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Tech M&A tipped for another standout year
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Tech M&A tipped for another standout year

Australia’s burgeoning technology sector was expected to attract significant investment interest over the next twelve months, according to a recent report.

The annual Dealmakers report reviewed mergers and acquisitions (M&A) activity and canvassed dealmaker expectations for activity in the Australian mid-market in 2020 and beyond.

The report revealed interest in the tech sector was driven by the rush of local corporations and foreign multinationals seeking to enhance their technological and digital capabilities, both to defend against disruption and to tap into new markets.

Of those who responded to the survey, 53% saw acquiring new technology and IP as a primary objective of their future mid-market deals to secure the future of their business.

The technology most in demand included:

  • machine learning and artificial intelligence,
  • cybersecurity, and
  • quantum technology

The desire for digital assets was common among 98% of respondents, who also expected the investment to lead to uptick in tech-led deals across 2020.

The disruption to business and the economy arising from Covid-19 is anticipated to result in delayed processes rather than deter all interest in the sector.

Deal activity

Mid-market technology, media and telecommunications deals climbed from 24 in 2018 to 37 in 2019, making the sector one of the best performing by volume during the period.

New South Wales led the way with technology deals in 2019, with the state home to more than 39% ($320m) of the $817m in reported deals. Queensland followed with $274m split over four transactions.

There was strong interest in financial technology deals as well as those where companies could purchase unique or useful technology. Deals during the period included:

  • listed fintech Bravura Solutions’ $25m purchase of wealth management software company FinoComp, as well as the $50m purchase of financial planning SaaS firm Midwinter Financial Services.
  • auction property technology company Bidtracker Holdings sale to Domain for about $34m in cash and consideration,
  • Cisco’s purchase of ultra-low latency networking company Exablaze for an undisclosed sum.

Despite reduced M&A activity in 2019, the report found mid-market opportunities continued to make Australia the top investment destination among dealmakers, while global M&A contracted sharply during the same period.

Yet appetite for Australian assets continued to grow, with two-thirds of dealmakers reporting that they were looking for Australian deals this year.

A remarkable 92% of global dealmakers say they expect domestic M&A to increase and 78% expect a rise in inbound foreign deals.

Outbound investment

Outbound M&A suffered a loss of confidence, with 48% of respondents expecting a rise in deals, 40% seeing no change and 12% expecting a decline. Outbound M&A in 2019 was the lowest in five years for volume but has been the highest in value for more than a decade.

Global appeal

Australia has stood out as having an appealing investment environment not just among our neighbouring economies but those globally due to its robust economy, sound fundamentals, dynamic industries and links to key global markets. Importantly, the report shows that those who have previously invested in Australia are more likely to invest again, with 65% of the dealmakers who participated in the study this year considering further acquisitions in Australia. Another 30% said that while they are unsure of their next move, they noted that Australia stands high on their list of target destinations.

Cashed-up private equity firms were also seen as a key driver of deals, with 72% believing they had the firepower to make purchases in 2020 if the target and price were right. As this cash remains ready to be invested the only question is, will managers of capital be distracted with portfolio companies, or will they be investing?

At the same time, 60% of dealmakers anticipated additional competition for assets over the next 12 months. The most competitive purchases were those in the same industry as the target or private equity.

While Covid-19 will have a significant impact on the Australian economy, this will equally be felt globally and as such the overarching attraction to Australia is expected to continue.

This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.
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