Geopolitical conflict is widening the valuation gap in M&A
The current situation involving Iran, Israel and the United States is starting to show up in M&A conversations. It is not stopping deals, but it is changing how they are getting done. Sellers are still holding onto pricing based on past performance or where they see the business going. Buyers are looking at the same deal and underwriting it with a lot more caution, factoring in volatility, timing risk and how quickly things can move. That gap is where most deals are getting stuck. In practice: Debt is feeding into this as well. Lenders are tighter on structure and downside, which directly impacts how buyers price and how far they can stretch. In the UK market, this is more obvious. A lot of transactions rely on leverage and forward assumptions. When those assumptions are challenged, valuation follows. So the shift is simple. Valuation is no longer just a number. It is a combination of structure, timing and confidence in execution. The deals that get done are the ones where that is dealt with upfront, not negotiated at the end.
Why Capital Exists but Deals Don’t Close
Markets may look open on paper, but money is moving far more slowly, selectively, and defensively than many headlines suggest. If you read the headlines, the market can look surprisingly healthy. Global growth is still projected at 3.3% in 2026. M&A activity has also picked up, with Reuters reporting global announced deal value at about $1.1 trillion year to date, up 23% on the same period last year. On the surface, that does not look like a market starved of capital. IMF Yet that is not how many transactions feel in practice. Across the real economy, businesses are still finding it difficult to raise money, refinance debt, or close acquisitions on terms that make commercial sense. Processes drag. Credit committees hesitate. Investors ask for more protection. Sellers hold on to yesterday’s prices while buyers underwrite tomorrow’s risks. Deals that look viable in a pitch deck stall the moment real money has to commit. That is because liquidity and usable capital are not the same thing. Money can exist in the system without being available in a way that gets transactions done. There may be capital on paper, funds with dry powder, banks willing to look, and lenders still active. But if that capital only comes with lower leverage, tighter covenants, more security, more equity, and longer approval cycles, then the market is not truly liquid in the way most businesses understand it. It is selective. This is the gap many people miss. They hear that markets are open and assume financing should be straightforward. It is not. Capital today is cautious, slower, and far less forgiving than it was when money was cheap and confidence was abundant. Why the Backdrop Still Feels Unsettled Part of the reason is that the macro picture remains far from settled. The IMF’s January update said global growth remains resilient, but also warned about trade disruption, political uncertainty, and supply-side shocks that could raise costs and complicate the outlook. In the UK, the Bank of England kept rates on hold on 19 March 2026, with policymakers facing renewed inflation concerns linked to conflict in the Middle East and higher oil prices. That matters because when inflation risk becomes harder to read, the price of money becomes harder to call, and the willingness to lend becomes more defensive. IMF This is where politics now enters every financing conversation. For years, politics sat in the background while markets took the lead. That is no longer the case. Today, politics affects inflation, rates, trade routes, energy prices, industrial policy, sanctions, fiscal spending, and regulation. In other words, it affects both the cost of capital and the direction of capital. A lender is no longer looking only at cash flow and asset cover. It is also thinking about what a policy shift, a tariff move, an election, a shipping disruption, or a regional conflict might do to the borrower six months from now. That change has made decision-making far more conservative. Not because money has vanished, but because uncertainty now travels faster than conviction. At deal level, this shows up in three clear ways. First, pricing has not fully reset. Many sellers still carry valuation expectations shaped by the era of cheap debt and aggressive growth assumptions. Buyers and lenders do not. They are pricing risk more harshly, using tougher downside cases, and asking harder questions about earnings quality, resilience, and exit value. That gap between expectation and reality kills momentum early. Second, capital now comes with conditions. Even when money is available, it is rarely passive. It wants control, information, rights, buffers, and room for error. More of the structure is being used to protect the capital provider rather than to stretch for the borrower. That changes the economics of a transaction, and sometimes the psychology of it as well. Third, time itself has become a risk. The longer a process runs, the more likely it is that sentiment changes, markets move, counterparties retrade, or fresh concerns emerge. In this climate, delay does not just waste time. It weakens belief. The private credit market is a good example of this wider tension. For several years, private credit was seen as the answer when banks became more selective. In many cases it was. But even that market is now being tested. Reuters reported this month that strains in private credit have begun to ripple through Wall Street, with some banks tightening lending, funds capping withdrawals, and investors growing more cautious. Another Reuters report said BlackRock limited withdrawals from a private credit fund after investors sought about $1.2 billion back. Goldman Sachs’ chief executive also warned that the credit cycle has not been repealed. In other words, even the parts of the market that looked most flexible are being forced to prove how liquid they really are under pressure. That should not be ignored. It tells us the issue is not simply that banks are conservative. The entire capital stack is becoming more disciplined. Lenders, funds, and investors are still active, but they are demanding a stronger case before they commit. Reuters For businesses and dealmakers, the lesson is simple. Being good is no longer enough. Being fundable is no longer enough. A company now has to be easy to understand, realistic on value, well structured, and robust under scrutiny. Management teams need cleaner stories. Sellers need more realism. Advisers need to spend less time selling optimism and more time solving structure. That is the real market condition today. Not a collapse in capital, but a collapse in easy conviction. Money still exists. There is still appetite. There are still transactions getting done. But capital no longer moves on hope alone. It moves when the pricing is right, the risk is understood, the structure is sound, and the wider political and economic backdrop feels tolerable. The problem in today’s market is not that capital is gone. It is that conviction is.