Rumblings in deal activity in the Australian non-bank lending sector could signal a return to M&A as players in the highly fragmented space face pressure to boost profits.

According to Mergermarket data, 2025 so far has seen three deals worth USD 154m, the largest being Abercrombie Group’s acquisition of a 74.83% stake in Humm for USD 146m. Although this is the lowest reported year-to-date (YTD) deal count in the past decade, it is the fourth highest first-half deal volume in the sector during this period, suggesting that activity is perking up, particularly in the aftermath of the post-COVID-19 fallow years.

Stirrings were seen in December 2024, when Australian non-bank lender Metrics Credit Partners (MCP) landed 100% of ‘buy-now-pay-later’ firm, Navalo Financial Services. MCP followed that up in July this year with the acquisitions of Taurus Financial Group and a 29.8% minority interest in BC Investment Group for undisclosed sums.

All eyes will be on Affinity Equity Partners-owned Scottish Pacific, which would be a good deal “to really get the sector going again”, industry experts have told Mergermarket. According to a media report earlier this month, Affinity has launched a process to seek strategic options for the company, which could be valued at more than AUD 1bn (USD 649m).

Another potential deal being watched with interest is La Trobe Financial, with owner Brookfield reportedly hoping to secure around AUD 3bn and final bids expected in September. Bidders reportedly include Warburg Pincus, Bain Capital, CVC Capital, CDPQ, and Ontario Teachers’ Pension Plan.

Meanwhile, KKR, which was previously thought to be interested in La Trobe, is expected to again seek buyers for its 60% stake in listed, AUD 950m market cap Pepper Money. A trade buyer is believed to have conducted detailed due diligence, but found KKR’s price expectations too high, with previous potential suitors including Apollo Global and BGH Capital.

Valuation Catch-22

Pricing and valuations have been a significant factor in restraining deals, especially in the aftermath of the COVID-19 pandemic, with investors increasingly seeing profit as the right valuation despite previously being comfortable with revenue-based valuations, experts agreed.

This is creating something of a Catch-22 situation because in order to achieve profit, companies need to scale, and to achieve this they need to engage in M&A. Larger players need to acquire to secure additional scale while smaller player that cannot achieve enough scale on their own will opt to join larger players.

We could see larger non-bank players acquiring smaller ones or adding companies in niches such as asset-backed lending, fintech-driven personal loans, and construction finance to gain exposure to these markets, says Benjamin Yeo, partner at Melbourne-based investment bank Equion Capital.

While the non-bank lending sector is seeing growth in those segments the big banks have left behind, it also comes with higher risk, so the test for them will be how they perform if we hit a credit downturn, said Yeo. “For now, they are here to stay, as they provide a much-needed reshaping of Australia’s antiquated lending landscape”, he explains.

According to research firm IBIS World, increased loan volumes and elevated interest rates have prompted an influx of lenders, resulting in intensified competition and enabling them to boost revenue by charging higher rates, but this has also resulted in steeper funding costs, hindering profitability.

There are more than 500 businesses and more than 13,000 employees in the industry, which has seen revenue grow to AUD 40.5bn in 2025 at a CAGR of 13.5 % over the past five years, IBIS World notes.

Ones to watch

Australian non-bank lender Moneytech, for one, is upbeat about the sector’s growth prospects, having recently told Mergermarket that it is actively seeking its first strategic acquisitions.

ASX-listed AUD 54 market cap EarlyPay, which saw Australian specialist finance provider Solvar Money3 take a 19.9% stake in May, could be poised for a takeover, with one industry expert suggesting to this news service that Solver is unlikely to have taken 19.9% “if it did not have those intentions”.

Other companies to watch include Fifo Capital, which is in incubation mode, its owner Fancourt Capital told Mergermarket in June. ASX-listed companies Plenti and Butn have both flagged potential acquisitions in recent company presentations.