Decrease in Financial M&A Buyers Seen Following Spike in FY24

Financial M&A buyers have seen a significant decline in activity, with the share of financial buyers, such as private equity firms, dropping from 67% to just 12% in the last financial year. HLB Mann Judd’s annual M&A report highlighted this shift, attributing the decrease in financial buyers to a return to FY23 levels of 12%, following an unusual spike in FY24. This spike was primarily driven by firms feeling pressure to deploy ‘dry powder’ funds, which had accumulated to $193 billion at the beginning of the year.

Strategic buyers, on the other hand, saw their share rise to 88% in the last financial year. Unlike financial buyers who aim for financial gains and subsequent profit, strategic buyers are more focused on acquiring companies to enhance their own strategic objectives. The decline in financial buyers was a result of several factors, including market stability and increased secondary buyout opportunities.

Simon James, a partner at HLB Mann Judd, noted the shift in momentum from FY24 to FY25. Factors such as stabilizing inflation, falling interest rates, and renewed tariff uncertainties have impacted the market. Financial buyers tend to be more sensitive to short-term return targets, unlike strategic buyers who take a longer-term view. Limited liquidity in the market has also made it challenging to raise additional capital for transactions.

Private equity interest in the financial services sector has been on the rise, with notable acquisitions by CC Capital, Oaktree Capital Management, and TA Associates. These US entities have made strategic investments in companies such as Insignia Financial, AZ NGA, and Viridian Financial Group. Transactions involving international entities have commanded higher average multiples of 9.7x, compared to the 8.3x multiple for domestic deals, representing a 17% premium.

Overall, the financial M&A landscape has seen a notable shift in buyer composition, with strategic buyers dominating the market in the last financial year. The decline in financial buyers, coupled with market uncertainties and limited liquidity, has shaped the M&A environment. As the market continues to evolve, it will be interesting to see how these trends impact future M&A activity and the composition of buyers in the financial space.