As companies look to refine portfolios and adapt to regulatory changes, legal experts have flagged the financial services sector as one of the standout areas for mergers and acquisitions (M&A) in the new year.
Reflecting on what 2025 will mean for deal-making activity, Andrew Rich and Tony Damian, partners at law firm Herbert Smith Freehills, suggest the financial services sector could be a significant player alongside energy and tech.
This is among their top 10 M&A predictions in Australia, noting that while pessimism over deal-making has pervaded in recent years, 2024 demonstrated that substantial deals continue to shape the market, and 2025 is expected to bring even more activities across various sectors.
“On the demand side, hungry corporates and the ubiquitous mountains of private equity and private capital dry powder (including increasingly active super funds on the scene) will drive things,” they explained.
“The need to exit from assets and – both for corporates and PE – will help on the supply side.
“Yes, there are political uncertainties including the precise approach of the new US Administration and an Australian federal election in the first half of the year, but we think that there will be lots to do in deal land.”
According to the pair, interest in technology, alongside the ongoing energy transition, could drive renewed interest in financial services in particular.
“Financial services has also been a bit of a sleeper, but we think that various drivers (such as portfolio refinement, acquiring adjacent skills and adapting to regulatory change) could see that sector with a very respectable scorecard by this time next year,” they said.
Rich and Damian also flagged a potentially big year for cross-border M&A as interest grows overseas, as has already been seen with two major US-based players demonstrating interest for Insignia Financial in the last month.
In December, US private equity giant Bain Capital lobbied a bid to acquire 100 per cent of the financial services firm although this was later rejected by the board which felt it was not fair value for shareholders.
Earlier this week, Insignia confirmed it has since received a second offer from New York-based firm CC Capital Partners. This would be to acquire all of the shares in Insignia Financial by way of a scheme of arrangement at a price of $4.30 cash per share. The $4.30 offer is 7.5 per cent higher than the $4 per share originally offered by Bain Capital.
Additionally, alternatives giant KKR remains in talks to acquire Perpetual’s wealth management business, having entered into a scheme of arrangement in May last year.
According to Rich and Damian, while geopolitical tensions have led to some apprehension for cross-border dealmaking in the last year, “the corridors that remain clear for investment flows will see a lot of them”.
“Think North America, but also Western Europe and Japan. We saw a bit of this in 2024 (e.g. Japanese interest was strong with deals like Altium and Link Group) but expect more in 2025,” they said.
“And we’ll boldly suggest that it won’t be one-way traffic – with well-capitalised Australian companies prepared to look to do deals in some of those jurisdictions as well.”
Money Management previously explored what recent overseas interest could mean for the Australian M&A space, with financial services M&A expert Tony Beaven noting the US dollar/Australian dollar exchange rate remains very enticing from a currency perspective for US firms to make deals now.
Prior to this, James Chown, partner in Deloitte’s M&A division, also flagged how US investment giant Oaktree Capital Management’s $240 million investment in AZ NGA could likely be the first of many deals to come.
“We’re definitely expecting to see volumes increase and the size of deals increase in 2025. We’re seeing a lot of interest in the sector from private equity and institutional capital which, we think, will see some of the larger financial advice businesses transact – whether it’s partnerships, minority stakes or large majority stakes.
“We’ve had offshore managers looking at the market and trying to understand how to play the market. That’s whether they come in with an asset management offering, an SMA offering, or they want to move into the advice offering.”
