Markets almost never ring a bell at the bottom. They rarely turn because investors suddenly feel optimistic. They turn because someone with better information decides the price is wrong.

That signal is not a rally. It is a takeover. We believe we are entering the early stage of a new takeover cycle, particularly in Australia, and in our experience this matters far more than trying to guess the next move in interest rates. Markets recover after confidence improves. Acquirers act before it.

Why M&A Leads Markets

Fund managers think about flows, volatility and returns. Corporate buyers think about owning the entire business for the next decade. That difference explains why takeover activity consistently precedes market recoveries.

Executives see demand trends, customer behaviour and competitive positioning long before they appear in analyst models. When they commit balance sheets to acquisitions they are effectively telling you earnings durability is stronger than the share price implies. The market waits for evidence. Buyers act on conviction. Every major recovery starts this way. The transactions come first, the rerating follows.

Why Conditions Now Support Deals

These ingredients typically create takeover cycles: cheap valuations and available capital. All now exist. Interest rates expectations have settled again and are no longer surprising markets. Small and mid caps remain well below long-term valuation averages despite operational performance holding up. At the same time private equity has accumulated significant undeployed capital after a prolonged lack of IPO exits.

For buyers the risk has flipped. Waiting risks paying more later, while acting today locks in long duration assets at discounted prices. That is the moment transactions begin.

Why Australia Becomes the Target

Australia repeatedly becomes a hunting ground in this phase of the cycle. The market contains many specialised leaders operating in niche or oligopolistic industries, but liquidity is thin. When global investors reduce exposure prices fall quickly regardless of business quality.

That creates a gap between business value and market value. Strategic buyers understand this well. Historically they have acquired Australian healthcare providers, software platforms, infrastructure services and financial businesses during similar conditions. We are starting to see that pattern re-emerge.

Private Equity Does Not Wait for Optimism

Public investors require momentum. Private equity requires stability. After two years of limited exit opportunities, funds must deploy capital. They do not need markets to rally immediately. They only need confidence earnings will not deteriorate materially. Operational improvement and valuation normalisation over time drive their returns. Public markets buy growth once it is obvious. Private equity buys before it is recognised.

Takeovers Cluster

The first transaction always looks isolated. Then another appears in the same sector. Boards reassess their own valuation gap, competitors react defensively and sponsors accelerate timelines. Suddenly it looks like a trend. In reality negotiations were occurring months earlier. By the time markets acknowledge a takeover cycle, a large portion of the opportunity has already passed.

What This Means for Investors

During takeover phases valuation is no longer set purely by trading. It is set by transactions.

Public markets price near term earnings multiples. Strategic buyers price replacement cost and long duration cash flow. The difference creates premiums and lifts valuation floors across sectors. Importantly this does not require strong economic growth, only stability. We appear to have reached that point.

Historically the sequence is consistent. Selective acquisitions occur quietly, premiums reveal undervaluation, investors reposition across similar companies, and broader small caps outperform. The takeover is not the end of the move, it is the start of it.

Where We Are Focused

Our approach in this environment is straightforward. We look for businesses where strategic ownership makes sense, where industry consolidation is logical and where valuation sits well below private market value.

Recently we have spent considerable time analysing one particular Australian opportunity that fits this framework unusually well. It is profitable, operates in a consolidating industry and carries strategic relevance significantly above its current market value. We will share more once positioning is complete.

Tamim Takeaway

Market recoveries rarely begin with optimism. They begin with informed buyers acting while sentiment remains cautious. As takeover activity increases it raises valuation floors and draws investors back into the market.

Historically the strongest returns in small and mid caps occur during this phase, not after it becomes obvious. The buyers are returning quietly and by the time the market fully recognises it, prices are usually already higher.