5 Forces Driving M&A in 2026

After a volatile but ultimately resurgent 2025 for mergers and acquisitions, the market heads into 2026 with renewed momentum, fueled by a supportive economic and regulatory backdrop as corporates seek scale and innovation to capitalize on the AI revolution.

Last year delivered a 40% surge in global M&A volume—fueled by a record 60 transactions above $10 billion—even as the first half was clouded by tariff uncertainty, high rates and boardroom hesitation. “A more predictable regulatory backdrop and years of pent‑up consolidation demand unlocked a wave of large‑cap deals, making 2025 the second most active year in the past decade,” says Tom Miles, Global Co-Head of M&A at Morgan Stanley. “In 2026, a multi-year rebound in activity is set to continue across corporates and sponsors, helped by more certainty on policies and regulations, lower rates and an IPO revival.”

As that strength carries into 2026, five forces are beginning to shape the next phase of activity:

• Corporates across sectors are turning to M&A to pursue scale and capitalize on the AI infrastructure build-out.
• Financial sponsors are under growing pressure to monetize long‑held assets while sitting on elevated dry powder, creating urgency to sell and capacity to buy.
• Large companies will continue to sharpen their business models through strategic separations.
• Cross‑border buyers, including those in Japan, are entering the year with heightened appetite.
• Founder‑led companies gain new optionality through a deepening minority‑capital market.

“These dynamics extend the momentum of 2025 into a year in which liquidity needs, AI transformation and international activity are poised to drive another strong cycle of deal making,” says John Collins, Global Co-Head of M&A at Morgan Stanley.

1. Corporate M&A: Scale & AI Infrastructure Spark Deals

Corporates are entering 2026 with urgency around AI investment, which is driving fresh conviction that M&A is a key growth lever. Large players are expected to lead a wave of deals across technology, energy and utilities, financial services and more.

A major force behind this momentum is the increasing value of scale. Larger companies command higher valuation multiples and margins—a trend that has normalized to even higher levels compared to pre-COVID.² 2020’s peak spread between valuation multiples of the top- and bottom-third companies by market capitalization show the resilience and advantages of scale during a crisis. These benefits create a powerful backdrop for M&A in 2026.

At the same time, the rapid build‑out of AI infrastructure, especially data centers, is also fueling M&A in many affiliated industries, including software, semiconductors, data‑center hardware, networking, HVAC, industrial cooling and real estate. Companies are acquiring to immediately close capability gaps and participate in explosive demand for AI compute. Recently announced deals that Morgan Stanley advised on—including Alphabet’s acquisition of Wiz, Confluent’s sale to IBM and Meta’s joint venture with Blue Owl—illustrate how AI is driving strategy.

2. Financial Sponsors: Pressure to Sell, Power to Buy

Financial sponsors are set to be a major catalyst for M&A activity in 2026 as pressure builds to monetize aging portfolio companies. Across the industry, roughly 13,000³ sponsor‑backed businesses remain in private hands, and an estimated 55% have been held for five years or more—well beyond typical fund timelines. Higher rates, uneven operating performance in companies acquired in 2019–2021 and elevated entry valuations have all challenged sellers’ ability to achieve original return targets. As constraints persist, many sponsors will need to return capital to limited partners to support their next fundraising cycles, setting the stage for a more active year of monetizations.

Continuation vehicles and other secondary solutions have provided temporary relief by offering partial liquidity without forcing a full sale. In select areas—such as data centers—this strategy has allowed sponsors to hold and exit at stronger valuations than they could have previously. Still, portfolio durations continue to lengthen, and in 2026 the need to meet limited partner liquidity expectations may drive more portfolio company sales, even at a lower return than anticipated when investments were made.

At the same time, financial sponsors enter 2026 with significant buying capacity. Dry powder remains high at $4.3 trillion,⁴  and 2025 private‑equity take‑private activity was the second-highest in the last decade. In addition, sovereign wealth funds and other large institutional investors are increasingly joining private-equity firms in consortium bids, bringing additional long-term capital and helping sponsors pursue larger or more competitive transactions. This mix—pressure to sell and ample capital to deploy—positions sponsors as one of the biggest drivers of M&A in the year ahead. “That dual dynamic is setting the stage for a very active year,” Miles says.

3. Separations: Strategic Focus Fuels Breakups

2025 had record volume of separations, which will remain a meaningful driver of M&A as big companies streamline their portfolios. 2026 is expected to have a 50% greater volume than any year in the last decade.⁵  While the number of breakups each year is relatively small, the deals tend to be high‑profile and often reshape competitive dynamics.

CEOs and boards are increasingly recognizing the upside of turning diversified businesses into more focused entities, including through targeted spin-offs, carve-outs and the creation of independent sector-focused companies. “Separations are increasingly serving as legacy-defining milestones for leadership,” Collins says. “Vocal investors are also continuing to push the simplification playbook.”

Another force behind the rise in separation activity is shareholder activism. Activists ramped up calls for breakups in 2025, launching several prominent campaigns focused on portfolio simplification, with pressure expected to persist into 2026.

4. Cross-border M&A: International Appetite Builds

Cross-border buyers are entering 2026 with a healthy appetite for high-quality assets and a willingness to bid aggressively. In late 2025, several sales included deep bidding rounds and strong valuations, signaling a more robust environment, notes Collins.

Tariff policies have also added urgency for international buyers, reinforcing the importance of securing a stronger foothold in U.S. markets. As companies reassess supply chains and seek greater market access, the U.S. has become a critical destination for cross-border investment.

Another standout trend: consistent with predictions from Morgan Stanley bankers in recent years, Japanese companies ramped up outbound acquisitions in 2025, supported by decades of cheap capital and a need to deploy it productively, even as domestic rates increase. “The momentum of Japanese companies in cross‑border M&A may continue in 2026,” Collins says. “As expected, Japan is emerging as a more influential force in global deal making.”

5. Founder-led Companies: More Paths, More Capital  

Large private companies that stay private longer often become prime M&A targets. For founders and private companies, a key theme in 2026 will be the growing maturity of the minority‑capital market, as more private-equity firms and institutional investors buy sizeable non‑control stakes in founder‑led businesses. This gives founders access to substantial capital while preserving control and staying private longer—avoiding a full sale or IPO.

With more scale and cash, plus expectations for disciplined capital allocation, private companies aiming for M&A readiness in 2026 will need strong financials, robust governance and a long‑term strategy that appeals to minority and strategic investors. “These businesses are often among the fastest‑growing and most innovative in their sectors, and their capital decisions help shape the supply, timing and size of deals that come to market,” Miles says.