(Originally published in e27)
Australia, traditionally known for its strengths in finance, mining, energy, and agriculture, also excels in the technology sector
Being part of the OECD, Australia is among the top developed economies globally. It achieved unprecedented and consistent GDP growth for an incredible 27 years before the COVID-19 pandemic, and this economic expansion is expected to continue in 2024 and surpass the OECD average in 2025.
Additionally, it has one of the highest median wealth rates in the world making it an attractive option amid ongoing global economic challenges.
Yet perceptions of Australia’s capabilities may be incomplete.
For instance, Australia may traditionally be known for its prowess in mining, energy, and agriculture. However, it also boasts notable strengths in the technology sector.
Despite representing only 1.6 per cent of global GDP, Australia accounts for 2.3 percent of the world’s technology unicorns. Classified as a single industry, technology is now the third largest sector in Australia. It also excels in future-critical niches such as biotechnology, medical devices, business software, payment technology, AI, and other flourishing industries.
Not to mention the highly critical climate technology sector, which is set to experience a boost after the Australian government recently announced plans for a bold legislative framework to incentivise home-grown clean energy solutions.
In short, the economy is diverse and ripe with opportunity.
Its stability and diversity provide a valuable hedge against global uncertainties, mitigating risks associated with volatile markets. The country’s resilient economy, sophisticated financial markets, and diverse range of industries and sectors foster a secure investment environment conducive to sustained growth and prosperity.
Yet the latest numbers from the KPMG Private Enterprise Pulse report show a 53 per cent drop in total deal value in the country.
Australia’s geographic isolation can increase transportation and communication costs, impacting the competitiveness of some industries. However, this geographic isolation also creates niches in the market that are underserved or have specific needs not fully met by global competitors. By focusing on these niche markets and becoming experts in meeting local demand, businesses in Australia can refine their offerings, optimise their operations, and build strong customer relationships.
As businesses develop expertise in serving niche markets locally, they also often acquire valuable knowledge, insights, and capabilities that can be leveraged to expand internationally.
The most evident example of this is Australia’s ability to leverage its proximity to Asia, a region that now represents 75 per cent of Australia’s trade.
The specialised skills, unique products, and innovative approaches can differentiate companies from competitors in global markets where similar needs may exist but are not adequately addressed by existing solutions.
Another perceived barrier is Australia’s regulatory regime. Whilst effective, it is complex, and can often deter investors seeking easy wins.
However, Australia’s legal system and regulatory quality rank as among the best in the world and its government is free from the influence and impact of external actors. These regulations and pro-business environment enable foreign investment that is undertaken thoughtfully, with thorough due diligence and reduced investment risk.
What this all adds up to is a country with all the elements of an excellent investment landscape, but vast amounts of untapped potential.
Case in point: Energy Exemplar
Australia may be best known to overseas investors by its technology darlings like Canva and Atlassian. But arguably what truly makes Australia an investment jewel is the economic stability that has birthed attractive mid-market companies that are ripe for private equity investment.
This month’s acquisition of Energy Exemplar by Blackstone and Vista Equity Partners is a great example of this.
Energy Exemplar’s growth trajectory, under Riverside’s ownership and its subsequent acquisition by these prominent private equity players, resulted in an increased market presence for the company. Specifically, their headcount grew by sevenfold and the Development Centre of Excellence was established in India to accelerate its product initiatives.
While in our portfolio, it became a leading global player in energy market simulation software, expanding its market presence significantly. It entered new geographies including Japan, Latin America and the Midwest, its headquarters were relocated to the US, and senior leadership with global software business experience were recruited.
This increased visibility and market share likely contributed to expanded capital-partner confidence.
The company’s revenue also saw a substantial increase due to its expanded customer base and improved product offerings.
The success of this transaction can be attributed to several pivotal factors that highlight just why the Australian mid-market, via private equity, is such an attractive investment destination.
Firstly, Australia offers compelling valuations and exciting growth prospects compared to saturated markets, making it an attractive destination for investment.
Secondly, partnering with established private equity companies helps grant access to proven business models and recurring revenue streams, enhancing the attractiveness of such ventures to capital partners.
Finally, the involvement of experienced private equity firms brings expertise and resources to the table. Through their strategic guidance, these firms can fuel international expansion initiatives and unlock untapped growth potential within companies like Energy Exemplar.
The transaction underscores not only the economic stability of Australia but also the confidence of global private equity firms in its business environment – something capital partners should be watching closely.
Australia is the smart choice
In the end, the world has had too much “hard”.
The US is already seeing a reinvigoration of its investment activity through initiatives such as the enactment of the Inflation Reduction Act, which spurred a surge in innovative ventures across the nation.
It is evident that Australia stands at the cusp of similar transformative growth – and that savvy capital partners who move now could get in at the ground level.
Buoyed by government initiatives aimed at fostering innovation and bolstering investor confidence, Australia is poised to capitalise on rapid technological advancements, such as artificial intelligence, and the global shift towards renewable energy.
