For the first time since the Russian invasion of Ukraine began, there is a possibility, albeit still remote, of peace talks to end the conflict progressing. If successful, the impact on European M&A could be significant.

A European M&A reboot?

The 2022 Ukraine invasion took a heavy toll on EMEA activity, with Russian sanctions upending long-standing commercial ties between businesses in the EU and Russia.

Since then, cross-border deals involving Russian assets have been mainly driven by large-scale restructurings, such as the Nord Stream 2 undersea gas pipeline project; exits from the Russian market, as seen when BP announced plans to offload its stake in Rosneft; and shoring up European-based assets with sanctioned owners, such as a debt buyback deal involving UK health retail chain Holland & Barrett.

Wider market uncertainty as a result of the conflict has also had a cooling effect on overall deal activity. European M&A deal value fell by almost 30 percent year-on-year in 2022, and shed another 25 percent in 2023, according to figures from Mergermarket and law firm White & Case. The conflict did coincide with a cycle of rising interest rates, a major driver of declining deal activity, but the war also undoubtedly contributed to falling transaction flow.

A peace deal could change this dynamic, bringing more stability to European capital markets and providing M&A dealmakers with more comfort and confidence when considering potential deals.

The Ukraine opportunity

A credible peace settlement could also boost the domestic Ukrainian M&A market, which has proven resilient through the conflict. KPMG figures show deal value and volume increasing year-on-year through the first half of 2025 by 21 percent and 26 percent, respectively.

Deal activity in Ukraine has been dominated by domestic players, with only four inbound deals worth a combined deal value of US$20 million proceeding in H1 2025.

These inbound deals did come from a mix of European, Middle Eastern and North American investors, illustrating that there is interest Ukrainian M&A opportunities from abroad. Inbound M&A momentum would build if the war came to an end and Ukraine country risk subside, particularly in the infrastructure, real estate, technology and agriculture sectors, where demand for capital to rebuild the country would be strong.

Investment for the reconstruction of Ukraine has already been marshalled. The European Investment Bank, for example, has partnered with a consortium of EU banks to launch a Ukraine construction fund that will be anchored with a €220 million public investment, and seek to raise additional private capital to take the fund to a €500 million first close by 2026.

This fund will sit alongside similar initiatives, including the establishment of a Ukraine reconstruction bank, which has received an anchor US$500 million commitment from BlackRock and JP Morgan Chase.

A Russian M&A reset?

A negotiated settlement could also have a significant positive impact on a Russian M&A market that has been adversely affected by sanctions and constraints on Russia’s access to global banking and international payments systems.

Russia M&A has been hard hit in the years following the invasion. According to Reuters Russia M&A deal value climbed by just 2% in 2024. Interest rates that have climbed to a 20-year-high of more than 20% and tighter state control over Western companies seeking to exit Russian assets have contributed to slow activity, with stressed and distressed sales the primary source of transaction flow.

A peace deal that reopens investment channels into Russia could see a step change in Russian dealmaking, particularly in the energy and financial services sectors. A Russian M&A revival, however, will be contingent on the sustainability and detail of any potential settlement.

Defense to stay a focus

One European sector that is set to continue generating significant M&A dealflow in the years ahead, irrespective of a peace deal outcome, is defense.

US defense strategy is pivoting away from Europe to focus on China and US border security, prompting European countries to increase defense spending as a proportion of GDP in order to shore up security and deterrence capability.

The rise in European government military budgets lays the foundation for increased investment in the sector, with the STOXX Europe total market Aerospace & Defense Index showing gains of more than 60 percent in 2025, and European defense M&A value climbing 35 percent year-on-year to US$2.3 billion in H1 2025, according to Refinitiv and law firm A&O Shearman.

With a Ukraine peace deal still very much in the balance and the US retrenching from the global defense ecosystem, European countries will not step back from defense spending commitments any time soon, putting M&A in the sector on a firm upward trajectory.