M&A investment confidence ‘badly shaken’ by pandemic

The sentiment surrounding merger and acquisition (M&A) activity within the Australian market has seen some significant changes due to the impact of the COVID-19 pandemic. 

A new M&A half-year report has measured how sentiment has changed since the outbreak of COVID-19, revealing M&A activity in the mid-market had slowed down in the first half of the year.

“With 78 per cent of dealmakers having postponed or cancelled investments into Australia in the wake of COVID-19, there is no doubt investment confidence has been badly shaken,” Pitcher Partners Melbourne corporate finance partner, James Beaumont said.

“However, there is an expectation that the uncertainty created by COVID-19 will be a brief stumbling block and most dealmakers will consider returning to the market within the next 12 months, depending on how the pandemic plays out.”

About 42 per cent of respondents anticipate completing deals in Australia during the year ahead, down from 65 per cent in January. 

This is according to the annual Dealmakers report from accounting firm Pitcher Partners in collaboration with Mergermarket. 

Other key findings in the report show that 70 per cent of dealmakers may return to the Australian market within the next 12 months, depending on how the pandemic plays out, with 90 per cent expecting a global recession was imminent, while 57 per cent anticipate a recession in Australia. 

About 95 per cent believe capital deployed by private equity will be the top mid-market deal driver, with deal sourcing (78 per cent) and advanced or new technology opportunities (73 per cent) recognised as top mid-market advantages. 

Pitcher Partners Brisbane corporate finance partner, Warwick Face added investing in Australia was still viewed as relatively low risk compared to other regional markets. 

“Despite the current economic challenges, Australia’s political certainty and underlying fundamentals are likely to see it remain an attractive environment for dealmakers,” Face said. 

“While dealmakers look likely to take a wait-and-see approach in the short term, sentiment over the medium to long term reinforces that Australia is a robust place to invest, and quality businesses will continue to attract strong domestic and global interest.”

Some of the top market challenges involve delays in government approvals (53 per cent); regulatory changes (42 per cent) and difficulties conducting due diligence (32 per cent).

As for where M&A will occur in the remainder of the year, 90 per cent of respondents believe the technology, media and telecommunications space is set to see an increase in deals. 

On the Australian front, the first three months of the year saw at least 20 deals pass through the technology industry.

Since March, activity has continued with cloud and managed service provider Nexon Asia Pacific ramping up its growth strategy with the acquisition of Queensland network connectivity, cloud and managed IT services provider GCOMM in July. 

According to Nexon, GCOMM’s clients, invested infrastructure and team of skilled engineers will become a significant inclusion to its service portfolio across Darwin, Perth and the Gold Coast. 

Tasmanian-headquartered ICT services provider Intuit Technologies expanded its presence along the east coast through the acquisition of Brisbane-based communications and managed services provider SureBridge.

The combined companies will have about 150 staff across five office locations in Hobart, Launceston, Burnie, Melbourne and Brisbane. Financial terms of the deal weren’t disclosed. 

The acquisition followed on from a strategic growth agreement the two companies struck in May to deliver more comprehensive capabilities and ICT solutions at scale for customers. 

Digital transformation consulting firm Accelera snapped up cloud security and automation services provider Ayenem for an undisclosed sum in an effort to build out its technical delivery offering. 

Ayenem, which like Accelera is based in Sydney, is an Amazon Web Services (AWS) specialist with a history of taking a security-first approach to its cloud services offering, which includes application and platform transformation, cloud migration and cost optimisation.

Datto bought into Australian channel procurement firm Gluh for an unspecified sum.

The Victoria-based company specialises in providing a subscription-based procurement platform for managed services providers (MSPs), allowing them to resell hardware and software.

According to Datto, the acquisition “furthers [its] commitment to MSP growth”, claiming the platform has been shown to “improve operational efficiency, leading to increased profitability for MSPs”.

Crayon strengthened its Oracle on-premises and cloud licence optimisation capabilities through purchasing Sydney-based Navicle, adding to a second local buyout within the space of four weeks -- following the purchase of Winc’s software licensing business.

Tesserent purchased Australian cyber security provider Seer for $5 million, giving access to the Melbourne and Canberra-based businesses’ cyber capabilities and government client roster. 

FTS Group company Galaxy42 acquired Canberra-headquartered ChartSmart Consulting with plans to bring it under the Galaxy42 brand in the next 12 months. 

Under the deal, ChartSmart will continue to operate under its original name and will transition to the Galaxy42 brand and includes all employees, swelling staff numbers across the businesses within FTS to more than 150 in Canberra.

Consulting and software firm SoftwareOne splashed out on buying Sydney-based independent software vendor (ISV) GorillaStack in order to increase its cloud management capabilities for Amazon Web Services (AWS) and Azure.

Independent software vendor (ISV) Janison snapped up Educational Assessments (EA) technology from the University of NSW’s (UNSW) corporate arm.

Janison, which makes software to run secure offsite tests and examinations, bought EA from UNSW Global -- a UNSW subsidiary -- for an undisclosed sum.

In the telco space, the TPG and Vodafone $15 billion merger came to fruition as shareholders backed the proposal, creating a new Australian telco powerhouse, with the combined company set to become a house of brands featuring Vodafone, TPG, iiNet, Lebara, AAPT and Internode.

Uniti Group reached into its pockets to front $532 million for the acquisition of wholesale network infrastructure operator OptiComm.

The company formerly known as Uniti Wireless paid $407 million cash and 84 million Uniti shares valued at around $125 million.

The deal is set to provide a “more diverse telecommunications infrastructure company with a large pipeline of long-term growth opportunities”.

Publicly listed telco provider United Networks, which undertook its fourth acquisition in August, buying the assets of C3 Innovations, a specialised service provider of enterprise unified communications and hosted and managed data solutions. 

With its headquarters in North Sydney, C3 Innovations also has offices in Melbourne and Brisbane, along with a presence in the UK, Singapore and Japan, and claims the likes of Cisco, Aruba, Polycom and Hewlett Packard Enterprise (HPE) among its vendor partners.

Fresh off its $18.2-million capital raise, 5G Networks snapped up colocation and networking services provider ColoAu.

As part of the deal, the Melbourne-based company will hand over $2.9 million in cash and $500,000 of its own shares to ColoAU, provided certain conditions are met for the latter.

Based in Brisbane, ColoAU operates a 100Gb WDM network which connects Australian capital cities to data centres in Los Angeles, Dallas, Singapore, Tokyo and New Zealand.

Spirit Telecom created a new channel-focused division through the purchase of Queensland IT and communications company VPD Group.

The acquisition principally includes the IT service provider and IBM partner Now IT Solutions, via which it supplies a number of cloud services.

Telco mobile virtual network operator (MVNO) Amaysim bought approximately 77,000 mobile subscribers from fellow Optus MVNO My Mobile Data, which trades as Ovo Mobile, in a deal valued up to $15.8 million.

Peter O’Connell, CEO and managing director of Amaysim, said the acquisition was a part of the telco provider's strategy to grow its recurring mobile subscriber base, as over 74,000 of the acquired subscribers are recurring.

Publicly listed cloud call recording service provider Dubber acquired its Australian-based competitor CallN for $1.17 million.

Dubber CEO Steve McGovern said the consolidation of the two companies will help accelerate many clients as they move their call recording to the cloud. 

Sales have also been happening in the data centre space, with Telstra recently selling its data centre complex in Clayton, Victoria, for $416.7 million to Centuria Industrial REIT. 

The sale involves a triple-net lease-back arrangement, meaning the telco will still retain ownership of all IT and telecommunications equipment, ongoing operations, future capital expenditure requirements and security, as well as building upgrades and repairs.