The proposed Bank Australia and P&N Group merger is the latest sign that M&A activity in Australia's lending market isn't slowing down anytime soon, despite higher borrowing costs and sweeping tax changes.
"I don't think anything that we've seen from the government that's been announced is going to stop that institutional type merger," Chris Slater, head of strategic growth at Australian private equity firm Recludo Group, told Australian Broker.
"I think there's definitely been some kind of sit-and-observe a little bit and go, 'okay, how are all these changes going to affect the market? What do the knock-on effects look like? How long are they going to last for?' So there's a bit more caution and strategy around some of it," he continued. "But I don't think we're going to see a slow down. I think it's still happening. There's still transactions being done. And my expectation is that it's going to continue."
The latest example in Australia's financial markets comes from the customer-owned banking sector, with Bank Australia and P&N Group (Police and Nurses Limited) moving their proposed merger into the next stage after signing a memorandum of understanding (MOU) this fall.
The two groups announced on 4 August that regulatory applications were underway, taking the proposed transaction a step closer to completion. If approved, the merger would create a customer-owned banking group with more than $30 billion in assets, more than 530,000 customers and almost 1,500 employees nationwide.
Members are expected to vote on the proposal in the first half of 2027, subject to regulatory approvals. The proposed deal would bring together Bank Australia’s east coast presence with P&N Group’s operations in Western Australia, northern NSW and southeast Queensland.
The merger is an example of a broader M&A theme emerging across Australia: businesses are still willing to make moves when the potential gains are compelling, even as the cost of capital remains elevated because of higher interest rates.
For the two mutuals, the logic is less about financial engineering and more about achieving the scale required to compete and invest.
"There's a need for the smaller organizations in that sector to band together to get more scale, to be able to compete better with cost of capital, all that stuff," Slater explained. "I think there was a view [in the industry] that that was inevitable. I think we're seeing that play out. And I'm not convinced anything that's just happened in the budget recently is going to affect that at all. I think that's just going to keep continuing and we'll see more of that.
"At the M&A level, it depends on the type of investment," he added. "But if anything, we might even see more of that speed up because it's when things get tighter, it makes more sense to create some scale and get synergies of cost and income out of that."
In the case of P&N and Bank Australia, the groups have pointed to greater investment in technology, cybersecurity, fraud and scam prevention, alongside the opportunity to provide a broader national proposition to customers.
The broader Australian M&A market is not experiencing an across-the-board surge in transaction volumes. PwC estimated in its "Australia's M&A Outlook 2026," published in February of this year, that Australian M&A deal value was $79.5 billion USD in 2025, or roughly $123 AUD, down from $86.8 billion USD in 2024. Meanwhile, the number of transactions in 2025 was 1,285. Both numbers are an 8% decline from the previous year.
But the headline numbers don't tell the whole story.
PwC's survey found that 52% of Australian CEOs are planning major acquisitions over the next three years, while around 40% expect to drive transformation through M&A or partnerships over the next 12 months. The firm reports that dealmakers are becoming more selective, with fewer, higher-conviction transactions increasingly focused on transforming businesses, acquiring new capabilities and entering adjacent or new markets.
Higher funding costs makes acquisitions harder to finance and place greater pressure on deal valuations. But they can also strengthen the case for strategic consolidation. For businesses facing rising technology, compliance, cyber security, staffing and distribution costs, achieving greater scale through a merger can become more attractive than trying to fund all of that investment independently.
The Bank Australia-P&N proposed merger is a case in point. The two organisations are effectively arguing that greater scale will give the combined business more capacity to invest while retaining its customer-owned model.
