Disruption Juggernaut Will Drive Tech M&A in 2015
First published in the Australian Financial Review on 2 February 2015
In 2014, the stars truly aligned in the tech heavens, with investment activity being driven by five main factors:
Disruption: Fear of tech-based disruption has boards imploring management to buy innovation in if they can’t do it internally. The mantra is more Bitcoin and less Kodak.
ASX: With 40 tech companies coming onto the exchange in 2014, the mining collapse has caused the public market to open its arms to tech like never before.
US venture capitalists (VC): US VCs have discovered Australia (thanks Atlassian!) and see great value here.
Australian VC: In 2014, money flowed into (and out of) Australian VCs such as Square Peg, Blackbird, AirTree (which got $60 million), Reinventure (which got $50 million), Bailador (listed on the ASX) and BlueChilli (which got $5 million).
Cloud: Cloud means Australian tech companies can participate in global markets from day one.
Scale: Thirst for scale drives consolidation, both locally and globally.
The big question is whether the success of 2014 can be replicated this year. The early signs are that the shopping spree will continue.
The following sectors and trends are among those to watch in 2015:
Business2Consumer: 2014 was a big year for deals in the online travel, automotive, property and gaming verticals, with marketplaces also featuring. Expect similar energy this year.
Financial services: Payments was a big focus last year with Global Payments and Cuscal making big plays. This year the taxi app (code for payment gateway) wars will continue between Uber, ingogo, GoCatch and Cabcharge.
Cloud-everything: There is no doubt the move to cloud is driving revenue pipelines in software and services businesses. Nimble, industry-focused cloud businesses will continue to be attractive to the major players.
Get on the exchange quick: It will be hard for tech to beat the 19 IPOs and 21 back-door listings of last year. The recent volatility on the ASX generally will likely lead to a less receptive atmosphere. It might be best to move in the first half of the year to ensure the door does not close. Some interesting companies have publicly mentioned a possible float this year: WiseTech, ingogo, MYOB, Martin Jetpack, Future Fibre Technologies, InfoTrack, Costa Group, Touchcorp and AussieCommerce.
IT security: Given the fallout from recent high-profile hacks, this is the one area of IT that boards are very interested in at present. This will drive customer spend and, consequently, interest in larger security players acquiring high-quality niche operators, especially as the technology in the intrusion detection space is moving so fast.
Private equity: No doubt we will see more US venture capitalists invest in our fast-growth tech businesses in 2015. However, I also think the established Australian private equity players may look to take positions in our more mature tech businesses. Tech has not been a sector where these investors have been particularly active previously, but I think the medium-term strength of the sector will make it too attractive for them to ignore.
Telstra: It was a big 2014 for the Telstra M&A team, with Telstra Ventures participating in at least three very large rounds in later-stage offshore tech companies. Telstra Health added at least three new companies to the stable and has now spent well over $100 million building a massive eHealth capability. This year might see Telstra Health focus on consolidating its acquisitions while Telstra Ventures will continue to pick up positions in interesting companies here and in Asia and the US.
Cryptocurrencies: I was an early crypto-sceptic but I, like many large financial organisations, now believe there is a genuine opportunity for cryptocurrencies to massively change the financial services sector. The mistake I think is to get too focused on Bitcoin. There are over 500 cryptocurrencies around and it may be that solutions such as Ripple are better suited for adoption by the banks.
China: China’s massive tech businesses such as Alibaba, Tencent and Baidu are acquisitive and looking for global scale.
Disruption, disruption, disruption: It is happening everywhere. While you might not get replaced by a robot next year, be careful not to be too cocky about your five-year outlook. This disruption creates massive opportunities for entrepreneurs and corporate intra-preneurs, not to mention the solo-preneurs, mum-preneurs, wanna-preneurs and every other sort of “preneur”. My best wishes for an exciting 2015 to you all.