EDGE 2020: M&A dollars on the table for SaaS partner businesses
- 24 November, 2020 12:30
Hugh Richards and Mark Nesbitt (TMT Partners)
Investors are lining up to acquire channel businesses built on recurring revenue with software-as-a-service (SaaS) valuations accelerating at pace across Australia and New Zealand.
That’s the view of TMT Partners - a specialist trans-Tasman financial advisory firm - when offering executive-level mergers and acquisitions (M&A) guidance for partners during the months ahead at EDGE 2020.
“SaaS represents one small part of the technology landscape but this area of the market is a real bell-whether for technology,” outlined Hugh Richards, principal of TMT Partners. “SaaS company valuations have been growing consistently but over the course of this year, they have continued to accelerate.
“For example, companies such as Atlassian and Salesforce are trading on average in excess of x16 revenue. It used to be the case that if a business had a x16 P/E [price earnings ratio] then you operated as a high valued public company.”
Addressing more than 500 technology executives during EDGE 2020 - an invite-only virtual experience housing partners, distributors and vendors - Richards said such market dynamics provides a strong illustration of investor appetite for companies “growing well with highly recurring revenue”.
“The market has rewarded these companies operating within the technology and telecommunications sectors,” he added. “You will also be aware that technology valuations across the market remain very strong, with valuations at record-levels in Australia alone despite Covid-19.”
According to Richards, the pandemic has in fact helped strengthen valuations within the channel due to traditionally defensive sectors such as banking and retail now "out of favour" with investors. Whereas in technology, investors are finding value in backing increasingly resilient companies with high-margin revenue streams.
“The second reason is that current themes are supportive to technology such as digitisation, remote working and the shift online,” he explained. “There’s a lot of drivers supporting technology companies which is being reflected in higher valuations.
“And last of all, low interest rates are a key driver also because investors are looking to place funds to receive a reasonable yield so rather than placing investments into bonds, they view the technology sector as a reliable source of growing high-margin revenue.”
This interactive EDGE 2020 session offered a state of the market assessment in relation to M&A, documenting local appetite for transactions and key insights into what types of businesses and technologies will sell in 2021. Delving deeper, common mistakes and challenges experienced during the process were also addressed, shaped by guidance on how buyers and sellers ‘find each other’ in the first instance.
TMT provides corporate finance advice across the telecommunications, media and technology sectors on both sides of the Tasman, specialising in M&A and capital raising.
In addition to impartial and experienced guidance, the Sydney-based firm also offers access to buyers, sellers and joint venture partners across the world, successfully executing transactions in M&A, joint ventures, takeovers, IPOs, back-door listings and debt financing among other offerings. The business typically specialises in M&A activity between the $20 - $200 million transaction mark, with capital raising ranging from $5 - $50 million.
Of interest to partners, TMT advised on the $24.7 million sale of Bulletproof to AC3, the indirect business of Inabox to MNF Group and the $200 million takeover of BigAir by Superloop. This is in addition to recently advising on NBN Co’s acquisition of Speedcast Managed Services, GCOMM’s sale to Nexon and Firstwave’s $15 million entitlement offer and placement.
“Our firm has been trading for 20 years and we’ve never seen this amount of capital that’s interested in investing and acquiring technology businesses in Australia and New Zealand, and it’s coming from a wide range of sources,” added Mark Nesbitt, principal of TMT Partners.
“We’re seeing global private equity with a strong interest locally, plus the emergence of the Australian private equity sector which was previously reluctant to invest in technology or Australian and New Zealand companies. We’re also seeing a very deep pool of capital coming from Australian institutional investors that are backing companies on the IPO journey, usually 12 months out.”
In short, and to echo Richards’ observations, Nesbitt said companies are investing based on the strength of recurring contracted revenue; “if you’ve got a good software business, you’re probably being called every week from a US-based venture capital firm wanting to make an investment.”
TMT Partners delivered exclusive insights during EDGE 2020, an invite-only virtual experience which played host to the most influential business leaders in technology across Australia and New Zealand.
Underpinned by local research and insights, EDGE 2020 outlined customer investment plans, upcoming end-user projects and new partner requirements, leveraging unique analyst and CIO insights.
To watch on-demand EDGE 2020 sessions - click here.