The defining event for the tech sector in 2022 was tech valuation markdowns – a steep learning curve for tech companies as investors and shareholders ran out of patience and demanded a path to profitability.
RSM Australia’s national technology group lead, Mathavan Parameswaran, said tech firms nursing loss-making results would be prioritising efforts to curtail operational costs and aiming to be smarter with the use of R&D and marketing expenditure in 2023.
There’s a lot of significant business review being undertaken right now, with many tech companies checking to see if they need to slow down their growth aspirations. This introspection is seeing a return to getting the nuts and bolts right – the ‘gravy train’ era is over for the moment,” Mr Parameswaran said.
While tech companies currently are doing business reviews and pulling their belts in, it’s important to remember that the market still has a need for the products they are offering,” he said.
There is value in their offerings, so we are helping clients to ride out this market correction of valuations by putting in place best practice to show the robustness of their business and how they are using money.
I still see it as a fairly bullish environment for the next few years.
It’s not like the 2000s dotcom crashes where some of the businesses had no real market.
2022 was not bad in the sense that the tech industry was not doing things wrong in terms of their products on offer.
Mr Parameswaran said in 2023 many tech businesses will be revisiting their business models and forecasts in light of capital being harder to access.
Investors really are looking for a path to profitability,” he said.
Inflation and wage pressures due to labour shortagesis an issue that is compounding the problems of tech companies already dealing with a market correction and looking to rein in costs.
Interest rates tend to not be such a sector-wide issue as not all tech companies need to borrow money.
The other issue that is – or should be – on tech companies’ radars for 2023 is cyber security. Cyber security issues have been impacting every sector but it is especially vital to have the best systems in place if your business is providing tech solutions to customers. Mr Parameswaran welcomed government action to speed up and expand skilled migration and called on the government to get more creative in helping smaller tech companies with funding. For 2023, despite the economic turbulence, he predicted many positives for the tech sector. There is a real upside for cleantech businesses, they will keep booming especially given the change of government and the new focus on climate change that will see a lot more funding available. There is also a real push in agtech to modernise the ag sector – they are playing catch-up. Fintech has been on the radar for the past few years, and with banks now seeing the fintechs not necessarily as disrupters but as providers of tech solutions that the banks want to incorporate, we should see more fintech M&A activity in 2023. Another key growth area will be medtech, on the back of Covid and the growth of telehealth and diagnostics.
I’m quite bullish about continued growth and opportunities for the tech sector in 2023 – the growth may not be as rapid as the past few years but it is still there and M&A activity will be an attractive option for many players.
Already we are seeing clients looking to acquire businesses to provide a bigger end-to-end offering,” he said.
About RSM Australia:
Having grown into one of Australia’s leading professional services firms over the last 100 years, RSM Australia is committed to enabling clients through a greater understanding of what matters most to their business. In addition to local knowledge provided by our advisers in 32 offices across Australia, we draw on our international reach and scale to ensure clients stay at the forefront of the world’s best practices, technology, and innovation within a rapidly changing global economy.