Superannuation funds are poised to become major players in the 2025 mergers and acquisitions (M&A) landscape, according to global law firm Herbert Smith Freehills (HSF). Their growing activity is expected to complement ASX-listed companies as they continue reassessing their asset portfolios.
On the demand side, HSF highlighted “hungry corporates” and the “ubiquitous mountains of private equity and private capital dry powder”, with superannuation funds playing an increasingly pivotal role in driving M&A activity.
Meanwhile, the need for corporates and private equity firms to exit assets is expected to provide a steady supply of opportunities.
HSF singled out private capital equity players as “ready, willing and able” to jump in and snap up unwanted quality asset portfolios, particularly those with strong cash flows.
In its predictions for 2025, the firm also highlighted a ramp-up in activity in cross-border M&A deals, with investment flows expected to focus on North America, Western Europe, and Japan despite ongoing geopolitical tensions. Notably, Australian companies, bolstered by strong capital positions, are also likely to pursue deals in these key markets, HSF said, signalling a shift towards two-way traffic in global M&A.
Reflecting on the merger reforms that recently passed Parliament, HSF assessed that the reform isn’t expected to cause some “abnormally high” level of early 2025 deals but noted that sophisticated players are already factoring the new regime into their M&A thinking.
Areas to watch in the year ahead, HSF said, include energy, tech and financial services.
“The ongoing energy transition and the thirst for tech, especially from foreign buyers, will see those two sectors being very active,” the firm said.
Financial services, it noted, is also expected to see an increase in M&A activity, driven by a combination of factors such as portfolio refinement, acquiring adjacent skills and adapting to regulatory change.
FIRB and ASIC
According to HSF, the Australian Competition and Consumer Commission (ACCC) will remain “the gold medallist regulator” in 2025, but both the Foreign Investment Review Board (FIRB) and the Australian Securities and Investments Commission (ASIC) will continue to play a crucial role in shaping the M&A landscape.
“FIRB will continue to reflect on its processes and procedures. Some changes have been helpful. We predict some further engagement with the market to see where there are relatively easy gives for FIRB on deals that are not sensitive,” the law firm said.
HSF noted that FIRB has recently actively investigated potential breaches of the foreign investment laws in the case of ASX-listed mineral companies.
“We expect to see FIRB undertaking more of these investigations: although not all of these will become matters of public record,” it added.
Meanwhile, ASIC is expected to continue to “make its mark”, with interventions on deals and issues close to home.
“2024 saw ASIC give a degree of focus to independent experts. It will be interesting to see to what level its planned peek into the world of private capital turns into anything more.”
Global increase in M&A activity
In separate data, Morgan Stanley said it is expecting a rebound in M&A activity globally, amid a more favourable regulatory environment and approximately US$3 trillion in uncommitted capital.
Following a low point in 2023, M&A activity picked up in 2024, although deal volume remained subdued as private equity firms postponed asset sales due to a challenging regulatory landscape that hindered the execution of the larger transactions, the firm noted.
The expected easing of antitrust and merger regulations under the new US presidential administration is projected to unlock greater deal-making opportunities, with slower areas of M&A market – such as private equity monetisations, strategic deals and cross-border transactions – now poised for growth.
A more favourable antitrust environment, coupled with heightened activity among financial sponsors, is forecast to become key drivers of the market.
“On sponsors, the average age of sponsor portfolios is historically high and monetisations have to happen to allow for new fundraising,” Tom Miles, co-global head of M&A at Morgan Stanley, said.
“On antitrust, the expectation is that we return to a more traditional and predictable review process and that should spur more activity as companies have more predictable outcomes and timelines.”
Over the past three years, M&A activity was constrained by higher interest rates, which raised borrowing costs and suppressed corporate valuations.
Consequently, financial sponsors deferred their exits, resulting in the build-up of pent-up supply, Morgan Stanley observed.
The firm highlighted two key factors expected to drive M&A activity in 2025 – the US$2.6 trillion in uncommitted capital held by private equity and venture capital as of July 2024 and the growing inventory of ageing private equity-owned assets awaiting monetisation.
