Dealmakers could be impacted by rapidly evolving market, says M&A expert

Economic uncertainty and increased political movement are expected to take a toll on mergers and acquisitions in the mid-market as dealmakers share their forecasts for 2025.

Speaking on a recent Under the Hood podcast episode, Andy Hough, partner at Pitcher Partners and lead of the Sydney M&A team, said the sentiment for 2025 had been labelled as “cautiously optimistic.”

Hough said this was a relatively grim term to describe the outlook, but it depended on whether someone was a “glass half full or glass half empty” type of person.

“It’s fair to say the last couple of years for deal making in Australia and also globally have been relatively tough. There wasn’t a lot of activity, and normally when the top end of town is quiet, that kind of filters down to the whole market,” he said.

“I think it’s optimistic because most dealmakers are hoping we’ve come out of the worst of the last couple of years.”

Hough also noted that dealmakers remained cautious based on interest rate cuts, the election of US President Donald Trump in the US and Australia’s upcoming election.

Hough shared his experience within the M&A space which had spanned over 25 years, and said on a personal level, he felt more optimistic and less cautious towards the market.

This level of confidence was attributed to the growing succession issue in Australia, where a high percentage of Baby Boomers nearing retirement hadn’t planned their business exit properly.

According to Hough, a lack of succession planning across business owners nearing retirement could lead to heightened deal activity within the middle market.

This would be an opportunity based on statistics from the Australian Bureau of Statistics (ABS), which highlighted that almost 1 million of Australia's 2.5 million small businesses were owned by Baby Boomers, Hough said.

“If you think about it, that’s almost 40 per cent of all businesses in Australia that there has to be a change of succession in the next 10 years, so that creates a massive opportunity, we think,” he said.

“Historically, you might have a business that’s been in a family for generations. If there are no children to take over the business, or if they don’t want to, then to monetise that lifetime investment, business owners need to do something, which is why they come to people like us. So, there’s a real opportunity there.”

Based on the cautious yet optimistic nature of Australian middle-market dealmakers, Hough said there were common risks that should always be considered when making deals.

The biggest risk with any merger or acquisition was on the buyer side, because most transactions never delivered the value that was originally anticipated, Hough said.

“Most acquirers, particularly when it’s a competitive process, end up paying a full price for the business that they’re acquiring, and then it generally doesn’t deliver all the benefits and synergies that they thought it was going to deliver.”

“When they look back, they overpaid because they didn’t get the outcome they thought they were going to get.”

The biggest risk on the seller side that should also be taken into account was the fact that any happenings within a company historically would always be the liability of the previous owner, despite having sold to someone else.

Hough said dealmaking in the middle market was something he wished he had entered into earlier in his career.

“What I really like about working in a mid-market firm is that I am working with people to effectively try and monetise their life's work. I get a real buzz out of helping someone sell their business and you know, sail off into the sunset.”