U.S. M&A Outlook 2026: Citizens Survey Reveals Six-Year High Optimism as Deal Activity Set to Broaden

This analysis is based on the Bloomberg interview [1] with Mark Lehmann, Vice Chair at Citizens Commercial Bank, published on January 9, 2026, which reported that 2026 will be a “very good year” for mergers and acquisitions activity. The optimistic outlook is supported by Citizens Financial Group’s 15th annual M&A Outlook survey, which found that 58% of U.S. middle-market companies and private equity firms characterize the current M&A environment as strong—a six-year high [2]. Key drivers include improving economic conditions, anticipated interest rate cuts, AI-driven strategic imperatives, and favorable valuation environments. Private equity confidence has surged to 77%, with firms expected to increase both buying and selling activity, potentially broadening deal flow beyond the megadeals that dominated 2025 [2][3].

The convergence of multiple favorable macroeconomic factors has created an unprecedented opportunity window for M&A activity in 2026. According to the Citizens 2026 M&A Outlook survey of 400 U.S. middle-market companies and private equity firms, 54% of respondents expect economic conditions to improve in 2026, representing a significant shift from just 38% holding such expectations in 2023 [2]. This optimism stems from the economy’s demonstrated resilience throughout 2025, when businesses successfully adapted to new market realities including tariff implementations and shifting trade policies.

The interest rate trajectory has emerged as a particularly powerful catalyst. The survey found that 60% of companies reported benefiting from interest rate reductions in 2025, and anticipated further cuts are expected to enhance financing conditions for acquisitions [2]. Lower borrowing costs directly improve the economics of leveraged buyouts and reduce discount rates applied to valuation models, making previously marginal transactions viable while expanding the pool of potential acquirers.

Valuation dynamics have shifted favorably following the market corrections and subsequent recovery of 2024-2025. Aggregate public equity valuations approached 2020 highs on a price/forward earnings basis by the second half of 2025 [2]. While this might suggest elevated pricing, 39% of companies and 49% of private equity firms still expect valuations to rise further in 2026, indicating confidence that current levels represent sustainable rather than speculative premiums [2]. This creates a complex environment where sellers may achieve attractive exits while buyers perceive continued appreciation potential.

Artificial intelligence has transcended being merely a sector of interest to become a fundamental driver of M&A strategy across industries. The Citizens survey indicates that 40% of private equity firms specifically cite the search for AI companies and assets as a primary driver of 2026 deal activity [2]. This trend aligns with market data showing that more than 20% of the 74 deals valued at $5 billion or more in 2025 carried an AI theme [3].

The PwC 2026 U.S. Deals Outlook confirms that technology deals above $100 million amounted to approximately $63 billion across 39 transactions in 2025, centered on AI platforms, developer tools, cybersecurity, and digital infrastructure assets [3]. The competitive dynamic between incumbent technology companies and new entrants is creating a landscape where both categories are pursuing strategic acquisitions to secure capabilities and defend market positions. Lazard’s 2025 M&A Review characterizes AI as a “once-in-a-generation investment theme,” driving significant capital into AI-native businesses [5].

The return of private equity as active market participants represents one of the most significant competitive dynamics for 2026. Citizens’ data shows that PE dealmaking confidence rose dramatically from 48% in Q1 2025 to 86% by Q4 2025 [2]. This dramatic shift reflects the resolution of valuation gaps that had paralyzed sponsor activity in previous years, combined with mounting pressure to monetize portfolio companies after extended hold periods.

Financial buyer deal volume ticked up approximately 4% to 1,484 transactions through November 2025, while M&A value vaulted 54% to $536 billion [3]. This acceleration marks a significant departure from recent years when sponsors grappled with the dual pressures of pre-COVID era exuberance in valuations and higher interest rates that compressed returns. Six in ten PE firms expect deal flow to increase in 2026, with most planning to initiate buying and selling activity in the first half of the year targeting year-end closings [2].

The balance of power in negotiations has shifted notably toward sellers, creating a more dynamic market environment. According to the Citizens survey, 79% of companies are potential sellers in 2026, up from 73% in 2025 and just 63% in 2024 [2]. The primary motivations for selling include attractive valuations, liquidity needs for owners, and operational pressures including rising material costs (22%) and supply chain issues (20%) [2].

Furthermore, 19% of companies explicitly plan to sell in 2026—up from 14% in 2025—while 30% are planning succession transitions [2]. Jason Wallace, Head of M&A at Citizens, observed: “Uncertainty chilled dealmaking early in 2025, but momentum returned as the year progressed. Recent megadeals are a clear signal of market strength, and greater economic clarity could unleash a broader wave of M&A activity” [2].

While 2025 was characterized by large, transformative transactions—with U.S. M&A deal value surging approximately 45% year-over-year to reach $1.6 trillion through November 2025, the second-highest annual total on record [3]—2026 is projected to see increased activity in the middle market. Lehmann noted: “We hear a growing call for liquidity among private equity investors, and 2026 could deliver the right conditions to bring that backlog to market. The improvement in valuations across most sectors is a major factor” [2].

The WTW 2026 M&A Outlook indicates that companies will increasingly pursue “buy and build” strategies in pursuit of portfolio optimization, moving away from higher-risk, one-off transformative deals [8]. This “back-to-basics” approach, focusing on core strengths and making smaller, complementary acquisitions, is expected to gain significant traction particularly in mid-market deals.

The sector outlook reveals significant divergence in market expectations. TMT (Technology, Media & Telecommunications) sectors are expected to continue dominating M&A activity, with 57% of respondents expecting higher valuations in this space—the highest across all sectors surveyed [2]. This reflects the ongoing AI-driven transformation and the premium placed on technology assets with growth characteristics.

Healthcare presents a more nuanced picture. While healthcare M&A value surged 35% year-over-year in 2025 [5], sector-specific optimism is more tempered, with only 24% of respondents expecting higher valuations (the lowest across sectors) and 51% expecting stable valuations [2]. This reflects already elevated 2025 activity levels and ongoing uncertainty related to regulatory and pricing landscapes. McKinsey consultants expect the momentum to continue, with firms facing $300 billion in revenue loss through loss of exclusivity of their products by 2030 driving consolidation pressure [6].

The industry chain is experiencing restructuring through portfolio rationalization. Lazard’s analysis notes that “strong multiple expansion in higher-growth verticals continues to pressure diversified companies that face sum-of-the-parts discounts” [5]. This dynamic is driving continued de-conglomeration, with companies disposing of non-core units or streamlining to focus on pure-play strategies. The compression of innovation cycles in sectors like software is expected to favor acquirers who can form conviction early and execute quickly [5].

The convergence of favorable conditions creates several distinct opportunity windows for market participants. First, the elevated seller sentiment—79% of companies considering themselves potential sellers [2]—combined with strong buyer interest creates an expanded deal pipeline. Second, the improving financing environment from anticipated interest rate cuts enhances leverage capacity and improves transaction economics. Third, the AI imperative creates urgency for technology acquisitions before asset prices potentially appreciate further, particularly in early-stage companies with breakthrough capabilities [5].

For private equity investors, the 2026 environment presents a potential inflection point after extended hold periods. With 77% confidence in dealmaking prospects and 60% expecting increased deal flow [2], conditions appear favorable for portfolio monetization. However, competition for quality assets may require flexibility on pricing expectations.

Several risk factors warrant attention from industry participants. Increased competition for quality assets may compress returns and extend due diligence timelines as more buyers enter the market. The regulatory environment, while more accommodating to large-scale transactions following 2025’s megadeals, may face increased scrutiny from blue state regulators and potential renewed congressional attention around midterm elections [9].

Middle Eastern funds’ appetite for take-private transactions is expected to accelerate, potentially reducing the number of listed companies and increasing pressure on private capital structures [9]. This could create both opportunities and competitive pressures in different market segments. Additionally, the concentration of AI-related activity in technology sectors may create valuation bubbles in specific asset categories, requiring careful due diligence to distinguish between fundamentally sound acquisitions and momentum-driven pricing.

The Citizens 2026 M&A Outlook survey provides a comprehensive snapshot of market expectations for the coming year. Among U.S. middle-market companies and private equity firms, 58% characterize the current M&A environment as strong—the highest level in six years [2][4]. Private equity confidence surged from 48% in Q1 2025 to 86% by Q4 2025, with 77% expressing confidence in 2026 dealmaking prospects [2].

The primary catalysts supporting this optimism include economic resilience, with 54% expecting improved conditions; favorable financing from interest rate cuts, which 60% of companies already benefited from in 2025; and AI-driven strategic imperives, with 40% of PE firms actively searching for AI assets [2]. Seller sentiment has risen to 79% potential sellers, while 61% of companies remain potential buyers [2].

The sector outlook shows TMT leading with 57% expecting higher valuations, while healthcare shows more caution at 24% with elevated 2025 activity levels already priced in [2]. Corporate buyers maintained their position as the primary source of M&A activity in 2025, with volume up approximately 2% to 8,849 transactions and value rising 41% to $1.1 trillion [3]. Financial buyer activity also accelerated, with deal value increasing 54% to $536 billion [3].