Introduction

Europe entered 2025 in a climate of persistent uncertainty. Macroeconomic pressures, geopolitical tensions and continued trade friction created a challenging backdrop for dealmaking. Yet, contrary to earlier expectations, the market did not stall; it adapted. What emerged over the course of the year was a two-speed M&A environment. On the one hand, mid-market processes became slower, more diligence-heavy and increasingly structured around risk allocation. On the other hand, large strategic transactions surfaced in cases where buyers had strong conviction, clear industrial logic and access to reliable financing.

For international investors, the key takeaway is that Europe remains an attractive but complex market. Successful transactions increasingly depend on early preparation, a clearly articulated investment thesis and the ability to manage regulatory and execution risks.

Market Trends in Europe

Macroeconomic and M&A market dynamics

The European M&A market operated in 2025 under materially different conditions compared to the low-interest environment of previous years. While inflation began to stabilise, financing costs remained elevated and credit conditions more restrictive. Lenders applied stricter underwriting standards, with a stronger focus on downside protection, stable cash flows and clearly defined value-creation plans. As a result, highly leveraged transactions and businesses with cyclical earnings profiles were subject to greater scrutiny, leading to a more disciplined and risk-aware market environment.

Geopolitical developments, including trade tensions and supply chain adjustments, further influenced investor behaviour. Transactions continued, but with longer timelines, more complex valuation discussions and greater emphasis on execution risk.

Against this backdrop, 2025 was marked by a clear divergence between deal volume and deal value. While transaction numbers remained below 2021–2022 levels, overall deal value increased, driven by a limited number of large, strategically significant transactions led by well-capitalised buyers. This dynamic was particularly visible in Western Europe, where deal volume remained subdued and activity concentrated on larger, more complex transactions.

In contrast to Western Europe, Central and Eastern Europe (CEE) emerged as a clear growth region. Deal volume increased to approximately 1,568 transactions in 2025, up from around 1,281 in 2024, while total deal value rose by more than 40% to approximately EUR 36.6 billion. This development was supported by consolidation trends, stronger economic momentum and continued inbound investment. As a result, CEE has developed beyond a traditional “spillover” market, with both deal volume and value reaching record levels in some datasets.

The UK continued to act as a key deal hub, with activity focused on transactions where risk could be clearly assessed and financed. Several continental markets saw a recovery in deal value, while the Nordics stood out for strong year-on-year growth, driven by sector mix and larger strategic transactions. In the DACH region, activity reflected a clear focus on high-quality assets, with buyers prioritising strategic fit and execution certainty, even as mid-market transactions progressed more slowly.

Cross-border activity remained structurally important in CEE, accounting for a significant share of total deal value. Investors from the US, UK and Germany were particularly active, while Austria emerged as a key investor base, underlining its role as a regional hub for growth and consolidation.

Austria itself offers a useful “micro-case” of the broader European pattern: 2025 saw fewer deals by count but a sharp rise in aggregate disclosed value, driven heavily by a small number of mega-deals (first and foremost Erste Group’s acquisition of a 49% stake in Santander Bank Polska).

Sector performance and key industries

Sector activity in 2025 was characterised by a concentration of deal value in a limited number of strategically relevant industries, in particular energy and infrastructure, as well as technology-driven businesses.

Energy and infrastructure stood out as key sectors by deal value, with an increasing focus on integrated platforms and system-level assets. Transactions were often driven by the need to enhance energy security, strengthen supply chains and achieve greater scale and stability in a more volatile environment. This reflects a broader shift from standalone asset acquisitions toward more comprehensive, long-term strategic investments.

Technology remained a central driver of M&A activity, increasingly acting as a cross-sector enabler. Buyers focused on acquiring software, data capabilities and AI-driven solutions to improve efficiency, automation and competitiveness across traditional industries, including industrials and financial services. As a result, technology-related elements became embedded across a wide range of transactions rather than being limited to the tech sector.

Other sectors, including financial services and industrials, saw more selective activity, primarily driven by consolidation, digital transformation and operational efficiency. Consumer and retail remained more subdued, with larger transactions limited to scalable platforms and businesses with resilient operating models.

Global M&A Comparison: Europe vs the Americas and Asia-Pacific

Compared with the Americas and Asia-Pacific, Europe’s M&A market occupied a middle position in 2025. The Americas, led by the United States, remained the clear leader in deal value, supported by deep capital markets, a high concentration of megadeals and strong momentum in technology-driven transactions. In contrast, Asia-Pacific showed a more uneven picture, with mixed performance across key markets despite continued activity in selected economies.

Europe operated under tighter financial and regulatory constraints than the Americas but offered greater stability than the Asian-Pacific market. Dealmaking was influenced by macroeconomic uncertainty, higher financing costs and increasing regulatory requirements. Nevertheless, transactions continued where buyers had a clear investment thesis and access to capital. In contrast to the Americas, where domestic scale and capital availability supported large transactions, European M&A was more often shaped by cross-border execution, sector consolidation and long-term portfolio repositioning.

Sector trends further underline this positioning. In the Americas, technology-driven and large-cap transactions dominated activity, often linked to AI, digital infrastructure and platform expansion. In Europe, dealmaking was more closely aligned with energy, infrastructure, financial services and industrial transformation, reflecting structural priorities such as energy security and supply chain resilience. Overall, Europe in 2025 was neither the largest nor the fastest-growing M&A market, but it remained strategically relevant, characterised by disciplined dealmaking, cross-border complexity and a strong focus on long-term value creation.

Deal dynamics, structuring and execution

A defining feature of M&A processes in 2025 was continued uncertainty around valuation. Even where buyers and sellers aligned on the strategic rationale, differences remained over recovery timelines, margin sustainability and pricing assumptions, particularly in sectors exposed to cyclical demand, energy costs or regulatory change. This resulted in longer processes, more detailed scenario analysis and an increased focus on diligence linking commercial assumptions to operational performance.

As a direct response, deal structures became more adaptive. Earn-outs, staged acquisitions, minority positions and other risk-sharing tools were used not as “exotics” but as mainstream mechanisms to bridge valuation gaps and preserve momentum. A majority of surveyed dealmakers reported a willingness to use alternative structures, suggesting that in 2026, transaction design will remain a strategic lever rather than a boilerplate negotiation.

Financing and private capital interacted with these structuring trends in a practical way. Many dealmakers expected corporates’ cash reserves to be the most available source of financing and commentary across the market continued to highlight flexible non-bank capital as an increasingly important execution tool, particularly for disciplined sponsors and strategic buyers seeking certainty and speed.

Private equity remained active but more focused. Despite significant levels of available capital, sponsors adopted a more disciplined investment approach, prioritising assets with clear operational value creation potential. At the same time, exit pressures and portfolio management considerations drove increased activity in carve-outs, continuation structures and targeted take-private transactions.

Distressed and portfolio optimisation dynamics also became more relevant. Non-core disposals and restructuring-driven transactions contributed to deal flow, with buyers targeting assets where complexity, such as separation or integration, can be effectively managed.

Cross-border execution remained a central theme, shaped by both geopolitical factors and regulatory requirements. In addition to merger control, transactions increasingly require consideration of foreign investment screening, ESG requirements and operational resilience, particularly in sectors linked to critical infrastructure, technology and regulated industries.

Key Transactions in Europe

Transactions in 2025 illustrate how Europe’s deal narrative was driven by a mix of scale, capability and resilience plays. A selection of notable transactions includes:

Erste Group (Austria) – acquisition of a 49% stake in Santander Bank Polska (Poland)

In 2025, Austria-based Erste Group initiated negotiations to acquire a 49% stake in Santander Bank Polska, one of Poland’s key retail and corporate banks. The transaction, completed in 2026 with a deal volume of approximately EUR7 billion, significantly strengthened Erste Group’s presence in the CEE region. Through its entry into Poland, Erste Group gained access to one of Europe’s most dynamic and rapidly expanding banking markets.

Helvetia (Switzerland) – acquisition of Baloise Holding (Switzerland)

The Swiss insurer Helvetia acquired its domestic competitor, Baloise Holding, in 2025 in a deal valued at approximately USD10 billion. The acquisition brought together two major insurance providers operating across Switzerland, Germany, Belgium and Luxembourg, creating one of the strongest insurance platforms in the European mid-market segment.

Monte dei Paschi (Italy) – acquisition of Mediobanca (Italy)

The approximately EUR13 billion acquisition of Mediobanca by Monte dei Paschi, the oldest bank in Italy, represented one of Europe’s most prominent financial sector transactions in 2025. The deal elevated Monte dei Paschi to the ranks of the continent’s leading banking institutions by asset size.

Keurig Dr Pepper (United States) – acquisition of JDE Peet’s N.V. (Netherlands)

Keurig Dr Pepper completed the acquisition of Dutch coffee conglomerate JDE Peet’s in 2025, with a total transaction value of approximately USD23 billion. The deal gave the US-based beverage giant a substantially expanded presence in the European consumer goods market, particularly across the Netherlands, Germany and France. The transaction created one of the world’s largest integrated coffee and beverage platforms.

Vodafone (United Kingdom) – Merger with Three UK (United Kingdom)

In May 2025, Vodafone and CK Hutchison’s Three UK completed their merger at approximately GBP16.5 billion. The merger created one of the UK’s largest telecommunications providers, enabling significant economies of scale in the development of next-generation 5G infrastructure.

Key Legislative and Regulatory Developments

Regulation continues to play an increasingly central role in European M&A, not only as a legal requirement but as a key factor shaping deal timing, structure and overall transaction certainty. This trend was further reinforced by developments across foreign investment control, merger control and European company law initiatives.

Update to foreign direct investments (FDI) regulations

FDI screening in the EU is moving toward a more harmonised framework. Following a political agreement in late 2025, a revised EU FDI Screening Regulation that will replace the existing framework under Regulation (EU) 2019/452 is expected to be adopted in 2026, with implementation likely beginning in late 2027.

A central change is the move to mandatory screening mechanisms across all Member States, combined with minimum standards and greater coordination at the EU level. While most jurisdictions already have regimes in place, the revised framework will ensure more consistent application, particularly in sensitive sectors such as critical infrastructure, advanced technologies and defence-related industries.

The scope of review will expand. In addition to direct foreign investments, the regime will also capture indirect investments made through EU-based entities that are ultimately controlled or owned by non-EU investors. This significantly limits deal structuring flexibility and increases the number of transactions potentially subject to review.

From a transaction perspective, parties to transactions subject to FDI regulations already need to plan sufficient time for regulatory reviews and consider FDI screening requirements when structuring their deals and will need to do so even more in the future. Mandatory filings and standstill obligations mean that transactions cannot be closed prior to clearance and enhanced coordination across Member States may lengthen approval timelines, particularly in cross-border deals.

In addition, the possibility of post-closing reviews and the increased scrutiny of corporate transactions involving sensitive sectors further heighten regulatory risk. As a result, FDI analysis has become a core element of transaction planning, requiring early assessment and careful structuring to ensure deal certainty.

European Court of Justice (ECJ) Decision in Illumina/Grail

One of the most important recent developments in European merger control is the ECJ’s decision in Illumina/Grail. The Court clarified that a Member State that lacks jurisdiction under its national merger control rules cannot refer a transaction to the European Commission under Article 22 of the EU Merger Regulation (EUMR). In doing so, it rejected the Commission’s 2021 policy of using Article 22 to capture below-threshold transactions, particularly in innovation-driven sectors such as technology and life sciences.

The judgment is significant because it reinforces the role of turnover-based thresholds as a key safeguard for predictability and legal certainty. The ECJ emphasised that companies must be able to determine in advance whether a transaction is subject to merger control, which authority is competent and whether a standstill obligation applies. This is particularly relevant for acquisitions of start-ups and other high-value targets with limited revenues, where legal uncertainty has become a major challenge for transaction planning.

For the M&A practice, the decision represents a clear improvement in transaction certainty. It reduces the risk that transactions falling below both EU and national thresholds may nonetheless be subject to EU merger review through referrals by authorities lacking jurisdiction. This is especially relevant in competitive and innovation-driven sectors, where buyers previously faced the risk of unexpected regulatory intervention.

However, the decision does not eliminate regulatory risk for transactions below the threshold. Several Member States have introduced call-in powers allowing authorities to review transactions even where traditional thresholds are not met. In addition, jurisdictions such as Germany and Austria apply transaction value thresholds to capture deals involving strategically relevant targets with limited turnover. Furthermore, the ECJ’s earlier Towercast judgment confirmed that, in exceptional cases, completed transactions may be reviewed ex post under competition law rules.

As a result, while Illumina/Grail strengthens legal certainty, it does not fully remove complexity. For dealmakers, the focus has shifted from EU-level referral risk to national review mechanisms and other ex post tools. Competition analysis, therefore, remains a critical element of deal planning, particularly in transactions involving innovative or strategically sensitive targets.

EU Inc. – a new European corporation

Another notable development is the EU’s “EU Inc.” initiative, which reflects a broader effort by the European Commission to strengthen the competitiveness of the European internal market. The initiative addresses a long-standing structural challenge: companies operating in Europe continue to face significant fragmentation, with 27 different national legal systems governing incorporation, financing and corporate governance.

The objective of EU Inc. is to reduce these barriers by introducing a new, optional European corporate form that enables companies to operate more easily across borders. The initiative was publicly announced by the European Commission and has since evolved into a concrete legislative proposal presented in March 2026. The proposal is structured as an EU regulation, which would apply directly across Member States and aims to create a more harmonised legal framework for companies.

EU Inc. is designed primarily for start-ups, scale-ups and growth-oriented businesses. It is intended to complement existing national company forms and differs from the European Company (SE), which is generally seen as complex and better suited to large corporates. By contrast, EU Inc. aims to provide a simple, digital and cost-efficient structure tailored to the needs of innovative and fast-growing companies.

Key features of the proposed framework include fully digital incorporation within a short timeframe, low or no minimum capital requirements, standardised documentation and simplified corporate processes. The proposal also envisages easier capital raising, flexible share structures and more practical employee participation models, including cross-border equity incentive schemes. Overall, the concept is “digital-first” and designed to reduce administrative burden throughout the lifecycle of a company.

From an M&A and investment perspective, EU Inc. has the potential to be particularly relevant. A more uniform corporate structure could simplify cross-border investments, reduce legal complexity in due diligence and facilitate post-closing integration. It may also make European start-ups more attractive to international investors by providing a more familiar and predictable legal framework.

At the same time, important limitations remain. The proposal still relies on national rules in key areas such as taxation, employment and insolvency law and further legislative development will be required to achieve meaningful harmonisation. Its ultimate impact will therefore depend on how far the final framework reduces existing fragmentation in practice.

Nevertheless, EU Inc. represents a significant policy signal. If successfully implemented, it could strengthen the European start-up ecosystem and help make Europe a more competitive environment for innovation, growth capital and technology-driven M&A.

Outlook for 2026

Europe entered 2026 with a cautiously positive outlook, but a return to pre-2022 deal dynamics remains unlikely. Deal activity is likely to remain moderate in volume, while overall value is driven by a limited number of large, strategic transactions. Investors will remain focused on assets that support long-term competitiveness, particularly in areas such as digitalisation, infrastructure and energy transition.

Financing conditions will continue to shape market activity. Even in a stabilising macroeconomic environment, lenders are likely to maintain disciplined underwriting standards. This will favour buyers with strong balance sheets or access to flexible capital and reinforce the use of structured transactions to address valuation gaps.

Private equity will remain an important driver, supported by significant dry powder and ongoing exit pressure. The activity is set to focus on carve-outs, infrastructure platforms and consolidation strategies, with a clear emphasis on operational value creation.

Regional differences are likely to persist. Central and Eastern Europe is set to remain an attractive growth region with strong cross-border interest, while Western Europe continues to be characterised by more competitive processes and complex execution requirements.

Regulation will remain a central factor in dealmaking. Expanded FDI screening regimes will increase timing and structuring considerations. Although the Illumina/Grail decision has improved legal certainty, national review mechanisms continue to require careful analysis. At the same time, initiatives such as EU Inc. may gradually reduce structural barriers and support cross-border investment.

In this environment, successful transactions in 2026 will depend on disciplined execution, a clear strategic focus and the ability to proactively manage financing and regulatory complexity.