Merger and acquisition deal activity could see a further hit this financial quarter if the US and Iran do not reach a resolution to the conflict, a leading tax and accountancy firm has warned.

The number of domestic and cross-border mergers and acquisition (M&A) transactions involving a change in majority share ownership fell to 352 in the first financial quarter of 2026, down from 495 the prior quarter, according to the latest figures from the Office for National Statistics.

The value of domestic M&A also tumbled £0.4bn to £1.5bn in the first financial quarter, while the value of foreign companies acquiring UK business also plunged from £33bn to £14.2bn.

Analysts have pinned this fall on the ongoing conflict in the Middle East, which led to heightened economic volatility, coupled with an expected drop off following an “uptick of transactions in Q4”.

However tax firm RSM UK is warning that the downturn could continue if both nations fail to reach a ceasefire deal.

Damaging deal activity

Both sides have reached a stalemate in ceasefire negotiations, with Iran refusing to dismantle its nuclear program, a move Trump has repeatedly demanded.

The lack of agreement has led RSM to believe the “healthy level of resilience” among buyers and sellers could come to an end in the second quarter.

Helen Brocklebank, partner and head of M&A at RSM UK, said: “Unless there’s a resolution to the Middle East conflict soon or more certainty is created, we may see deal activity severely hit in Q2 as companies start pulling back on major decisions.

“Many buyers and sellers are now waiting to see how both geopolitical and domestic tensions unfold before making any hasty decisions. 

“Key factors that buyers will be watching closely when considering a potential target are the extent it is impacted by rising energy costs and weak consumer confidence, as well as the resilience of their supply chains.”

Brocklebank also noted that investors are taking a “more cautious approach” when acquiring companies, opting to stick to industries with “regulatory driven revenues” such as business and professional services and healthcare.

The conflict in the region has also led to a surge in interest in the aerospace and defence industry.

Outward M&A

In contrast the value of UK companies acquiring foreign companies ticked up in the first company, hitting £4.7bn, up from £1.7bn the previous quarter.

But this was still £3.3bn lower than the same period the previous year, with the number of outward acquisitions also falling, dropping from 84 to 72.

Richard Cox, partner and head of national corporate at Browne Jacobson, said: “The latest ONS figures paint a mixed picture for UK M&A activity. 

“While inward investment softened during the quarter, UK companies increased their acquisition activity overseas, highlighting that strategic dealmaking remains a priority despite ongoing economic and geopolitical uncertainty.”

Cox noted that the figures indicate that “many UK businesses are looking internationally for growth opportunities” including tapping into new markets and technologies.

He added: “Looking ahead, a sustained recovery in deal activity is likely to depend on greater economic certainty, improving financing conditions and confidence around valuations. 

“Until then, we expect strategic transactions to continue, but with investors remaining focused on high-quality assets and clear commercial rationale.”