Australia’s M&A landscape is expected to weaken in the near term due to global volatility and uncertainty sparked by erratic US trade policy, Grant Thornton has found.

Deal levels have declined slightly since 2023 as volatility and uncertainty in the global economy drag on Australia’s M&A landscape, Grant Thornton’s 2024 Dealtracker found.

“We expect deals to soften in the short term due to continued market uncertainty and global economic volatility, and expect deals to continue to stabilise in the next 12 months,” Jannaya James, corporate finance partner at Grant Thornton Australia, said.

“We know there’s still IM capital available to be deployed, albeit cautiously, as IMs are invested in quality growth opportunities. We’re however unlikely to see a return to the levels of IPOs observed historically, due to the current volatility in the markets.”

While global volatility has dampened the appetite for deals, Grant Thornton said that Australia’s M&A landscape had largely stabilised in the wake of cost-of-living and inflationary pressures.

Overseas purchasers have also taken a greater interest in the Australian market due to the stabilisation of the Australian economy and political environment, coupled with a lower Australian dollar.

International purchasers comprised 36 per cent of transactions, up from 31 per cent in the previous period, Grant Thornton found. Buyers from the US and Canada continued to lead Australian acquisitions, contributing 43 per cent of deals.

Across the 18 months from 1 July 2023 to 31 December 2024, Australia’s deal landscape continued to be dominated by industrials, which contributed to 31 per cent of deal activity. The IT sector accounted for 22 per cent of deals.

The report identified a growing trend of investment in innovation, particularly in AI, digital infrastructure and data.

Small and medium-sized businesses continued to be favoured targets for acquisition, leading to a high proportion of deals with transaction values of less than $100 million.

IPOs also continued to decline, following three years of falling listing numbers after the pandemic. Listed equity markets were unattractive, Grant Thornton said, including the previously dominant materials sector, which had become hampered by commodity price pressures and ESG priorities.

Given current market volatility and global uncertainty, Grant Thornton expected deals to soften in the short term before stabilising over the next 12 months. Available capital would likely be invested cautiously into quality growth opportunities, Grant Thornton predicted, and volatility could delay a recovery in IPO activities.