Private Equity's Evolving Playbook

Herbert Smith Freehills Kramer has released its annual Public M&A Report, which analyses all of the public M&A transactions announced during the year ended 30 June 2025. The Report is the most comprehensive analysis of Australian public acquisitions and tactics and is in its 17th consecutive year.

Key overall statistics from the report are:

• 59 announced deals, with a combined value of $28 billion.
• 6 transactions above $1 billion, against the 5-year average of 9.
• 78% success rate on announced deals, against the 5-year average of 79%.
• 61% of all and 100% of >$1 billion deals were proposed as schemes of arrangement.

The following are our key observations from the report for private equity (PE) clients:

Strong PE presence and continued use of pre-bid stakes

A total of 59 deals were announced in FY25, in line with the five-year average of 60 deals. Consistent with prior years, PE bidders maintained a strong and steady presence in the public M&A landscape, accounting for 20% of all bidders in FY25 which was slightly above the three-year average of 18%. Overall, 63% of PE deals which completed by 30 June 2025 had successfully secured control of a target.

PE bidders played at the middle to upper end of the market in FY25, with schemes (once again) being the favoured form of deal structure: 58% of all PE bids were structured as schemes and 67% of deals were valued over $100 million, with 17% valued over $1 billion.

The use of pre-bid stakes continued to be a key tool for PE bidders, featuring in 67% of PE deals. That demonstration of conviction facilitated a successful outcome more often than not, with control secured by the PE bidder in 63% of completed deals.

Takeover tide rolls in and the evolution of dual scheme/takeover structures

Takeover bids represented approximately 39% of deals by number in FY25, jumping from 29% in FY24 and above the five-year average of 36%. Of the 12 binding transactions with PE bidders announced in FY25, 5 deals (or 42% of PE deals) were structured as a takeover.

In FY25, bidders were keen to move quickly and capitalise on unpredictable markets to get deals done, often with mechanisms to encourage acceptances from key shareholders. This year, the average premia in a takeover bid was 53.46%, compared to 39.50% in FY24, and the average time to reach compulsory acquisition was down from 126 days in FY24 to 80 days in FY25.

To encourage acceptances, the two-tier volume-based price increase has been used at least twice in FY25, being FMG's bid for Red Hawk Mining and Astral Resources' bid for Maximus Resources.

The volume of dual scheme/takeovers in FY25 (four deals) remained consistent with FY24 levels (three deals) but we have seen the approach evolve in FY25. In two of the deals, the bidders did not go public with a dual structure, instead launching with a scheme and leaving the option to add a takeover bid (without committing to do so). In one of the deals, the takeover bid was the 'default structure', with the scheme as a fall back, the rationale being to allow the bidder to achieve a pathway to 90% (and therefore 100%) more quickly than a longer 3-4 month scheme process.

Competing bids in FY25 – Raising the (pre-bid) stakes

In FY25, there were ten ASX-listed targets subject to competing offers, with the proportion of binding competitive bids rising from 14% in FY24 to 19%. This is a material increase from previous years and included the competing bids by Bain Capital, CC Capital and Brookfield for Insignia Financial and Genesis Capital and Crescent Capital's fight for Pacific Smiles Dental.

In the ten auction processes, the bidder with the highest price only won the auction in 50% of competitive processes, recognising that not all bids proceeded to a formal binding offer. Factors other than price which also contributed to successful bid outcomes were:

• a competing bidder who had already acquired a pre-bid stake. Bidders who acquired a pre-bid stake and submitted a binding offer were successful in 67% of cases in FY25; and
• where a competing bidder proposed all scrip consideration (or scrip with a limited cash election, e.g. Swoop / Vonex or Betr / Pointsbet) at a higher price than a competing all cash offer, boards continued to recommend the lower all cash bid.

MACs in action – practical considerations

Material adverse change clauses ('MACs') continue to be a prevalent part of public M&A, featuring in 94% of schemes and 71% of all deals in FY25.

Whilst not the first time that a bidder has asserted a MAC in an attempt to walk away from a deal, the purported reliance on a MAC in Cosette's proposed acquisition of Mayne Pharma by way of scheme is an important test case for PE bidders on how a MAC will be interpreted by the NSW Supreme Court (if it proceeds to judgment). Of the 5 tested MACs that arose during COVID, all were ultimately resolved by a terminated SID or reduced offer price, rather than a court judgment.

Developments in the PE playbook

Over recent years, there has been an increased willingness from PE bidders to depart from the traditional approach, including through the use of hostile bids (such as Potentia's bid for Nitro and BGH's bid for Virtus in FY23) and the emergence of concurrent takeover bids as a fallback to schemes of arrangement. In FY25 we saw PE bidders break even further from tradition, with some PE bidders proposing to acquire only a portion of the target and maintain its ASX listing.

Stub equity offers also remain a common tactic for PE bidders to retain certain key shareholders and ensure alignment with the future success of the target. In FY25, 25% of all PE deals involved a form of stub equity offering (slightly down from 29% in FY24).

The default to stub equity by PE bidders seeking to achieve roll-over is dissipating, as they balance the downside of greater court scrutiny on stub equity offers and the administrative burden of having a tail of minorities.

Two recent schemes highlight this shift. Firstly, in the Mason Stevens / Adamantem scheme, management equity incentives were rolled-over without a broader stub equity offering to all shareholders, with the relevant managers voting in the same class in respect of their shares. Secondly, in PEP's bid for SG Fleet, stub equity was only offered to certain members of senior management, with those managers voting in a separate class.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.