SPECIAL REPORT: Waning interest in the resources sector has encouraged a pick-up in IT and tech companies.
Waning interest in the resources sector has encouraged a pick-up in IT and tech companies.
A string of mergers and acquisitions among IT and technology companies during the March quarter has led to speculation of an increase in similar deals for the year ahead.
While M&A in the IT and technology space pale in comparison with the deals completed in the natural resources sector, BDO partner corporate finance Sherif Andrawes said he had noticed an increase in capital being raised for the former.
He said a flurry of east coast IT and technology initial public offerings towards the end of 2013 had helped drive similar deals in Western Australia.
“That has brought more of these opportunities to the fore. People have realised there is money for it, and there is less money, perhaps, in the public equity market for resources stocks,” Mr Andrawes told Business News.
“We have certainly seen a lot more of this in recent months, and certainly before Christmas it was pretty hard to raise anything.”
Three reverse takeovers of junior resources companies were among the IT and technology transactions for the March quarter – Macro Energy by digitalBTC, Latin Gold by mig33, and Aviva Corporation by Decimal.
“We are getting increased interest in shells – businesses looking to go into shells, to list and then raise money on the back of that,” Mr Andrawes said.
“There are some really good technology companies around and I think it’s a really good time for them to get finance now.”
digitalBTC executive chairman Zhenya Tsvetnenko, the 40under40 First Amongst Equals in 2011, said he always aimed to list on the Australian Securities Exchange to provide credibility to the company, which is involved in the emerging digital currency markets such as Bitcoin.
“We had a great idea, we needed some capital, but one of the main reasons we decided to go public was to give us credibility,” Mr Tsvetnenko told Business News
He eventually found Macro Energy, a former oil and gas explorer now backed by Navitas founder and chief executive Rod Jones, and Mirabela Nickel and Panoramic Resources co-founder Craig Burton.
“Macro was one of the shells we approached and we chose it because of the people involved in it,” Mr Tsvetnenko said.
“Rod Jones and Craig Burton really liked the idea and our project. They had been looking for a project for 18 months to take on for Macro and when we came along they were very excited.”
On completion of the $16.6 million reverse takeover, digitalBTC will become the first public-listed company in Australia to principally deal in Bitcoins and other digital currencies.
Bitcoins can be collected, or ‘mined’, online by using computers to solve highly complex algorithmic equations. Bitcoins can be traded or used to purchase items, just like any other currency, with the value of one Bitcoin as at April 3 being about $US430.
Bentley-based digitalBTC plans to mine, establish a trading platform and offer retail products to consumers, including mobile applications.
Herbert Smith Freehills partner Simon Reed agreed that an increase in activity for east-coast technology companies was filtering through to WA.
He said many of the IT and technology companies in Australia had matured compared with a few years ago when these businesses were lagging behind the US and Asia.
“We have now caught up a little bit and that gap has been bridged, which means the businesses are able to thrive locally,” Mr Reed said.
Decimal’s reverse takeover of Aviva Corporation, a former coal play, has been valued at $9 million and comes on the back of the company developing its financial planning software.
Decimal, which announced the takeover on January 20, said the technology made it the first company to offer an end-to-end cloud-based platform for the financial services industry.
Meanwhile, mig33’s reverse takeover of Latin Gold, which has gold tenements near Meekatharra, was announced just three days after Decimal’s deal and is valued at $19 million.
The social entertainment firm boasts 3 million monthly active users and offers services such as miniblogs, chatrooms, virtual gifts and games.
Its focus is on emerging markets in South-East Asia, the Middle East and Africa and is founded by Steven Goh, a 40under40 winner from 2002, who established Sanford Securities in Perth in the 1990s.
Triple C Consulting director Scott Williams said technology plays had been “pretty hot lately”.
“The deal flow has increased significantly; access to capital is easier and it has definitely improved a lot,” he said.
“You wouldn’t expect it, but there are actually quite a few good little technology companies around Perth – it’s a very entrepreneurial state.”
The Northbridge-based stockbroking firm diversified into the technology sector two years ago, and Mr Williams said he had noticed an increase in activity about mid-2013.
He believed some of the big technology deals in the US, including Facebook’s $US2 billion acquisition of virtual gaming company Oculous VR in March, were driving Australian investors to put up risk capital for local companies.
He said there was still a lot of speculation around Bitcoin and the hardest thing to do was to explain to investors what digital currencies were.
“It shows you the appetite for the sector. Some people are more than happy to take a punt and maybe Bitcoin will be the next big thing, it’s a very interesting topic.”
Mr Reed said investors had changed and were not necessarily focusing on one particular sector, but rather focus on out-performance of particular companies.
“Gone are the days where people just blindly follow a trend in a particular commodity or asset,” he said.
“They are looking for a particular management team or businesses that can actually deliver – that’s where the focus is.”
Mr Reed said the law firm had been assisting a number of data storage and development companies looking for major contracting partners to build their business locally with a view to floating in the near term.
He said he was very optimistic about the IT and technology sectors over the next 12 to 18 months, and expected IPOs to increase in that time.
“These companies are on a growth trajectory. These businesses, to be successful post listing, they will need to have an existing portfolio of clients, good medium-terms contracts that they can point to and that will give the markets confidence to support them in an IPO,” Mr Reed said.
