What’s Happening in M&A: Looking Ahead to 2025

Following the gradual recovery in global M&A markets through 2024, the outlook for 2025 suggests solid grounds for optimism. According to Goldman Sachs’ Investment Banking Outlook, the recent reductions of interest rates and improved market conditions as well as the greater certainty resulting from the determination of the US election is expected to support increased deal activity, particularly in the middle market segment.^[1]

Global M&A, at least in the first three quarters of CY24, contrary to the outlook going into the year, saw very similar year on year deal numbers, 32,266 in FY23 versus 31,515 in FY24.^[2] Despite the slightly lower deal numbers, the transaction values were up. Energy deals and tech deals drove the market at the high value end.

The rate cutting cycle that commenced in 2024 along with higher stock prices underpinned solid activity levels. The “known unknowns”^[3] coming into last year, namely the geopolitical issues and key elections are now baked-in to the outlook which strongly suggests a rebound in 2025. The Trump administration is likely to be very pro-business and have indicated a desire to tackle anti-competitive regulations. Additionally, pension funds across the planet who are the largest investors, indications point to them driving M&A as they continue to move away from passive investing to more direct investment, especially the sovereign wealth funds. Reduced costs of acquisition financing should also provide further encouragement to the private equity market to put the dry powder (undeployed cash resources) to work, credit is likely to become easier to access generally.    

Australia 

In Australia, SMEs continue to drive transaction volumes, historically accounting for over 75% of deals (those below $100M). Despite some valuation tensions in previous years, 2025 is likely to see increased activity as business owners who delayed their exits during the higher interest rate environment of 2022-2023 return to the market seeking liquidity. The valuation gaps are likely to close as the cost of money reduces  

Private Equity’s Role

A significant factor for 2025 will be the deployment of private equity dry powder. According to Preqin’s Private Capital Report,^[4]global PE firms held approximately $2.59 trillion in uninvested capital. This substantial pool of available capital remains largely untouched, suggesting increased deal activity, particularly in sectors undergoing digital transformation or consolidation.

We are seeing a real shift locally as private equity buyers develop buy-hold funds opening-up different kinds of expansion opportunities outside of the more traditional growth expansion or role-up scenarios. Separately we are also seeing smaller private equity funds and private capital who have significantly reduced the earnings threshold which is opening greater exit options for businesses that until quite recently were considered too small.

Key Trends Shaping 2025

S&P suggest that defence and technology will feature heavily in 2025, while the emerging widespread adoption of AI is seen as another driver with acquirers anticipating opportunities to drive efficiency gains through putting AI to work. Private equity moved more heavily into deal mode in the second half of 2024 with $15billion invested in tech companies, levels not seen since the peak of 2023.

Digital Transformation

The acceleration of digital transformation continues to drive deal activity. McKinsey’s Technology Outlook indicated that approximately 45% of technology-focused acquisitions are now driven by digital capability building rather than traditional market consolidation. ^[5]

Cybersecurity remains a critical focus, with regulators increasingly scrutinizing boards’ oversight of cyber resilience. While smaller cybersecurity firms often face challenges around goodwill transfer and key person risk, strategic buyers continue to seek acquisitions that can enhance their security capabilities.

Software as a Service (SaaS)

The SaaS sector maintains its attractiveness, with Annual Recurring Revenue (ARR) multiples remaining strong for high-quality assets. According to SEG’s SaaS M&A Report (2023), median revenue multiples for SaaS companies have stabilized in the 5-7x range for private companies, with premium valuations for those showing strong growth and retention metrics.^[6] Locally in the mid-market we are seeing 3 times ARR as more typical. However, appetite continues to be very strong for such assets and have seen up to 8 times ARR. Like all valuations there is much more art than science at play, the strategic intent of the buyer and their necessity to own, along with competitive tension can see valuation methodology blown out of the water.       

Technology

Interestingly non-technology companies acquiring technology companies rose to 12% of total M&A volumes in 2024, up from the long-term average of 7%. ^[7] This rebalancing across industries from “old economy” toward growth sectors like technology, consumer and healthcare is likely to continue to gain momentum. Certainly, we are paying close attention to non-technology conglomerate acquirers with appetite for technology when developing our target lists for technology clients.

Middle Market Opportunity

Established private companies continue to attract strategic buyers, particularly those with proven business models and strong market positions. The value proposition of acquiring decades of market presence and customer relationships remains compelling, especially for larger organizations seeking to accelerate their market entry or capability development. Nearly half of CEO’s recently surveyed believe that strategic growth and the addition of new capabilities will be the primary deal drivers in 2025.^[8]

Looking Ahead

The simplification of portfolios, especially among large caps, drove deals in 2024, many of these spin-offs were cross-border disposals. Goldman Sachs believe this will continue as shareholders reward better capital allocation and efficiency. “With inflation more or less tamed”^[9] and interest rates beginning to decline, the valuation gaps are set to close further which will help activity levels in 2025.  

Market features supporting M&A activity in 2025:

– Stabilized financing conditions

– Substantial private equity dry powder seeking deployment

– Strategic imperatives around digital transformation and energy transition

– Ongoing industry consolidation opportunities

– The strategic growth and capability needs of large corporates

Wrap Up for Sellers

The opportunities for the shareholders of established private companies to unlock value to strategic buyers remain in place in Australia. These opportunities are always contingent on the matching of the of the vendor’s business and the key business features with the requirements of the acquiring party. This matching work is not easy and normally requires a thorough analysis matched by significant levels of contact work, undertaken discretely, to surface genuinely strategic rather than opportunistic interest. This work needs to be done discretely to avoid destabilisation. For more details on how to take a strategic approach to selling speak to Oasis Partners who have been unlocking value for the shareholders of private companies since 1984 and have done over 500 deals.               

References:

[1] Goldman Sachs Investment Banking Outlook, Q4 2024

[2]S&P Global Market Intelligence. See the Big Picture: Themes Shaping 2025. Seek & Prosper 

[3] Goldman Sachs 2025 M&A Outlook

[4] Pregins PE Capital Report

[5] McKinsey Technology Outlook

[6] Software Equity Group (SEG) SaaS M&A Report,

[7] Goldman Sachs 2025 M&A Outlook 

[8] S&P Global Market Intelligence. See the Big Picture: Themes Shaping 2025. Seek & Prosper 

[9]  Goldman Sachs 2025 M&A Outlook