Blog

ICT Is Attracting Investment for Growth in Australian PE & VC Markets

by Emma Chen

  • 24 Sep 2019
  • PE
  • VC

Information and communications technology (ICT) is an increasingly vital engine of the Australian private equity & venture capital industry, as explored in part two of our series with the Australian Investment Council

 

ICT has become a driving factor in advancing Australia's economic growth and competitiveness. In order to compete more effectively on the global stage, Australian businesses are looking to spend more than AUD 65bn1 on technology in 2019 in an effort to build the country’s digital capabilities. From 2015 to 2018, at 5%, the average growth rate of the Australian ICT industry was nearly double the country’s average GDP of 2.59%.2

2018 was one of the busiest recent years for private equity fundraising activity in the ICT sector, which has steadily risen in dollar terms since 2015. As seen in the chart above, total funds reached a record high in aggregate capital raised of $1.2bn in 2018, a 20% uptick from 2017.

Deal activity is also strong across the ICT sector. Most of the major buyout and venture capital deals have been for software companies. In total, 17 private equity-backed buyout deals worth an aggregate $1.4bn were announced or completed in 2018. The bulk of this amount came from KKR’s acquisition of an 80.1% majority stake in business software developer MYOB Australia Pty Ltd., for AUD 1.6bn, in December of that year.

ICT is also one of the most significant sectors in the Australian venture capital space. In 2018, 131 venture capital deals were recorded, worth a total of $737mn. This compares with 136 deals for $472mn in 2017.

The healthy cash flows, steady margins and attractive levels of profitability that ICT companies can offer ensure a healthy level of investor interest in the sector. The Australian Government has also played a key role in the industry’s development. In a move that reflects the increasing demand for ICT in the defence sector, the Department of Defence released its ‘Defence ICT Strategy 2016-2020’, which aims to deploy AUD 20bn in ICT companies over 10 years.

Other investor types such as superannuation schemes, asset managers and insurance companies are also key supporters of investment in ICT.

As a largely service-based economy, Australia relies heavily on innovation tools to improve overall efficiency and productivity. This naturally drives demand for ICT products and services and creates a positive environment for growth. Given the government's support for the sector and the recent increases in both fundraising and investment activities, it is clear that the future of the ICT industry in Australia looks promising.

To read more highlights of the private equity & venture capital industry in Australia, please take a look at our 2019 Yearbook.

The final piece in this three-part series will look at private equity & venture capital activity in the consumer discretionary sector.

1https://www.afr.com/companies/professional-services/digital-revolution-waiting-for-no-one-20181031-h17c54

2https://atradius.nl/rapport/market-monitor-ict-australia-2018.html

 (NB. All $ figures are in USD unless otherwise stated.)

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