Total deal volumes in the first half of the year were down 9% from 1H23, totaling 416 transactions, according to new data from Pitcher Partners.

However, deal values ​​rose slightly by 1% to $52.9 billion.

But Australia’s mid-market – comprising deals worth between $10 million and $250 million – saw the biggest contraction, falling 16 percent to $7.96 billion in 1H24.

Transaction volumes in the middle market also suffered a marked decline, falling 18 percent from the prior period.

"Despite initial enthusiasm earlier this year, with 70 per cent of respondents to our February forecast survey planning to increase M&A activity, dealmakers are proceeding with caution," said Pitcher Partners Melbourne partner Michael Sonego.

"The current macroeconomic environment, supported by the unpredictability of interest rates and persistent inflation, has once again introduced a degree of uncertainty into the market."

However, Pitcher Partners argues that the continued contraction in activity is not necessarily an indication of a lack of opportunity. Rather, the firm emphasized that the current environment may favor strategic transactions.

“With valuations adjusted to more realistic levels, assets that were previously overvalued are now becoming available at more attractive prices. This is particularly attractive to private equity firms and strategic investors with the patience and capital to invest during a downtown market,” the analysis reveals.

This is broadly in line with global deal activity, which has seen fewer deals (down 13 percent) but higher values ​​(up 23 percent).

Sonego agreed that the data highlighted a shift to more strategic investments, with marketers prioritizing clear strategic benefits and long-term goals over short-term gains.

This change, he said, reflects a market where "quality trumps quantity" and investments must be compelling enough to justify the risks and costs involved.

In addition, Australia continues to attract offshore investors, particularly from the US and the Asia-Pacific region.

"Economically, we are moving in a much narrower range, and politically, we are a fairly stable, predictable economy and destination," Sonego emphasized.

"It is this predictability that makes Australia so attractive."

Offshore buyers completed deals worth $30.2 billion, marking the second highest half-year total in five years and accounting for a significant 39 per cent of all M&A activity in the Australian market.

However, inbound mid-market M&A saw a sharp decline, with deal values ​​down 46 percent to $2 billion and volumes down 44 percent from 1H23 to 28 deals.

Looking ahead, Sonego believes that while high interest rates and sticky inflation will continue to impose constraints, they will also force traders to adapt and refine their strategies.

"Australia's M&A market is expected to remain buoyant, offering positive returns for well-prepared traders."

Sector clock

Looking at Australian M&A activity in each sector, energy, mining and utilities (EMU) emerged as the leader, accounting for 21 per cent of total deal value.

Pitcher Partners said these findings highlight the growing importance of ESG considerations in investment decisions.

This was followed by construction; although the volume of transactions in the industry was relatively low, about 6 percent, it represented more than 15 percent of the total value.

Financial services ranked fifth, accounting for 12% of total deal value and about 9% of deal volume.

"Private credit deals in the financial services space, such as HMC's acquisition of Payton and Regal's acquisition of Merricks, may also be an indication of things to come," the analysis said.

“The growth of alternative asset managers is mainly driven by the tightening of traditional bank lending standards and the continued demand for alternative financial solutions. The landscape is ripe for consolidation as major players may look to acquire niche businesses to expand their asset bases and enhance their offerings.

The technology sector has also seen a surge in mergers and acquisitions, driven by the acceleration of digital transformation across industries.

According to analysis by Pitcher Partners, Australian businesses are increasingly investing in technology firms to integrate advanced technologies such as AI, big data analytics and cloud computing into their operations.