI and data-critical assets, face tougher regulatory oversight. The UK’s Digital Markets, Competition and Consumers Act and the EU’s AI Act (effective 2025), combined with rising cybersecurity regulation, are driving deeper diligence, more third-party reviews, and longer deal timelines.
• Valuation expectation gap – many sellers remained anchored to 2021’s the higher valuations, creating a divide with investor expectation. Investors have tried to bridge this gap through alternative structures such as earnouts and deferred consideration.
• UK tech firms are struggling to recruit and retain skilled tech talent – competition for skilled technology talent remained intense. Global giants like Meta and Google offered premium packages for AI specialists, leaving mid-market UK firms struggling. Skilled tech visa applications fell 10% year-on-year in 2024, and 27% of our survey respondents cited talent retention as their biggest challenge.