Deal flow surges in ICT sector

20/03/2015 - 11:50

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Perth's status as a significant outpost in the national information and communications technology sector could be threatened by the likely loss of key major local headquarters following recent mergers and acquisitions activity.

Deal flow surges in ICT sector

Perth's status as a significant outpost in the national information and communications technology sector could be threatened by the likely loss of key major local headquarters following recent mergers and acquisitions activity.

Part of a wave of consolidation across the sector, the takeovers of iiNet and Amcom Telecommunications - if they go ahead - will leave WA without a top 10 player in the national industry.

It also disrupts the local market configuration where ICT consultants dominate, cutting to four WA-based players in the top 10 from six a year ago. Amcom will be one casualty while the Birchman name has already gone following the finalisation of the acquisition by Melbourne-based SMS Management & Technology.

ISP iiNet features on the list due to its significant number of IT and technical professionals, but it was not in the top 10 in the list based on the number of specialist employees it has.

Sydney-based TPG Telecom has made a $1.4 billion bid for iiNet to create Australia’s third biggest ICT player and its second biggest ISP.

Another NSW company, Vocus Communications, has proposed a $653 million scrip acquisition for Amcom. While Amcom is the bigger of the two companies – its shareholders are to end up with 51 per cent of the merged entity and local director Tony Grist will chair the combined group – it appears unlikely that management control will remain here.

The result may not be all that surprising.

Geography and the structure of the national telecommunications market work against Perth being a major hub.

Sydney is clearly in the centre of both the combined Amcom/Vocus and iiNet/TPG operations, which extend as far as New Zealand in both cases.

Although iiNet has a call centre in South Africa to take advantage of cheap labour and the extended time zone, founder Michael Malone previously acknowledged that the company’s high-cost premium-service model meant it had few regional opportunities outside the mature and highly regulated Australian market.

The consolidation comes as two major trends emerge in the sector. Firstly there is the rollout of the National Broadband Network, which removes the advantage once held by Telstra in owning the copper wire network.

In addition, high-definition video streaming services are converging on the Australian market, threatening existing broadcast and cable operators while playing into the hands of ISPs.

Netflix has already done a deal with iiNet, which will not include downloads by the US-giant’s customers in its own clients’ quotas. Netflix will come up against new national offerings Stan (a Nine Network and Fairfax joint venture) and Presto (Foxtel and Seven West Media joint venture), as well Perth-based minnow Quickflix.

Another deal involving a WA company selling to an interstate rival was ASG’s divestment of a data centre to Vocus for $11.7 million.

However, during a very active period of IT and communications transactions, consolidation was not always dominated by east coast purchasers. Prior to its own takeover, Amcom bought Megaport’s fibre network in Melbourne, Sydney and Brisbane for $15 million.

Other more locally focused deals included Empired’s recently completed $17.4 million acquisition of Intergen, while Scarborough-based Scope Systems also purchased the business information management software of NEC Australia, which had been run out of Perth.

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