Benefits of consolidation and scale driving M&A activity
Private equity and venture capital (PEVC) cover an extensive breadth of investment strategies, risk profiles and specialisations. At MA Financial, our PEVC strategies focus on investment in established, innovative, technology-driven businesses building value through growth.
Broader investment sentiment around software and technology continued its gradual improvement during 2024, with the turmoil of 2022 largely behind us. Market excitement and investor demand coalesced around all things AI – software, hardware and infrastructure – with capital flows driving valuation metrics to aggressive levels. The excitement has pulled broader investor sentiment forward, but along narrowly defined thematics. Sentiment in areas of tech outside of AI-related themes remains subdued.
A few notable IPOs such as Reddit and elections in the US also spurred a recent uplift in investor outlook, confidence and valuations. This broader US uplift has started to filter through to private markets, albeit more gradually in outlier markets such as Australia, which remains closed for tech-related IPOs.
Merger and acquisition activity in the sector remained buoyant in 2024 and we expect this to continue in 2025 driven by the benefits of consolidation and scale on growth and margins. Private equity and venture credit remain active participants and facilitators of the consolidation.
A key inhibitor of a fuller, sustained recovery in ‘growth-tech’ requires an acceleration of liquidity and exit events – to unlock distributions of capital and gains (often referred to in shorthand as “DPI”) for re-investment. At MA Financial, we are proud to have market-leading DPI from our growth venture fund vintages. However, more broadly in the market, the lack of DPI has constrained new capital flows and therefore broader valuations. Tangentially, a lack of exits and pressure for liquidity by investors has accelerated the growth of the venture ‘secondaries’ market – where existing positions in companies, portfolios and funds are transacted, often at discounts to prior valuations. We expect this area of the market to continue to grow, albeit the level of valuation discounts will narrow.
