Insights from this year’s Deloitte Technology Fast 50 companies have revealed M&A activity as one of the most prevalent factors in driving revenue growth, with both strategic and financial investors playing a pivotal role in propelling the success of scaling Irish technology businesses. So, what does this mean for opportunities within the indigenous tech sector?
The 2023 Fast 50 companies completed a large volume of transactions over the last 12 months including both financial investments and strategic acquisitions.
We saw a number of companies turbo charge their plans by taking on strategic investment including Phoenix’s investment into Nostra Technologies and Livingbridge’s investment into T-Pro. These transactions highlight that international investors continue to see Irish technology as a very strong sector for deploying capital. While we have seen a slowdown in the international tech sector, investors from outside Ireland are still drawn to the vibrant tech community in Ireland.
What makes Ireland’s technology sector so attractive?
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In many cases it’s the highly skilled, innovative, and entrepreneurial workforce. This community has grown up surrounded by the global tech giants who provide valuable experience and expertise to the Irish tech ecosystem. The Irish Government has also played a key role recognising the value the tech industry brings to the economy. For example, Budget 2024 announced a more attractive environment for Angel Investors. Organisations such as Scale Ireland and Enterprise Ireland have also been pivotal in supporting the growth of the industry, creating a community within which scaling companies can thrive.
With this invaluable support, Ireland’s technology companies can continue to focus on driving growth, and we expect to see many of them continuing to feature in the Deloitte Technology Fast 50 programme over the coming years.
The Fast 50 2023 ranking includes numerous companies who have successfully completed strategic acquisitions during the year, both domestically and internationally, which can form a core part of a scaling company’s strategy. This allows companies to add scale, enter new markets, grow service lines, onboard new talent and customers, amongst other advantages.
The level of transactions is impressive particularly in the context of some of the challenges the market has faced this year. Although there remains a gap between seller and buyer expectations driven by a reduction in valuations from the 2022 peak back to a more normalised level, this gap has reduced, and we are seeing buyers and sellers transact at valuations which both sides see as fair.
An increasing cost of debt has also made it more difficult to complete transactions and has an impact on equity valuations. We have seen more stability in the debt markets over the last few months, which is supporting deal flow and certainty over deal structures.
While deal volumes have held strong they are becoming more complex with increasingly extensive levels of due diligence and structuring.
Why are mergers and acquisitions an attractive growth strategy?
Despite challenges, in the context of European GDP growth, the Irish economy has fared very well comparatively with more and more international investors seeing Ireland as a strong investment. Tech companies are experiencing additional growth opportunities through mergers and acquisitions with company size and scale now seen as a key marker of value.
In Ireland, private equity (PE) is proving a key feature of the investment landscape, with buy-and-build strategies prevalent, as investors look to place significant capital into their portfolio of companies to fund consolidation plays. Tech-focused consolidators have emerged as prominent players, for example, in IT Managed Services. These companies specialise in acquiring and integrating smaller tech businesses for expansion.
With ample capital available for investment, investors are looking to deploy capital in order to provide a return for their own investors.
How can I consider what is valuable when thinking about M&A?
In the world of technology, what makes a company valuable can vary, but there are some key things to keep in mind whether you’re looking to buy or sell.
Resilience is critical. Companies and management teams that have shown they can weather tough times are seen as strong assets. Having a unique selling point (USP) is also crucial – something that sets you apart in the market. This is often driven by unique products, services, or intellectual property. Recurring revenue streams, such as subscriptions, are highly valued for bringing predictability and stability to cash flows, this is often achieved through customer loyalty. Buyers and investors will also look at both gross and net retention to see how a business is retaining and growing its customer base. The quality of your sales pipeline and your ability to turn prospects into actual sales also play a big role.
The Irish technology sector is poised for sustained growth and innovation, propelled by a dynamic mergers and acquisitions landscape. As companies aim to broaden their influence, bolster their capabilities, and secure a competitive advantage, M&A will persist as a crucial strategic tool for driving their success. I look forward to continuing to empower these Irish businesses to scale and thrive, championing them as leaders in their respective fields, both domestically and globally.
The Deloitte Technology Fast 50 programme is about supporting the best of the indigenous technology sector in Ireland, providing a tangible benchmark for companies to understand their growth in the context of others in the space. Companies are ranked purely on their revenue growth over the last four years. The programme culminated in an event held on November 30th, with companies from early-stage start-ups to those with revenues over the €1 billion mark gathering to celebrate their success.
With a foundation in technology consultancy and engineering, James Toomey, M&A partner and Deloitte Technology Fast 50 lead, possesses the expertise to grasp the intricacies of tech companies. His experience on Deloitte’s M&A team equips him with a deep understanding of the operational details and complexities of business transactions.
To learn more visit Deloitte.ie.