Technology: M&A Predictions for 2023
Global technology sector M&A activity experienced unprecedented levels of activity in 2021 and the first half of 2022, followed by market uncertainty creeping in during Q3 and Q4 of 2022. However, interest in the Australian technology sector by foreign buyers and private equity (with record levels of capital to deploy) will continue to drive activity throughout 2023.
Boards become more open to takeover bids
You might think that after the recent sell-off of tech stocks, boardrooms would be closed for business. But our money is on continued interest in publicly-listed Australian technology based companies and a more receptive engagement by company Boards.
No longer sitting on their hands, there was a rush of M&A activity in the local technology sector in the second half of 2022. Private Equity held the mantle when it came to disclosed bids, including interest in Nearmap, Nitro Software, MSL Solutions, ReadyTech, Bigtincan and Tyro Payments. We see this trend continuing in 2023 - and good news for bidders, we see a greater chance of deals completing.
Boards will be more open to considering bids from foreign buyers and private equity firms thanks to stabilisation in economic influences over the first half of 2023, helping to improve forecasting certainty. Boards will need to balance expectations surrounding the ability for the organisations to achieve previous valuation highs in the near term with the certainty of an appropriate premium, which bidders are very happy to pay.
Cybersecurity, Data Analytics, Artificial Intelligence (AI) will be the most active subsectors
Cybersecurity. Cloud computing, the Internet of Things (IoT) and the associated cyber risk is only going to grow as more information is stored in the cloud and devices become connected, and we're still not entirely sure how best to manage that risk. Companies who can help mitigate it will be in high demand, which means cybersecurity firms will continue to be a strong driver of M&A activity.
Data Analytics & AI. As the pace of technological change accelerates, companies are increasingly looking for ways to leverage data analytics and AI to gain insight into how they should position themselves strategically in their markets over time. Whether through internal investment or through external acquisition, this trend is likely to continue over the next 12 months and beyond as companies seek out new ways to gain competitive advantage through new technologies like these two areas. The state of automation and systems will also increasingly impact retention (which is growing in importance due to the war for talent continuing). Employees will seek out organisations with intelligent automated systems that allow them to focus on more rewarding and creative tasks. Organisations will look to automation to create efficiencies to maintain output.
In summary, the Australian M&A market is developing a strong following of locally-grown technology and digital businesses. We have seen a rise in mergers between global players and local start-ups, as well as increased activity from investors looking to capitalise on this trend and to secure the next market leader.
