M&A activity is recovering following a post-COVID-19 low, with three in four (75 per cent) organisations saying that current economic conditions will support M&A activity, research has found.
For its annual survey, The Deal in Focus: Heads of M&A, Deloitte collected responses from 100 M&A leaders, which provided insights into the state of today’s M&A environment.
Capturing growth and market share
According to its research, three in four (75 per cent) respondents said economic conditions supported M&A activity, and 65 per cent were confident that the economy would recover and thrive within the next year. Despite this optimism, the data also found that nearly one in two (47 per cent) respondents believed that global uncertainty affected their ability to execute deals, up from 37 per cent in 2024.
Deloitte Australia M&A transaction services partner Jamie Irving said that improving economic conditions have encouraged market momentum, and companies are approaching M&A with “offensive ambition”, eyeing acquisitions that will capture growth and market share.
Based on its findings, Deloitte found that deal-making conditions in the year ahead will be determined by the strength of economic recovery, global trade policy severity and geopolitical risks. It found that over two in five (42 per cent) M&A leaders reported that domestic uncertainty, and 40 per cent said that the general pace of economic growth affected their ability to execute deals.
Irving said M&A leaders were primarily preoccupied with the interest rate cycle, international political and economic uncertainty. He also noted that concerns over the supply chain disruption fell amid international trade disputes and less growth in major world economies.
Competitive position
Deloitte revealed that companies showed a desire to focus on core business, optimise capital, or to prepare for a new future, as the survey found that more than one in two (54 per cent) M&A leaders reported needing to make acquisitions during their most recent portfolio reviews. In contrast, 27 per cent instead reported the need to divest.
Irving said companies have shifted from “defensive plays” such as “protecting the core” to increasing their competitive position, which involves attaining market leadership and accelerating longer-term transformation. He stressed the role of advisers in proposing how to deliver these transformations.
Further, the survey showed that more than one in two (55 per cent) M&A leaders said deal valuation and pricing held companies back from M&A success. This was down from 67 per cent last year, which shows a narrowing of bid-ask spread due to lessening inflationary pressures, base rate stabilisation, and a more resilient economic outlook.
The data also found that almost one in three M&A leaders used an equity hurdle rate of more than 15 per cent, and 57 per cent used from 10 per cent to 15 per cent during deal pricing. Deloitte said the real barrier to deal value frequently arises after signing. It revealed that transactions can struggle and value can be lost during post-announcement transition and integration and separation.
More than 80 per cent of M&A leaders said active involvement of C-suite and senior management is crucial for deal objective success; however, they are often underutilised in driving change, it said. The report identified further challenges leaders faced when trying to achieve their deal objectives, as 57 per cent highlighted struggling with poor cultural fit, and 57 per cent identified the challenge of employee retention.
Emerging ‘sea change’
One in two respondents reported exploring alternative deal structures to mitigate risk while also achieving their growth ambitions, the data showed. These structures include JVs and partnerships that can help to cover risk; however, these alternative structures may add complexity to the deal, Irving said, and the future of other parties’ agendas must also be considered, not just their current state.
ESG and sustainability drivers continued to be key drivers of deals and longer-term value creation, the report found. Forty-three per cent of M&A leaders said that in a three- to five-year time frame, sustainability is a source of value creation, opportunity or competitive differentiation.
Additionally, the research revealed that 45 per cent of M&A leaders used some software, the web or AI tools to automate and facilitate transaction execution.
Irving said: “The more that deal management is digitised, the better placed M&A teams will be to optimise their performance. They’ll be able to assemble models and datasets to better support their decision making and find better ways to store that information to support future transactions.”
Irving anticipated an emerging “sea change”, where less time will be spent on “plumbing”, and more time will be spent on value-add analysis and advice. To apply these technologies the right way to M&A activities, he advised that professional associations and educational institutions must spend resources on upskilling professionals and graduates on these tools, while keeping a “human in the loop” for output control and review.
Carlos Tse is a graduate journalist writing for Accountants Daily, HR Leader, Lawyers Weekly.
