Technology Research Asia’s (TRA) Mark Iles is bullish about acquisition prospects for Australian IT businesses in 2025, although small, generalist managed services providers (MSPs) may be the exception.
Mark will present insights from TRA’s first report about M&A in the Australian IT industry at a TRA and techpartner.news event called “The M&A Session”, in Sydney on July 3 and Melbourne on July 24.
Mark’s presentation, to partners looking to buy or sell or just curious about M&A, will cover the market, key deals, valuation trends, acquisition drivers, seller considerations and the outlook for the year ahead.
Speaking with techpartner.news recently, Mark said that several things had aligned to make 2025 a potentially banner year for acquisitions in the Australian and New Zealand IT industries.
One factor had been the Australian dollar’s weakness against the US dollar, making Australian MSPs look relatively cheap.
“Both in Europe, but particularly in the US, the valuations are just higher, so when they look at the Australian marketplace, it's relatively cheap buying,” Mark said in February.
Since we spoke with Mark, the Australian dollar’s value against the US dollar had recovered to a six month high, though it was still well below its value in early 2021.
Private equity
Private equity’s investments have also been maturing.
“The big examples here are, for example, Nexon, CyberCX and efex. Those transactions are from a few years ago now,” Mark noted.
“Private equity, typically, will invest in the business, build it up for three to five years and then exit. So I think this year is going to be interesting, and that we'll see a couple of larger exits.”
Since we interviewed Mark, it has been reported by the AFR that Nexon and part-owner EQT Partners have engaged advisors for a strategic review.
MSP-hungry US firm Evergreen also made a splash in the local market in 2024.
“Evergreen did eight transactions last year. In 2024 they bought more MSPs than anyone else. Pretty impressive from a standing start,” Mark observed.
Evergreen recently appointed the former head of Leap Consulting, Zaub Bhana, as director of MSP M&A.
In Mark’s view, Evergreen was set to “shake the market up. They’re involved in pretty much every deal, which to be honest, is good for sellers but is tough for other buyers. It's creating significant competition, which we think for 2025 is really going to provide a little bit more upside to valuations.”
Cyber, data & AI, business applications
“We're still seeing strong demand for people bolstering cyber(security) in particular, data and analytics and AI unsurprisingly,” Mark noted. “People need to buy their way into that because it's super hard to build, so they're willing to cut a check.”
On the cybersecurity front, acquisitions in 2025 so far include Fast50 firm CBR Cyber by Brennan, The Missing Link by Infosys, and AssuranceLab by Sensiba.
Business application specialists were also attractive to buyers, Mark pointed out. Examples include the acquisition of Barhead Solutions by Akkodis. “Businesses that are doing Microsoft Dynamics, SAP, NetSuite, Salesforce, ServiceNow, those business application services – that market’s running hot too.” He also added Workday, Atlassian and Oracle to that list.
Annuity revenue isn’t the be-all and end-all.
“We've had this conversation for years about annuity – that you need to be driving managed services and annuity revenue. Annuity’s still valuable and highly sought after by buyers, but there's quite a lot of demand now for professional services.
“The reason for that, we think, is the emergence of data and AI, and to a lesser extent, cyber.”
“Get big or get niche”
Mark noted an increased focus in 2024 by acquirers on business “quality” – meaning businesses that are “well-structured, have good customer processes, good tooling.”
“Previously, we've seen that people would be happy to buy customers. They’d buy any MSP, almost regardless of the business itself.
“What we're seeing now is more of a focus on quality. That move to quality is something we're going to see more of, so I think for MSPs looking to exit in the near term, they're really going to have to think about how attractive their business is.”
However, the saying “get big or get niche” also applies, in Mark’s view.
“One $10 million MSP is worth more than four $2.5 million MSPs – a lot more. Scale matters. Don't be caught in the middle.”
Small MSPs with no specialisation would struggle to invest in automation and tooling as customers and struggle for profitability, he predicted.
Mark’s advice for those in that position was to “find some friends”. “It might be time to look for an exit, or find a few other people to come together, get some scale. Or go vertical, go niche, go specialist.”
Births, deaths and marriages
Mark said he and his team were constantly receiving calls from owners wanting to understand either what their business was worth, or who they could buy to help them grow.
For those looking to sell, he said the worst thing to do was rush.
“The best calls I get are from partners, that say, ‘Hey, we're looking to sell in a couple of years,’ because we've got time to work with you to figure out how we can shape your business and build it in the right way. The toughest calls are, ‘I'm tired and I want to sell. Can we put it on the market on Monday?’
“It's like, well, yes, but that may not get the result you want.”
Mark’s good news for the industry was that even amid increasing M&A activity, the total number of IT providers was still increasing each year.
He explained that TRA tracked “births, deaths and marriages” of IT companies in the ANZ market each year; in other words, how many companies start, how many end, and how many are bought or merged.
“As much as there’s always people looking to exit at the top end, you've always got new businesses coming up. Actually, every year except 2022, in the midst of COVID of course, there's always been more businesses at the end of the year than there was at the beginning - so there has been more births then there have been deaths and marriages.
“For every older MSP that's perhaps looking to exit, there's a new data and AI one that's starting up.”
See Tech Research Asia’s Mark Iles present the Tech Research Asia M&A report, hear from partners about their M&A experience, and network with IT partners interested in M&A, at The M&A Session event in Sydney on July 3 and Melbourne on July 24. Register to attend.
To sponsor The M&A Sessions contact techpartner.news commercial director Steven McDonald.
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