Coronavirus to add impetus to ‘cross-sector’ M&A as corporates target tech to support core business – Analysis

16 March 2020

Australian corporates are expected to increasingly make “cross-sector” M&A moves across the board as they invest in or acquire technology companies to support their core business activities in 2020, with the coronavirus pandemic providing added impetus, according to advisory and industry sources polled by this news service. Technology will be one of the top sectors for investment and acquisition in the next 12 months as pressure to embrace digitization to drive growth compels executives to acquire outside of their sectors, said EY Oceania Transaction Advisory Services Leader David Larocca.

  • Driven by need to keep up with digitization
  • Coronavirus to put spotlight on certain sectors
  • Solutions that solve niche problems will be targeted


Australian corporates are expected to increasingly make “cross-sector” M&A moves across the board as they invest in or acquire technology companies to support their core business activities in 2020, with the coronavirus pandemic providing added impetus, according to advisory and industry sources polled by this news service.

Technology will be one of the top sectors for investment and acquisition in the next 12 months as pressure to embrace digitization to drive growth compels executives to acquire outside of their sectors, said EY Oceania Transaction Advisory Services Leader David Larocca.

According to EY’s latest bi-yearly Global Capital Confidence Barometer, featuring interviews with some 1700 global executives and including 170 in Australia, 66% of Australia and New Zealand interviewees expect cross-sector M&A to be driven by technology and digitization, compared to 75% globally, with key drivers being the race to secure new technology and talent (both at 23%).

No company can escape the move to technology and M&A will primarily be driven by the need to keep up with digital innovation, cut costs, and boost revenue and efficiency, agreed Rajeev Gupta, partner at Sydney-based investment firm Alium Capital. This trend has been big in the US in the past four to five years and Australia is now catching up, he said.

The coronavirus pandemic is a development that will add impetus to technology investment, particularly in the fields of remote working, employee engagement, business continuity, and digital client services, said John Sheehy, CEO of Sydney and New York-based corporate advisory firm Pottinger. None of this is new, but the pandemic is going to shine a light on the value of good technology in these areas and will also serve as a reminder of the value of human-to-human connection as we enter a more isolated online world in the coming months, he noted.

Technology businesses that are asset-light may benefit once the virus situation stabilizes, Alium Capital’s Gupta added. The key is to maintain low costs and cash burn in an environment when the economy is generally weaker, he said.

Technology M&A can allow corporates to leapfrog long internal technology development programs and plug critical gaps in IP arsenal, but care is needed in planning to ensure the underlying strategic logic of the transaction is preserved and maximum value is unlocked, Pottinger’s Sheehy added.

Ubiquitous across sectors

The trend towards technology investment will be ubiquitous across all sectors, experts agreed, with EY’s Larocca highlighting sectors that are facing disruption like healthcare and financial services. Healthcare, in particular, could see heightened activity in the wake of the coronavirus pandemic, sources agreed.

Tele-health, for one, which has suffered from inertia and lack of government support to date, could well get the boost it needs in the current environment, Gupta said. Education certainly has merits to being delivered online and with the current coronavirus pandemic, online learning may well flourish, he added.

A report from Bombora Investment Management on Friday (13 March 2020) highlighted Pacific Knowledge Systems, whose healthcare software is used in pathology labs, and education technology company Janison as among those that could benefit from current conditions.

In the financial services space, the Australian Securities Exchange [ASX], for one, has invested USD 30.9m in blockchain startup Digital Asset to date, while insurance broker network AUB Group invested AUD 132m for a 40% stake in Sydney-based online, low-cost and commercial insurance distribution platform Bizcover this February.

Also in education and services, Sydney-based wealth education and services provider DG Institute told this news service in January it is seeking buys and is particularly keen on technology-based services companies that can fast track its in-house technology development.

There has also been aggressive activity in the consumer sector with companies making acquisitions to support their online businesses, noted Alium Capital’s Gupta, citing as an example Wesfarmers’ June 2019 purchase of online retailer Catch Group for AUD 230m to accelerate its ecommerce and digital capability.

Agribusiness is another hot sector where blockchain and other technologies in particular will be targeted to drive cost-efficiency and consumer demand, noted Clayton Utz corporate/M&A partner Andrew Hay, citing as a recent example Iceland-based multinational food company Marel’s October 2019 acquisition of Australian specialized software provider Cedar Creek Company for AUD 8m.

After assessing several technologies, the Motor Traders Association of Queensland (MTAQ) invested an undisclosed amount in tyre recycling technology company Green Distillation Technologies Corporation, which turns end-of-life tyres into high value oil, carbon and steel, as announced.

While the real estate industry has lagged when it comes to technology and advancements in large-scale enterprise-wide sales management and distributed sales teams, Sydney-based proptech NurtureCloud received AUD 3m investment from national real estate firm Ray White, according to NurtureCloud CEO Adam Rigby. Ray White Managing Director Dan White said the real estate firm expects to see a strong improvement in productivity and conversion rates across every step of the sales process as a result.

Targets and bidders

The main targets in this “cross-sector” M&A trend, according to Alium Capital’s Gupta, are likely to be start-ups with proven and working solutions that solve specific niche problems but are usually unable or unwilling to take the next growth steps on their own without an external investor or buyer.

Sought-after targets will include technology companies that allow investing or buying corporates to provide what customers want in the way they want it, Pottinger’s Sheehy said, citing as examples artificial intelligence (AI) and robotization products. Technologies that support customer interactions and provide predictive data, enterprise data and product unification solutions, as well as privacy and security solutions providers will also be on the radar of potential buyers, Gupta said.

In the wake of the coronavirus, technologies that support online communication like video technologies; and technologies that facilitate logistics, inventory and supply chain activities are likely to be prioritized, Gupta added.

Active investors and acquirers of such technology targets range from private Australian companies to large listed companies in the US, Japan, Singapore, China, India, Europe and New Zealand, said Lou Richard, Managing Director of Sydney-based corporate advisor Newport Capital. Companies will look to expand their products and services to cope with dramatic changes to their organisations, not least caused by artificial intelligence and quantum computing, he noted.

More corporate ventures arms like Insurance Australia Group’s IAG Ventures and Westpac Banking Corp’s Reinventure Group will increasingly target start-up technology firms to buy and then build capability internally, added Alium Capital’s Gupta, noting that Commonwealth Bank of Australia joined the foray this February with the launch of its X-15 Group to incubate and invest in businesses.

Technology is certainly expected to be a big theme for private equity (PE) investment as it goes all the way through industry and has an impact on all portfolio firms, as reported by this news service from the AVCJ Australia & New Zealand Forum held in Sydney earlier this month. PEP’s Rohan Wolfers, for one, noted that PE firms are aware of the “tech thematic”, with robotic process and automation providers in their sights.

Investments in and acquisitions of technology companies will also feature in multinationals’ growth plans as they divest local assets in the coming year to free up capital to invest in new growth areas or keep up with digital innovation, as reported by this news service last December. These could be accelerated in the wake of the coronavirus pandemic as we often see overseas companies divesting smaller struggling Australian operations when the macro economy is entering more difficult times, added Ed Paton, a partner at Sydney-based legal firm Hall and Wilcox.


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