Just under a year ago, online home delivery food service Menulog was sold to Just Eat for $855 million, a price that represented 371 times the earnings before interest and taxation (EBIT).
In comparison, the average EBIT multiple paid for takeovers in the technology sector is closer to 20-40 times.
“That was the high point of this particular boom. There is no doubt, we are in a boom,” Nick Abrahams, APAC Technology Practice Leader at Norton Rose Fullbright, said at the [i3] Equities Roundtable in Sydney earlier this month.
“As the Australian Securities Exchange (ASX) has lost the speculative mining opportunities that risk capital appears to be refocusing on the technology sector, and it feels bubbly.
“We are seeing a number of pre-revenue technology businesses getting listed on the ASX. We are used to them because of the mining industry, but it is of significant concern. It is certainly something to watch,” he said.
While Australian technology companies struggled to make a splash during the dotcom-boom in the 1990s, when the world’s focus was squarely on North American companies, the current wave of disruptive companies have a more global profile and this has benefited Australian entrepreneurs.
It has paved the way for American venture capital funds to come to Australia. Venture funds, like Sequoia Capital, are regularly coming over and they are looking at our technology companies
In the last three years, US venture capital firms have invested $1 billion into companies in Australia, some of which have been built up away from city centres.
“Invoice2go received an investment valuing them at over $100 million, and that business was built on the Central Coast. Few people had heard of them in Australia before Accel Partners found it,” Abrahams said.
US interest in Australian technology companies more or less started with the acquisition of a stake in Atlassian in 2010.
“Accel Partners found a company called Atlassian and that changed everything. We now all live under the Atlassian halo, because this is an extraordinary business. As a result, Accel Partners then invested in four more companies.
“It has paved the way for American venture capital funds to come to Australia. Venture funds, like Sequoia Capital, are regularly coming over and they are looking at our technology companies.
“They only invest in companies with an enterprise value of more than $100 million and they write cheques of no less than $20 – 30 million.”
“So we’ve finally got an opportunity to get beyond the tyranny of distance and right now it is boom time.
“Time will tell how great these times are for professional investors, but it certainly is boom time for the founders,” he said.
Nick Abrahams is the author of the book: ‘Digital Disruption in Australia: A guide for Entrepreneurs, Investors and Corporates’
All proceeds of the sale of the book go to Alzheimer’s Australia.
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