Nearly six years on from the COVID-19 pandemic, the UK restaurant industry represents something of a curious case. On the one hand, the sector continues to face the same harsh challenges as the wider hospitality industry. On the other, dealmaking has risen rapidly and the sector is forecast to see financial growth over the coming years.
Despite rising costs, persistently high levels of financial distress, flaky consumer confidence and seemingly never-ending macroeconomic uncertainty, the sector continues to demonstrate resilience and a forward-thinking mentality.
This has led to solid investor interest, respectable (and growing) levels of dealmaking, rising turnover and profits for many operators and predictions that the sector will, not only continue to see decent levels of M&A activity, but that performance will improve further.
With all that being said, there is no doubt that many restaurant businesses (particularly smaller and medium-sized operators) are still contending with highly adverse conditions during 2026 and that these challenges are unlikely to abate any time soon.
Of course, it is important to note that the sector has shrunk considerably over the past six years, the unavoidable impact of the pandemic, a lengthy economic downturn and soaring prices. However, dealmaking and emerging signs of recovery are testament to its endurance.
In this piece, we take a look at why many are so positive about the restaurant sector, despite such a challenging environment, the factors that are motivating higher levels of M&A activity and dig into some of the causes for both concern and optimism that the industry faces at this early stage of 2026.
State of the industry at the start of 2026
Before examining dealmaking in the sector, it is useful to acknowledge the harsh reality the restaurant sector faces. While the value of the sector is seemingly on an upward trajectory (as per Lumina Intelligence figures predicting a 1% CAGR over the next three years), the number of venues has fallen considerably over the past six years.
As of August 2025, the sector was 14.2 per cent smaller than it was in March 2020, with approximately 16,000 net closures over that period, reflecting the consecutive shocks of COVID-19, the downturn in consumer spending and the soaring costs that operators have faced.
These conditions have unsurprisingly hit some subsectors more than others, while smaller restaurant operators have fared worse than their bigger counterparts, illustrated by a 22.7 per cent decline in independent restaurant locations since the start of the pandemic.
Casual dining has been one of the worst affected subsectors, potentially reflecting its intrinsic links to the physical shopping industry in what has been a tough period for in-person retail. According to figures from Hospitality Market Monitor from CGA by NIQ and AlixPartners, the number of UK casual dining locations fell 24.1 per cent from nearly 6,700 in March 2020 to just under 5,100 in June 2024.
While 2024 brought a slight improvement, 2025 proved to be another challenging year. This was particularly noticeable as rising costs began to bite at the end of the year, with a 1.8 per cent decline in Q4 2025 as 241 locations closed in three months.
Unsurprisingly, M&A in the subsector has been dominated by distressed dealmaking, with major distressed deals including Sugarloaf Hospitality’s November 2025 takeover of TGI Fridays UK (which had been acquired by Breal Capital and Calveton just over a year earlier) and the March 2025 takeover of Pizza Hut’s UK dine-in franchise by Directional Capital, for just £10 million.
Drink-led venues present one of the more complex cases. According to the H1 2025 Hospitality Market Monitor from CGA by NIQ and AlixPartners, drink-led venues increased by 1 per cent over the previous year, seemingly showing solid growth.
However, these figures were driven by a 7.6 per cent increase in the number of bars in the year to March 2025, as the sector was bolstered by a growing trend for “competitive socialising”, such as bars offering immersive experiences, axe-throwing or darts.
What the figures mask is the dire situation that the UK pub industry faces. Approximately 2,000 pubs are estimated to have closed in England and Wales alone in the five years from 2020 onwards, while the British Beer and Pub Association forecast last year that the UK could lose up to 378 pubs during 2025.
Much has been made over recent years about the pivot that the sector has made towards gastropubs, as pubs offer food in an effort to entice more customers. However, this hasn’t been enough to spare many from the headwinds the industry faces, with Alix Partners data showing that food pubs declined 2.4 per cent in the year to March 2025.
Heading into 2026, increases in alcohol duty, combined with rising costs, mean that the struggles of the pub industry are set to continue, with recent modelling from UKHospitality indicating that a further 540 pubs could close this year.
Quick-service restaurants and fast-food chains are among the only areas of the sector to have seen net growth recently, with hospitality industry market intelligence firm Meaningful Vision reporting that nearly 1,300 new locations opened last year alone.
This was largely driven by the exponential growth that fried chicken outlets are seeing (led by the likes of Popeyes and Wingstop), with a 6 per cent year-on-year increase in footfall, as well as bakery and sandwich chains such as Greggs and Gail’s (footfall up 3 per cent).
This has resulted in the QSR and fast-food space attracting the most significant capital attention across the restaurant industry, with investors drawn by strong unit economics and the scalable franchise models that many firms operate with. The most significant deal being US private equity firm Sixth Street’s £400 million+ takeover of WIngstop UK.
M&A on the rise in the restaurant sector
For much of the past six years, headlines about the restaurant industry and wider hospitality sector have focused on the struggles they have faced, with major M&A coverage often focusing on distressed deals for struggling big brands.
However, a report released last year showed that M&A activity was on the rise, and not exclusively driven by distress. According to research from law firm TWM Solicitors, there were 30 acquisitions targeting UK restaurant groups during 2024/25, an 88 per cent increase from 2023/24, when there were just 16 transactions.
Analysing this increase, TWM Solicitors attributed growing M&A activity to a wide range of factors, including lower interest rates, falling commercial rents and improving investor confidence, which it said had created a favourable dealmaking environment in the sector.
Alongside this improved economic picture, the sector also began to see an uptick to competitively priced businesses, helping to generate such a dramatic increase in dealmaking, despite the industry’s numerous problems.
TWM Solicitors partner and Head of Corporate and Commercial David Powell said: “The near doubling of takeover deals is a strong vote of confidence in the UK restaurant sector. We’re seeing a wave of consolidation, particularly at the lower end of the market, as buyers move quickly to acquire competitively priced businesses.”
Furthermore, this increase is not expected to simply be a one-off amid temporarily favourable dealmaking conditions, with TWM saying that they expect the wave of consolidation to continue, particularly among fast and fast-casual food operators.
Strong sentiment despite fragility
The dramatic uptick in M&A, then, has seemingly primarily been driven by genuine optimism and strategic investor interest in the restaurant sector. This is a testament to the resilience of the sector, its continued appeal even in a challenging consumer environment and the adaptability and innovation of the operators within it.
Analysing the sector’s dogged recent performance in BDO’s Restaurant and Bars Report 2025, BDO Head of Leisure and Hospitality Mark Edwards said: “There cannot be many sectors where when challenges continue to mount up, the enthusiasm to improve, innovate, develop and deliver seems to swell in greater measure.”
While acknowledging that UK economic pressures and broader global macroeconomic uncertainty had potentially put a dampener on the sector’s growth, Edwards alluded to the strong fundamentals that were bolstering its performance.
“The growth period for the sector may be slower in accelerating than hoped and may even be fragile for some period to come, but the foundations are well laid”, he said, adding: “Culturally, in the UK as elsewhere, there is no evidence that we are becoming more socially isolationist. The idea of eating out, socialising, going away from home for holiday, visiting friends and family, is as important to consumers as ever”.
In its 2025 UK Restaurant Market Report, meanwhile, Lumina Intelligence reported that the restaurant market was expected to grow 0.8 per cent in 2025 to £19 billion. While the report said that this remained 1.8 per cent the sector’s pre-COVID value in 2019, it also highlighted the slightly more favourable conditions were seeing.
It should be noted that Lumina Intelligence largely attributes 2025’s growth to price inflation more than volume recovery, amid continuing headwinds. However, the report also highlighted expansion in the branded sector of the market, the strong performance of fast food operators and a slowdown in the decline of hospitality sites during 2025.
Further evidence of the sector’s improvement came in research from accountancy group UHY Hacker Young, which found that turnover at the UK’s top 100 major restaurant groups jumped by 19 per cent from £10.9 billion in 2024 to £12.9 billion last year, while profit increased 18 per cent from £308 million to £365 million.
The key deal drivers
An improved environment - There are a number of reasons why dealmaking shot up in the restaurant sector last year, most notably a general apparent improvement in the sector’s operating conditions, despite its well-publicised headwinds.
Fundamentally, of course, the kind of improved performance demonstrated by UHY Hacker Young’s profit and revenue figures for the 100 biggest UK restaurant firms is what will attract buyers. This improvement is being aided by both more favourable operating conditions and steps that operators themselves have taken over recent years.
TWM Solicitors cite a range of economic factors that have helped to bolster restaurant M&A, with partner David Powell pointing in particular to falling commercial rents and more flexible leases in traditionally pricey areas such as central London, which had made restaurant acquisitions more attractive.
While the sector has often been seen as struggling with a myriad of rising costs, Powell also cites declining equipment costs, following a peak during the COVID-19 pandemic, as a notable driver of activity.
The post-COVID period has also been described as one in which many restaurant groups undertook significant restructuring, such as streamlining menus and closing loss-making sites, steps that Powell said had made them “leaner and more profitable”, and thereby more attractive acquisition targets.
This has also led to investments in technology as businesses seek to adjust to changing consumer expectations, bolster their footfall and improve supply chain resilience. This has driven increased uptake of technologies such as AI and data analytics, something that has been credited as boosting profitability in fast food, one of the most active subsectors for M&A.
Alongside these factors, the sector is also being bolstered by the (perhaps surprising) resilience of consumer sentiment. Despite the heavy toll that the cost-of-living crisis has taken on many consumer facing businesses, numerous restaurant sector observers say that the industry has been seeing an improvement.
As BDO reports, UK consumers continue to value the experience of going out to eat, while TWM’s David Powell notes: “With footfall steadily improving post-pandemic, brick-and-mortar restaurants are once again seen as attractive investments.”
Resilience and growth - One of the core upsides of conducting M&A activity during times of economic uncertainty is that it enables buyers to achieve growth that might otherwise (i.e. through organic means) be challenging, while laying the foundations to accelerate this growth in the event of a recovery.
With the UK restaurant sector continuing to perform relatively strongly despite the numerous sector-specific and broader macroeconomic headwinds it faces, some buyers clearly see the sector’s fundamentals as being solid.
What this suggests is that, should the UK economy continue to pick up during 2026, the performance of the restaurant sector could follow suit, as consumers use their greater spending power to act even more frequently on their clear taste for dining out.
As such, executing M&A deals now, when conditions for dealmaking are favourable and valuations are reasonable, could provide buyers with the springboard to capitalise on this potential recovery, whilst also growing in the here and now .
Additionally, dealmaking can provide buyers with economies of scale, something that will be critical in remaining profitable in the face of lingering uncertainty. TWM’s David Powell cites this as a driving factor behind the recent surge in dealmaking, saying: “For some buyers, consolidation also brings the operational benefits of spreading payroll and overheads across a larger portfolio.”
Distress and low valuations - While the resurgence of UK restaurant M&A has largely been driven by increased confidence and a more favourable operating environment, there is no point denying the role that distressed deals and undervalued assets have played.
Insolvency rates remain high across the hospitality industry and operators ranging from individual restaurants, to medium-sized chains and major industry mainstays have felt the effects. This has led to a significant amount of distressed M&A, most notably involving major chains, with Pizza Hut, Busaba Eatthai and Gusto among the big names to have recently been acquired in pre-pack deals.
Even among well-performing businesses, challenging conditions have meant that there are opportunistic bargains to be had. As David Powell notes, many restaurant groups have strengthened their businesses post-COVID, with their adaptability helping to improve revenues and profits.
However, broader economic factors mean that valuations remain relatively low, something that could prove incredibly attractive to opportunistic buyers seeking to acquire high-quality assets ahead of a potential recovery.
Powell comments: “Many of these restaurant groups are high quality businesses with healthy margins. Buyers are spotting opportunities to acquire potentially undervalued businesses that can be scaled with the right investment.”
A trend that has been seen across UK M&A over recent years is the particular interest that buyers from the US are taking in undervalued UK assets, something that has also been apparent in restaurant industry dealmaking.
In an analysis of trends defining the UK’s restaurant and foodservice industry, Catering Today identifies buy-and-build M&A as a key factor, saying that the disparity between public and private company valuations was driving M&A.
According to the report, US private equity buyers have been particularly active, viewing UK assets in the sector as undervalued. Notable recent UK restaurant deals involving US buyers have included Sixth Street’s £400 million acquisition of Lemon Pepper Holdings, the UK franchise of Wingstop, and Apollo’s take-private of The Restaurant Group (TRG).
Private equity - A prediction across many sectors over recent years has been that any recovery in M&A is likely to be driven by private equity investors returning to the market, following an extended period in which PE investment (both on the buy and sell side) has been subdued.
This appears to be holding true in the restaurant sector, with PE Hub reporting last year that there had been “a string of private equity deals in the restaurant sector” globally, as the industry’s performance improved post-COVID.
Speaking to PE Hub, Kharis Capital Managing Partner Manuel Roumain said that restaurant investments have “continuously proven to be a long-term trend”, pointing to the sector’s resilience, as well as the fragmentation of the European restaurant market, which Roumain says is leading to “strong opportunities to both consolidate and scale brands across the continent in the coming years.”
Aside from resilience and fragmentation, Roumain also credits the sector’s tech uptake as a factor in increasing private equity interest, particularly citing the growing adoption of AI and data analytics across restaurant operations and supply chains.
In addition to Sixth Street’s acquisition of Wingstop UK, PE Hub names notable deals such as Lion Capital’s reinvestment in Gordon Ramsay Restaurants, Fortress Investment’s £354.4 million takeover of Bristol-based cafe bar and restaurant operator Loungers and a number of other international deals, all highlighting strong private equity interest in the global restaurant industry.
Should economic conditions continue to improve, and the restaurant industry’s performance follow suit, private equity interest could grow further still during 2026 and beyond. Industry publication Restaurant describes the UK as offering particular opportunities for expansion in the branded sector, driven by franchising and regional clustering, factors that would appear to be particularly attractive to private equity investors.
Challenges and opportunities to shape the sector in 2026
The factors that will continue to define dealmaking within the restaurant industry this year are various and include both challenges and opportunities. Some will encourage dealmaking, whether distressed or strategic, while others could serve to limit M&A.
Challenges - The fundamental challenge facing the restaurant industry is the soaring costs that operators continue to see in areas such as labour, materials, energy, property, taxes and National Insurance Contributions (NICs).
Writing at the mid-point of 2025, BDO’s Mark Edwards said that, despite initial optimism at the turn of the year, the sector had seen far tougher trading conditions and far sharper cost increases than previously anticipated.
On the labour front alone, operators have been hit by increases in National Insurance, the National Minimum Wage and the National Living Wage, while the business rates discount benefiting the hospitality sector was cut by 75 per cent to 40 per cent last year.
This has served to exacerbate the already challenging financial conditions that many restaurants have faced in recent years, with a significant number of operators having faced years of rising costs, as well as mounting debts in the wake of the COVID-19 pandemic.
These headwinds, which have been seen across the hospitality industry, have unsurprisingly been felt in the form of high insolvency levels. In the year to December 2025, the accommodation and food service activities sector (which spans the hospitality sector) saw 3,353 insolvencies, 14 per cent of all cases during the year, according to government figures.
While this was a 3.2 per cent increase from the previous year, the figures still highlight how restaurants, pubs and other hospitality venues continue to experience significant, often overwhelming, financial pressure.
Furthermore, despite the continued appetite for restaurant experiences that consumers have shown in spite of the cost-of-living crisis, economic pressures and fragile consumer confidence inevitably mean many restaurants rely on their own ingenuity in order to boost trade.
BDO highlights how restaurants have turned to solutions ranging from time-sensitive deals and discounts and value driven models to experiential dining and even dynamic pricing in their efforts to boost footfall and earnings, all while trying to pass rising costs on.
What this means for restaurant operators in 2026 is that cashflow management is more critical than ever, especially for those seeking to balance rising costs with the obligation to service their debts. Inevitably, 2026 will continue to see high insolvency levels in the sector, despite its underlying resilience and consumer appeal.
Opportunities - While the headwinds the restaurant sector faces are stubborn, there are also significant causes for optimism. Fundamentally, increasing investor interest, rising earnings, stronger dealmaking and a (slight) decrease in insolvencies indicate the underlying strengths of the sector.
The modest growth the sector saw in 2025 is expected to continue over the coming years. Lumina Intelligence forecasts a 1 per cent compound annual growth rate (CAGR) over the next three years, with the industry reaching a value of £19.6 billion in 2028. While this would hardly represent extraordinary growth, it does demonstrate the sector’s resilience while contending with tough conditions.
On top of this, there are signs that cost pressures could potentially ease in the near future. The government has announced that it aims to institute fairer business rates for the hospitality industry in 2026-27, a move that would reduce a major cost for restaurant operators.
With some research already citing falling rents as a positive development in the sector, BDO suggests that an increasing number of empty retail units on UK high streets could mean that restaurant operators are able to negotiate positive lease deals with landlords eager to fill their empty units.
Furthermore, while developments such as experiential dining and new pricing initiatives are indicative of the pressures that restaurants are under, they also highlight the innate adaptability and ingenuity of many operators in the sector.
As BDO note, this has enabled some restaurants to tap into a post-COVID consumer trend of “searching for an experience and an increasing willingness to spend on new, unique
and value for money experiences.”
Should the UK economy continue to see gradual improvement this year, then restaurants with strong cashflow and that aren’t too deep in financial distress should be well positioned to capitalise on stronger consumer sentiment.
Ultimately, both the challenges and the opportunities in the restaurant sector highlight the critical priorities for operators in 2026: strong cashflow management, adaptability in a changing market and the ability to grow and lay the foundations for future growth.
Against this backdrop, M&A could offer a clear route for many restaurant businesses to build financial resilience, achieve economies of scale, tap into new technologies and markets and prime themselves to capitalise on a potential economic recovery.
Moreover, with distress still a significant factor in the sector, private equity interest on the increase and valuations remaining favourable, M&A opportunities are likely to be plentiful, indicating that dealmaking will continue to be a defining aspect of the UK restaurant industry in 2026.
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