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Key takeaways
The M&A market is bifurcating—and only one side is winning. US M&A deal value reached $1.2 trillion in the first five months of 2026, nearly double the $603 billion in the same period a year ago, even as deal volume dipped 4%. The deals getting done share a common trait: They’re resilient across a range of rate, growth, and tariff scenarios. Leaders who wait for macro clarity will find fewer opportunities and higher prices.
AI deal targets are drying up even as AI investment soars. Two years into the AI megadeal cycle, acquirable AI-native targets are increasingly scarce. Dealmakers seeking AI exposure may need to pursue smaller targets or develop capabilities organically. Acquirers must assess whether AI will accelerate or erode a target’s value in the next 3–5 years.
The middle market needs a new catalyst—and AI–private equity (PE) partnerships may provide it. At the current pace, clearing existing PE inventory would take a near-record nine years. But a new playbook is emerging: PE firms are partnering with AI companies to rapidly transform middle-market portfolio companies, potentially breaking the logjam.
Fewer deals, much bigger bets
The first half of 2026 delivered an M&A market paradox: Deal volume was stagnant even as overall US deal value soared. The market has been top-heavy for a couple of years. Based on the potential for reduced policy volatility and a broader economic recovery, many expected the deals market to normalize. However, this has not happened and the concentration has continued.
There were 4,653 deals worth $1.2 trillion in the first five months of 2026, compared to 4,851 deals worth $603 billion in the same period a year earlier (Note: Most deals do not have a disclosed value). Much of the difference came from megadeals: 39 transactions valued at $5 billion or more have been announced in 2026—more than 50% higher than in the same period of 2025. The value of those megadeals nearly tripled, reaching $957 billion compared to $325 billion in the year-ago period. Around a quarter of megadeals in each of the past two years were AI-motivated, including those tied to the broader AI ecosystem (e.g., building or supplying data centers).
If megadeals continue at their current pace, 2026 has the potential to be the strongest year for deals over $5 billion since 2021 and the second strongest of the past decade.
Big numbers also grabbed headlines in capital markets. Forty-six traditional IPOs raised $28.2 billion through May 31, 2026, compared to 25 traditional IPOs that raised $11.1 billion in the same period a year ago, according to Dealogic. Special purpose acquisition companies (SPACs) jumped, too: 98 SPAC IPOs raised $17.1 billion so far in 2026, compared to 53 SPAC IPOs that raised $9.6 billion a year ago.
Markets are also tantalized by the prospect of several major technology companies going public in 2026, some of which could be among the largest IPOs in history.
Macro-insensitive dealmaking: a healthier deal environment
Despite the lackluster volume, the deals getting done suggest a more disciplined M&A environment, with stronger rationales and clearer paths to shareholder value creation. A deals landscape beset by uncertainty a year ago has evolved into a period of purposeful structural transformation.
A defining characteristic of the deals getting done this year is macro insensitivity. The strongest transactions in 2026 are not dependent on interest rate cuts, GDP growth, or trade policy resolution. They have a clear strategic fit that makes the deal thesis resilient across a range of macroeconomic scenarios. That makes for a fundamentally healthier deal environment—driven by conviction rather than conditions.
Instead of the partial paralysis of a year ago, or the rapid dealmaking pace of the post-pandemic period, business leaders are now acting with intentionality. The market is increasingly rewarding strategic clarity over speed or scale alone.
Today’s M&A environment echoes 2014–15, when a handful of idiosyncratic drivers—tax inversions, media consolidation, the early days of streaming—explained most of the spike in large deals. The broad macroeconomic tailwinds that drove volume of all sizes in 2021 are absent. This suggests that today’s idiosyncratic drivers—intellectual property, innovation, and platform buildouts—will continue to drive a disproportionate share of large deals, while smaller transactions lag. Recent examples illustrate the pattern: Gilead and Lilly’s acquisitions underscore innovation-driven pharma pipeline strategies and a transaction like Amazon–Globalstar in satellites represents a platform buildout designed to create durable structural advantages.
The lesson from 2014–15 is clear: Companies that recognized the trend early and acted with conviction captured disproportionate value. Those that followed the crowd often found that regulators had caught up or the best targets had been taken. The same dynamic is playing out now.
Examples of macro-insensitive dealmaking:
Healthcare. While consolidation has been a major theme in recent years, a growing number of deals are driven by efforts to reduce the cost of care, improve margins, or expand within high-growth markets such as behavioral and home health. These deals are justified by structural demand, not cyclical conditions. See our healthcare services sector outlook for more insights.
Pharma and biotech. Drug pipelines need replenishment, and targets that reach critical Food and Drug Administration (FDA) approval stages with differentiation versus standard of care will transact regardless of macroeconomic conditions. Companies are making more—but smaller—bets on potential future drugs, driven in part by the recognition that drug development is increasingly global and, thanks in part to AI, moving faster than ever. See our biopharmaceutical sector outlook for more insights.
Consumer markets. Decades of declining growth and misaligned portfolios are forcing change. Companies are making selective acquisitions for assets aligned with consumer trends—wellness, experiences—while divesting non-core assets. Deals are tied to long-term portfolio reshaping, not short-term economics. See our consumer markets and CPG sector outlook for more insights.
Insurance. Acquirers are moving beyond domestic scaling to purposeful international expansion, targeting countries such as Japan, South Korea, the United Kingdom, and Germany that have favorable regulatory regimes and valuations. See our insurance sector outlook for more insights.
The AI paradox: capex soaring, deal targets scarcer
AI remains a powerful force in dealmaking, but its role is evolving in ways the market has not fully absorbed.
Hundreds of billions of dollars continue to pour into AI investment: data centers, semiconductors, energy infrastructure, and AI-native software. Many investors are pursuing opportunities in "physical AI"—the tangible infrastructure where demand for computing power is driving massive capital spending.
However, two years into the AI-driven megadeal cycle, acquirable AI-native targets may be increasingly scarce. The wave of hyperscale and infrastructure acquisitions has absorbed the most obvious targets. Companies that need AI capabilities are increasingly turning to greenfield investment—funding new data center builds, for example—and strategic partnerships rather than outright acquisitions.
This shift has important implications. AI capex is not falling off, but dealmakers seeking AI exposure may need to pursue smaller targets or develop capabilities organically. Those who assumed the AI M&A wave would accelerate indefinitely should recalibrate.
Meanwhile, AI is reshaping valuations across sectors in ways that create both opportunity and existential risk. Acquirers must now assess every target through an AI lens with three dimensions:
Erosion: Will AI compress the target’s margins or disrupt its business model? Many software companies that have enjoyed strong valuations for years based on per-seat licensing and SaaS models are now facing a reckoning. AI’s ability to "vibe code" custom applications and function as a super-app is threatening these models. Software valuations have tumbled accordingly.
Acceleration: Can AI expand margins, enable new revenue streams, or reduce costs? Targets whose data is AI-ready and whose business models benefit from AI integration are commanding valuation premiums. Companies viewed as AI beneficiaries see outsized multiples; companies where the AI impact is cloudy may struggle to attract a bid.
Readiness: Does the target have the data infrastructure, talent, and organizational design to execute on AI? A business that looks defensible through a traditional lens may be vulnerable to AI disruption—a vulnerability that may not appear in current financials but is likely to surface within 3–5 years.
Scale as margin resilience: why getting bigger still matters
While the market has shifted away from deals done purely for scale, it would be a mistake to declare scale-driven M&A dead. The rationale has changed, but the logic remains powerful—especially in the current operating environment.
Halfway through 2026, dealmakers are contending with volatile input costs driven by the war in Iran and ongoing uncertainty around the Strait of Hormuz, unresolved trade policy, and persistent inflation that has kept interest rates elevated. In this environment, larger businesses with pricing power can better absorb cost shocks and protect margins.
The result is a renewed case for horizontal consolidation to achieve margin resilience. Companies that scale up can withstand volatile input costs, diversify supply chain risk, and invest in transformation (including AI) from a position of strength.
The current antitrust environment creates a window for this activity. Regulatory scrutiny, while always a factor, is lighter than it has been in years for most sectors. But the lesson from past consolidation cycles is that this window won’t stay open indefinitely. Companies that recognize an industry consolidation wave and move early capture better targets at better valuations. Those who wait may find the best partners taken or regulators starting to push back.
Although consolidation is still a driving force in industries such as financial services, media, logistics, and energy, the strategic justification has matured. The strongest consolidation deals in 2026 are built around durable competitive advantages including margin resilience, supply chain control, and the operational scale needed to deploy AI effectively.
The middle market: can AI-PE partnerships break the logjam?
Middle-market activity, which often depends more on macroeconomic fundamentals than larger deals, remained sluggish in the first half of 2026. While big funds were active, the PE middle market continued to reflect nervous tension—particularly around 2021–22 vintage assets purchased at peak valuations.
At the current pace, clearing existing PE inventory would take a near-record nine years. This has increased reliance on continuation funds and other liquidity solutions.
Fundraising has become increasingly difficult as limited partner (LP) expectations clash with the reality of 2026 performance. Many assets purchased at peak valuations cannot be exited at acceptable returns, which in turn makes it harder to raise new capital. We believe a consolidation of funds, especially in the middle market, is likely.
The hoped-for macro tailwinds that would traditionally restart middle-market activity—rate cuts, GDP acceleration, trade stability—have not fully materialized. Without those, the middle market needs a different catalyst.
A potential one is emerging: the growing number of partnerships between financial sponsors and AI technology companies. Several leading financial sponsors—including Blackstone, Hellman & Friedman, and Goldman Sachs—have launched enterprise AI services platforms in partnership with frontier AI companies. These new platforms represent a potentially important expansion of the PE value creation playbook. The traditional PE middle-market model—acquire a business, hire a stronger management team, install better systems and processes, grow EBITDA through operational maturation—is being augmented by a faster, more scalable approach: using AI to rapidly transform mid-market businesses into higher-margin operations.
Instead of asking, “Can we install better systems over a 3–5 year hold?” PE firms can now ask, “Do we have a leader who knows how to use AI to transform this business?” Retooling a middle-market company operating in one or two territories is fundamentally different—and faster—than retooling a global Fortune 500 corporation. That asymmetry could give PE firms a compelling reason to re-enter the middle market.
If this model scales, it could provide the spark that the middle market has been waiting for. Several forces are already creating opportunities: The IPO window is selectively reopening, continuation vehicles and structured solutions are being used more creatively, and dry powder must be deployed. The question is whether AI-enabled value creation gives PE firms enough confidence to pull the trigger.
Follow the growth: the data behind conviction
Data shows that the market is rewarding buyers who pursue durable growth.
Since 2013, 76.9% of buyers had positive revenue growth, and both the buyer and target had positive revenue growth in 51.1% of deals, according to PwC analysis of data from S&P Capital IQ. During the post-Liberation Day period, those numbers rose to 82.9% and 55.4%, respectively—a signal that growth-oriented buyers are now dominating.
The market is also rewarding them with returns. Since 2013, the median excess return was up 0.6% for buyers with positive revenue growth and down 0.2% for buyers with negative revenue growth. The 75th percentile return for growing buyers was up 3.8%. Middle market deals have been particularly rewarding for these buyers since Liberation Day, earning an additional 0.5% excess return.
Examples of deals aimed at durable growth can be found across sectors:
Medtech. M&A remains critical as the primary source of innovation in the industry. Companies are pursuing category leadership to permanently lift their long-term growth trajectory. Medtech deals through the first half of 2026 remain near the highest levels in over a decade. See our medtech sector outlook for more insights.
Real estate. The cost of capital used to be the most important factor, but now it’s durability of cash flows, technology, and operations. Investment capital is concentrating in real estate platforms that can scale in markets where there’s reliable, structural demand. See our real estate sector outlook for more insights.
Transportation. Logistics companies are acquiring capacity—trucks, warehousing, port assets—in anticipation of more onshoring and structural shifts in trade flows. These deals are designed to create durable capacity advantages. See our transportation sector outlook for more insights.
A turbulent operating environment
Macroeconomic factors and geopolitics continue to create uncertainty across operations, pricing, supply chains, and capital costs.
The hoped-for stabilization in trade policy has not arrived. Companies are modeling scenarios daily, with unpredictability requiring constant vigilance. Interest rates remain elevated as the Federal Reserve grapples with persistent inflation concerns. The oil shock triggered by the war in Iran has pushed benchmark rates higher still, limiting the prospect for near-term easing. Uncertainty over the war’s outcome and duration remains a major economic variable.
Still, we believe near-term deal activity will likely resemble the period following the April 2025 trade war launch, with activity led by financially strong buyers. Large transactions will continue to dominate, particularly those involving assets with clear growth or strategic value.
Despite these uncertainties, there are reasons for CEO optimism. Corporate profits remain strong. A lighter regulatory environment and favorable tax policy are providing tailwinds for dealmakers willing to act. And PE firms have a strong incentive to transact—whether through M&A or IPOs—to release some of the pent-up pressure from holding assets for longer than their investors expect.
What this means for leaders
The bifurcated market creates different imperatives depending on where you sit:
If you have conviction in your thesis and a strong balance sheet: act now. Early movers in M&A cycles capture disproportionate value—better targets, lower prices, more time to create value post-close. The cost of inaction is growing. Data from past cycles shows that deals done earlier, even amid uncertainty, offer greater flexibility and more value creation runway.
If you’re a PE fund with aging portfolio companies: explore structured exits and new value creation models. Continuation vehicles, selective IPOs, and AI-enabled operational transformation (through new enterprise AI services platforms) are all levers. Waiting for macro improvement is a risky strategy.
If you're a middle-market buyer: differentiate through specialization and speed. As large funds turn to the middle market to find opportunities, smaller funds need to focus on specific sectors or subsectors to remain competitive. Bringing in operating partners who understand AI-driven transformation can be a meaningful differentiator.
Stress-test every thesis against a no-tailwind scenario. The strongest deals in this market are macro-insensitive. If your deal thesis requires rate cuts, GDP growth, or trade resolution to work, revisit the assumptions. If the deal works without those tailwinds, you likely have a durable thesis.
Assess AI as both opportunity and scarcity risk. The window for acquiring AI-native targets is narrowing. At the same time, AI readiness is becoming a valuation driver for targets across all sectors. Build AI assessment into every diligence process.
Start value creation planning earlier. Leading acquirers are moving value creation planning forward into due diligence. Integration timelines are faster than ever. Instead of first-100-day plans, dealmakers need first-30-day plans. Successful integrators define a target operating model during diligence, translate decisions into quantified synergy plans, and execute through a tight integration management office cadence post-signing.
The bottom line
The first half of 2026 proved that dealmakers can thrive amid uncertainty, but only when they act with conviction and strategic clarity. The M&A market has split into two lanes: Large, thesis-driven deals are surging, while the broad middle market searches for a catalyst. Winning deals in both categories will be those that are resilient across a range of macroeconomic scenarios.
The market is now rewarding strategic clarity: a well-defined thesis about why a deal will generate durable growth, executed with speed and discipline. For leaders who commit to that standard, the second half of the year offers significant opportunities.
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