Credit: Dreamstime
One of the reasons tech companies founded and built in the local market are so popular is that, often from their inception, they aim for the global market, recognising that a local play could see them quickly stifled by the limited size of the domestic market – when compared to markets like North America, Asia or Europe, for example.
While this may not be particularly true of some of the local IT service providers targeted by the likes of PwC and Deloitte, it is often true for local technology vendors and those operating in the software-as-a-service (SaaS) space particularly.
McMurchy calls this the ‘Xero effect,’ referencing the New Zealand-founded cloud accounting software provider of the same name. In Australia, it might as well be called the ‘Atlassian effect,’ with the local start-up also beginning its journey with a relatively global outlook.
“There’s a genuinely global search for good stuff and a recognition that countries like NZ [and Australia] punch way above their weight,” McMurchy said, suggesting that there is a common-sense view that really good ideas maybe sometimes come from smaller places.
“There’s a bit of a pressure cooker approach...there’s always been a global orientation of smart NZ and Australian companies,” McMurchy said.
“Investors are becoming clearly aware that location doesn’t matter that much. If you’ve got a good idea, and it’s got traction, and you can prove that traction in a broader market, you can deal with that location,” he added.
While the deals may be good for individual locally founded companies, the broader M&A trend has implications across the entire Australian market.
According to McMurchy, there is rampant consolidation throughout the tech industry, and this is seeing IT businesses get pushed in one of two directions.
"We’ve seen it in computer hardware, you’re either very large in scale or very niche hardware," he said. "I call it the disappearing middle. It’s happened in hardware, and it’s now happening in software too.
"We’re seeing it in IT services; everyone is trying to acquire everyone else," McMurchy added.
As a result, mid-sized IT firms in Australia (and New Zealand) appear to be on wane.
"It happens in retail, which is now dominated by Coles and Woolies; [there is] a natural economic drive to scale or specialisation."
Regardless, the current M&A flurry in the local tech market doesn’t look as if it will diminish anytime soon.
“Think about organisations like banks, retailers, etc...do you think their dependence [on tech] has decreased or increased [since the last tech bubble]?” McMurchy said. “It’s increased dramatically; the underlying importance of tech in all businesses has grown dramatically.
“The underlying demand and compelling need for technology has increased to a point where nobody even argues about it anymore.”
