As regular readers of this blog will know, our approach at Heritage Wealth Partners is to look globally for the best investment opportunities for our clients. Although South Africa has much to offer from a lifestyle perspective, it makes the most sense to give your money a passport.
The reality is that the most exciting companies in the world aren’t found on the JSE.
Corum Group is the world’s leading seller of privately held software, internet and IT-related companies, so the firm knows what it’s talking about when it comes to deals in this space. Corum publishes a “Global Tech M&A Report”, which naturally makes for fascinating reading given the excitement in this space in the past couple of years.
By now, everyone knows that the pandemic was a major accelerator of the technology trends that were already visible to those in the industry. Companies scrambled last year to bring on board the technologies needed to compete in a world that suddenly looked very different. Corum reports that there were 3,979 transactions in 2020 vs. 3,627 in 2019, an increase of nearly 10%.
Investors look to the future and chase the most exciting opportunities, which is why the tech sector has been a wonderful place to invest over the past couple of years, notwithstanding a cooling-off of share prices this year. The earnings need to catch up to the multiples, which is why it is critical to have a long-term view and stay invested.
One of the most interesting insights in the Corum report is that acquisitions by private equity funds dipped in 2020 as strategic acquirers (e.g. Microsoft) became “more aggressive” – this means that existing industry players looked for acquisitions to plug the gaps in their service offerings and were willing to pay more for that luxury than pure investment funds.
The tech companies that are the foundation of our global Unicorn and Altos portfolios are expert aggregators of the innovations that are changing the way we live and work. We cannot possibly predict the future with any accuracy, but we can invest in the companies that we believe will deliver that future.
This points to the importance of being invested in leading global platform businesses that position themselves at the frontline to acquire private companies that offer exciting new technologies. You might not be sitting in San Francisco coffee shops discussing transactions, but your money can be if you invest in the right companies.
There’s an entire ecosystem out there of venture capital money being pumped into exciting startups that will eventually be acquired by tech platforms. That ecosystem barely exists in South Africa, so diversified exposure to the biggest growth stories of the next decade can’t be achieved on the JSE.
The top strategic acquirers in 2020 included some names that you would expect to be there, like Microsoft and Apple. Accenture tops the list, with 33 acquisitions of primarily cybersecurity and analytics firms.
In a sign of the times, second place on the acquirer table went to Nordic gaming business Embracer Group. A Bloomberg article in July confirmed that Embracer kept the deal momentum up in 2021, taking the tally to 27 deals in 12 months. The company has become Europe’s most valuable game developer (market cap $11bn), overtaking French rival Ubisoft ($7.8bn).
The importance of stock picking comes through in that comparison, as Embracer is down 10% this year and Ubisoft a painful 33%. Growth stocks can be volatile and performance can vary wildly, which is why we advocate an actively managed approach and a long-term investment horizon.
Corum highlights the disruptive technology trends that are shaping our world, including the likes of AI enablement, business intelligence and data science, e-commerce, smart logistics and remote security solutions.
If these trends don’t have a meaningful place in your portfolio, you simply aren’t positioning yourself for a successful wealth creation journey over the next decade.