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Dealmaking Under Fire: How the Iran Conflict Might Reshape the 2026 M&A Landscape
- IMAA
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On February 28, 2026, the US and Israel launched coordinated military strikes against Iran—designated Operation Epic Fury and Operation Roaring Lion respectively. Iran’s retaliatory response, Operation True Promise IV, has seen drone and missile strikes across the Gulf Cooperation Council (GCC) region, threatening the navigability of the Strait of Hormuz. And with that, a period of genuine M&A momentum—underpinned by easing inflation, stabilized capital markets, and declining interest rates entering 2026—has come to an abrupt halt.
The conflict is less than two weeks old. The full economic impact is still unfolding. But the directional consequences for dealmaking are already clear enough to act on—and deal teams that wait for certainty before adjusting their approach will be waiting a long time. The question for practitioners right now isn’t whether this changes the M&A landscape. It clearly does. The real question is how—and crucially, how to keep doing deals in this environment.
A Buyer’s Market. Again.
If this feels familiar, it should. COVID taught us that global shocks transition M&A from seller-friendly auctions to a buyer’s market almost overnight. Early indications suggest the Iran conflict is doing the same. Acquirers with strong balance sheets and cash reserves are already repositioning to dictate terms, capitalize on opportunistic acquisitions, and demand robust contractual protections that would have been dismissed out of hand eighteen months ago.
Sellers, meanwhile, face a more difficult reality. Companies that have been through a proper divestment readiness process—with 12–18 months of preparation, clean data rooms, and a clear strategic narrative—will fare considerably better than those reacting to market pressure with a knee-jerk sales process. And a word of warning: markets have a way of penalizing distressed sellers heavily. Being perceived as a forced seller is one of the worst negotiating positions there is.
Private equity faces a particular bind. Heading into 2026, sponsors were already sitting on a significant backlog of portfolio companies—many held well beyond the traditional five-to-seven-year horizon. The mandate to return capital to LPs hasn’t gone away. If anything, the current uncertainty makes that pressure more acute. Expect a wave of sponsor-to-sponsor transactions and continuation vehicles—structures designed to defer ultimate price realization until geopolitical clarity improves, while still offering LPs an off-ramp.
The Energy Shock and What It Means for Valuation
The Strait of Hormuz is the world’s most critical energy chokepoint—accounting for approximately one-fifth of global petroleum liquids consumption and more than a quarter of seaborne oil trade. The threat to its navigability has already pushed energy prices sharply upward, with analysts tracking Brent crude closely and tail-risk scenarios projecting significant further surges if a sustained blockade materializes.
For M&A practitioners, this energy shock is expected to transmit quickly into deal economics. Asian markets—which depend heavily on crude volumes transiting the Strait—face the prospect of meaningful input cost inflation and margin compression across manufacturing bases. Any target with heavy Asian supply chain dependencies should be treated as requiring immediate revision to working capital assumptions and EBITDA projections. European targets aren’t immune either: LNG spot price volatility is already adding a risk premium to industrial and chemical assets across the eurozone, and analysts expect that to persist as long as the conflict continues.
The valuation methodology question is a live one. Traditional models—heavily weighted toward historical performance and linear growth projections—risk systematically mispricing geopolitical exposure in this environment. Deal teams can no longer rely on a generalized country risk premium and call it a day. Research on geopolitical risk and cross-border M&A pricing suggests that companies with meaningful exposure to conflict-prone regions may require a significant geo-risk premium adjustment to their cost of equity—and that this figure is highly asymmetric across sectors. An energy logistics business and a domestic software company are in entirely different risk universes. Any deal team applying a blanket discount across both is going to get hurt.
Put simply, real options theory—treating an acquisition as a deferrable investment decision—is becoming standard practice. In high-uncertainty environments, volatility increases the value of waiting. Buyers will demand lower multiples. Sellers anchored to 2025 pricing need to recalibrate.
Where the Deals Are
Not every sector is retracting. Capital is beginning to rotate toward defense and aerospace (MRO providers, unmanned systems, electronic warfare), cybersecurity and sovereign AI infrastructure, and domestic energy assets—LNG infrastructure and renewables in particular. Acquirers are expected to aggressively target differentiated cybersecurity capabilities. The proliferation of state-sponsored cyber operations accompanying the physical conflict has elevated cybersecurity from a routine IT function to a central deal rationale—and early-mover acquirers are likely to pay premium multiples to get there first.
Real estate and logistics present a different kind of opportunity. Companies burdened by legacy business models are likely to accelerate divestments to free up capital, untangle inefficient portfolios—often a direct legacy of years of unconsolidated M&A activity—and reduce fixed cost bases. Supply chain rerouting away from Gulf shipping lanes will force a fundamental reassessment of logistics footprints and near-shoring strategies. For well-capitalized strategic buyers, these are precisely the carve-out opportunities worth pursuing.
Structuring Deals in a Volatile Market
A valuation gap is likely to form between sellers anchored to 2025 multiples and buyers pricing in 2026 risk. And the mechanism most likely to bridge it—earn-outs—is already moving from a niche tool used primarily in early-stage tech transactions to a standard feature of the broader deal landscape.
The architecture of a well-constructed earn-out matters enormously here. Sellers typically push for revenue-based metrics (less susceptible to post-closing accounting adjustments), while buyers favour EBITDA or net income metrics. In an inflationary environment where input costs could surge unpredictably due to logistics bottlenecks, EBITDA metrics carry significant risk for sellers unless specific exclusions for macroeconomic shocks are negotiated upfront. The Delaware Court of Chancery has observed that an improperly drafted earn-out often converts a present disagreement over price into future litigation over outcomes. That’s a risk neither party should be willing to accept.
Post-closing covenants matter just as much as the metric selection itself. Sellers need to secure ring-fencing provisions—ensuring the acquired business is run as a standalone division, restricting the buyer’s ability to load new debt onto the target, and retaining key operational personnel. Without these, a buyer can rapidly integrate the business, obscure the financial metrics needed to calculate deferred consideration, and leave the seller with nothing but a lawsuit.
Working capital is another vulnerability. A standard acquisition assumes the delivery of a normal level of working capital at closing—but defining “normal” in 2026 is genuinely problematic. Targets may be hoarding inventory to front-run anticipated supply chain disruption, or already suffering from depleted stock. Using a historical twelve-month average as the peg risks unfairly penalizing prudent stockpiling—or leaving the buyer needing to inject immediate liquidity post-close. Bespoke working capital buffers and careful delineation of how geopolitical anomalies are treated within the accounting hierarchy aren’t optional extras. They’re deal protection.
The SPA: Don’t Rely on the MAC Clause
Buyers experiencing second thoughts about deals signed pre-conflict will be tempted to reach for the Material Adverse Change clause as an emergency exit. History suggests they will be disappointed.
Triggering a MAC clause is exceptionally difficult across every major jurisdiction. Under Delaware law, an adverse event must be durationally significant—short-term volatility, temporary earnings dips, and regional supply chain disruptions typically don’t meet this standard. Courts are deeply reluctant to allow buyers to walk away; the successful invocation of a MAC is an extreme rarity, requiring pervasive and systemic failure within the target—as evidenced by Fresenius Kabi v. Akorn. The UK Takeover Panel applies equally stringent standards and explicitly rejected attempts to use COVID as justification for aborting transactions in the 2020 Moss Bros ruling. There is no reason to expect a different approach here.
The reality is that broad economic impacts of a geopolitical conflict are typically carved out of MAC clauses as a matter of course. Buyers seeking genuine protection need to negotiate specific, quantifiable carve-ins—the loss of a named customer, the permanent closure of a defined shipping route, a quantified drop in a specific revenue stream. Vague MAC language is not protection. It’s false comfort.
Interim operating covenants deserve equal attention. These provisions dictate how the target must conduct its business between signing and closing—typically requiring adherence to the ordinary course of business. The conflict is already forcing companies to consider rapid, abnormal operational decisions: rerouting supply chains, altering pricing structures, pausing production lines. If a target takes any of these actions without explicit buyer consent, they risk breaching the covenant and handing the acquirer a legitimate legal mechanism to terminate the deal. SPAs must include buyer consent mechanisms that allow the target to implement necessary mitigation strategies quickly—without inadvertently derailing the transaction.
Sanctions: No Longer a Back-Office Issue
Even before the current conflict, the weaponization of economic sanctions had been moving compliance from an administrative function to a front-line deal consideration. The US has been expanding designations targeting shadow fleets facilitating illicit oil trades. The UK’s Office of Trade Sanctions Implementation operates on a strict liability basis—corporate intent is irrelevant. And senior manager accountability tests make it easier to hold firms criminally liable if decision-makers were aware of or enabled violations. The Iran conflict will only accelerate all of this.
For acquirers, this means integrating sanctionability into the core valuation model from day one. Static list-checking is no longer sufficient. Due diligence must extend to mapping beneficial ownership webs across multiple jurisdictions, tracing supply chain exposure to shadow fleet operators, and identifying dual-use goods routing through high-risk transshipment hubs. SPAs must include explicit No Iran and No Russia clauses. And where a target operates in proximity to restricted supply chains, robust indemnities and post-closing remediation protocols are non-negotiable.
A useful backstop: the DOJ’s M&A Safe Harbor policy allows acquiring companies that voluntarily self-disclose misconduct uncovered during post-close diligence within 180 days—and fully remediate within one year—to receive a presumption in favour of declining prosecution. It’s not a free pass, but it’s meaningful protection for acquirers conducting thorough diligence.
Takeaways
- The Iran conflict—barely two weeks old—has already shifted the M&A dynamic toward buyers. Discipline over opportunism. And for sellers, there is no substitute for being properly divestment-ready before the market forces your hand;
- Valuation methodology must evolve. Blanket discounts don’t capture asymmetric, sector-specific geopolitical risk. Factor in a meaningful geo-risk premium and stress-test synergy assumptions aggressively before signing off on a deal;
- Earn-outs are set to become mainstream in this cycle. Get the architecture right—metric selection, effort standards, ring-fencing covenants—or risk converting a pricing disagreement into expensive litigation down the line;
- MAC clauses offer less protection than most buyers assume. Negotiate specific, quantifiable carve-ins rather than relying on boilerplate language to provide an exit;
- Sanctions compliance is now a valuation issue—not a legal formality. Integrate sanctionability into due diligence from day one. The liability exposure of getting it wrong is existential.
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