Sluggish deal activity could pick up as interest rates ease, HLB Mann Judd says

The total number of deals declined to 951 in the 2025 financial year, down from 1,038 the year prior, HLB Mann Judd’s M&A Annual Report has found.

However, with inflation within the RBA’s target range and more interest rate cuts on the horizon, the report projected that a recovery could be forthcoming.

“While deal activity in Australia remained subdued over the past 12 months, a rebound may be on the horizon,” the report said.

“Inflation has returned to the Reserve Bank of Australia’s target range, the labour market remains resilient, and market sentiment has improved following the Liberation Day event in April 2025.”

Deal volumes throughout the 2025 financial year were more subdued than in prior years, the report noted.

In particular, HLB Mann Judd observed a notable decline in Q2 deals, which typically would see higher deal volumes due to year-end completion efforts. The depressed deal volumes likely reflected mid-quarter caution around impending tariffs, the report noted.

“Uncertainty lingers, driven by ongoing global trade tensions and broader geopolitical risks,” it said.

“This, combined with the elevated interest rate environment and a weaker Australian dollar have coincided with a notable decline in M&A activity but presents opportunities for international investors.”

The report found that the average transaction value rose to $148 million in the 2025 financial year, up from $127 million in FY2024.

This suggested that corporate confidence remained high in Australia, supported by expectations of further interest rate cuts, the report said. It could also point towards a shift in focus towards transactions with clear strategic value and long-term potential over short-term gains.

Average transaction sizes were higher in energy, financials, industrials, materials and real estate industries in the 2025 financial year, compared to the year prior.

The report noted that this could reflect a greater resilience to geopolitical and economic headwinds amongst these sectors, and that dealmakers were prioritising quality over quantity.

Looking forward, HLB Mann Judd said Baby Boomer retirements could spur stronger mid-market deal activity in coming years as older Australians looked towards retirement and succession planning.

Asofter business environment and widening bid-ask spreads would continue to pose challenges for dealmakers. While vendors delayed exits in anticipation of improved conditions, buyers increasingly applied mark-to-market valuations, widening the valuation gap.

HLB Mann Judd said this would increase the complexity of M&A negotiations.

The report added that Australia’s stable regulatory environment and favourable interest rates have continued to attract cross-border interest. It projected that Australia would continue to see inbound M&A from North America, primarily within the energy and technology sectors.

The report also forecast a rebound in private equity-led transactions to deploy “record levels of dry powder,” spurred by interest rate cuts and a backlog of portfolio exits.

“Although M&A activity slowed in FY2025 amid heightened geopolitical, trade, and economic uncertainty, we believe value-accretive opportunities still exist in the mid-market for those willing to pursue them,” the report said.