M&A activity slowed in the 2025 financial year amid heightened geopolitical, trade, and economic uncertainty, however a rebound may be on the horizon, according to Simon James, assurance & advisory partner at HLB Mann Judd Sydney.

In the latest HLB Mann Judd M&A report, Mr James says factors such as lower inflation, a resilient labour market, and improved market sentiment, suggest there may be a recovery in M&A activity in the next 12 months.

According to the report, the total number of deals fell to 951 in FY25, down from 1,038 in FY24 and 1,211 in FY23.  However the average transaction size increased, from $127 million in FY24 to $148 million in FY25.

“The lower deal volume in FY2025 compared to FY2024 and FY2023 suggests that investors have been exercising greater caution amid rising global economic uncertainty and softening business conditions.

“There is no doubt that this caution is still lingering amid persistent geopolitical and economic uncertainty, however our analysis suggest that value-accretive opportunities still exist in the mid-market for those willing to pursue them.

“This is underpinned by anticipated interest rate cuts following the return of inflation to RBA’s 2 to 3 per cent target range, as well as key structural drivers including Baby Boomers retirements, renewed private equity activity, and growing interest in the renewable and AI-first sectors.”

Mr James says these themes will play out over the long term.

“The Baby Boomer transition is a multi-year theme as succession planning is poised to become more important than ever.  We anticipate the future of mid-market deal activity to be driven by the ‘silver tsunami’.

“Likewise, a backlog of portfolio exits, coupled with expected interest rate cuts and record levels of dry powder, suggests a strong rebound in private equity-led transactions.

“The disruptive potential of AI also has a role to play, prompting many business leaders to consider M&A as a means of enhancing their AI capabilities.

“On top of this, ESG considerations are a further catalyst, with investors favouring companies with strong governance, sustainability and social impact credentials. For instance, within the materials sector, access to lithium and rare earth elements is expected to be the primary driver of M&A, given their critical importance to the energy transition,” Mr James says.

Throughout the course of FY25, deal levels trended steadily downwards, with 301 deals in Q1, 267 in Q2, 181 in Q3, and then a slight increase in Q4 to 202.

“Historically, Q2 has tended to see high deal volumes due to calendar year-end completion efforts, however this trend did not continue in FY2025, likely due to mid-quarter caution around impending tariffs and economic headwinds,” Mr James says.

“It is notable that despite the fall in overall deal numbers, the average transaction value has risen over the past three years, up to $148 million in FY25 from $127 million in FY24 and $89 million in FY23.

“The increase in average deal size is primarily due to a higher average value of deals over $1 billion in FY25. This suggests corporate confidence remains positive in Australia’s economic outlook, supported by expectations of further interest rate cuts, which could boost business valuations. It also reflects a shift in focus toward transactions with clear strategic value and long-term potential over short-term gains.”

From a sector perspective, the healthcare, information technology, materials, real estate, industrials, and energy industries each saw an increase in the average transaction valuation multiples in FY25 compared to FY24. In contrast, the consumer discretionary industry average transaction valuation multiple decreased in FY25 compared to FY24.

International deals created a premium of 17 per cent, with deals involving international entities carrying an average multiple of 9.7 compared to 8.3 for domestic transactions.

“This may reflect a strong perception of potential synergies from international buyers, particularly in terms of market entry and expanding footprints into the Asia-Pacific region,” Mr James says.

“The distribution between international and domestic transactions has remained consistent in the last three years, with just below one in three transactions being international.

“Looking ahead, Australia’s stable regulatory environment and strategic resources, together with favourable interest rates making for attractive pricing, will continue to attract foreign buyers. In particular, inbound M&A from North America and Asia is expected to grow, primarily within the energy and technology sectors.”

Data in the report shows that the share of financial buyers (including private investment firms, public investment firms, financial service investment arms, and private funds) compared to strategic buyers has declined from 67 per cent in FY24 to 12 per cent in FY25, returning to FY23 levels.

“This decline may be due to a global slowdown in private equity exit activity, coupled with persistent geopolitical and economic uncertainty and elevated interest rates, and therefore, reducing the cash available to complete deals.

“Increasingly, buyers are looking to achieve scale, efficiency, and geographic expansion, making consolidation a likely continued theme in the years ahead,” Mr James says.

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