Tech stocks need to ditch egos in ‘everything’ phase, says expert
Hani Iskander, Partner at Cube Capital
Tech stocks are going through the ‘everything’ phase and need to put their egos aside to cash in, says Hani Iskander from Cube Capital.
We’ve heard of the Internet of Everything, what is this phase you refer to?
Technology is also going through what I call the ‘everything phase’.
• See everything (visualisation), Pointerra (ASX:3DP) & Yellowfin (private)
• Store everything (data storage), NextDC (ASX:NXT)
• Pay everything (payment systems), Tyro (private)
• Detect everything (health predictive analytics), Volpara (ASX:VHT).
• Play everything (games for kids – physical activity based), EyeClick (Beam) (private)
Pointerra Ltd (visualise everything) is focused on the development and commercialisation of its 3D geospatial data technology to visualise big data sets. This company could be worth a fortune if it opens up to a lot more than niche clients. Its technology might even be attractive for Google or Apple, the de-facto mapping gurus.
Mapping and visualisation are about to experience a new dimension of evolution, especially with AR (Augmented Reality) products which are becoming high resolution and inexpensive. Imagine the wonders of augmented reality with the power of 3D mapping.
Volpara Health Technologies Ltd (detect everything) develops digital health solutions to enable personalised, high – quality breast cancer screening based on objective measurements of breast density, compression and radiation dose.
Specialist health diagnostic players are in an amazing market opportunity – the trend will speed up in the area of detection long before disease manifests itself. Why not detect breast cancer as soon as the very first abnormal cells start forming, or prostate cancer when the first sign of change in that organ happen.
In the last 10-15 years advances were made in detection but not early enough. For example, today we have a new generation of MRI machines called multi-parametric MRI (mpMRI) which can reveal cancerous tumours. These machines can now not only look at tissue, but also are able to see how tightly cells are packed and how blood flows in tissues.
Companies that can advance and push early detection of “everything” will be very valuable.
NextDC Ltd (store everything) builds and operates independent data centres in Australia. Data Centres are “in” because all data today is stored, nothing is deleted. And volumes grow every minute – the big data centre players, Amazon AWS, Microsoft Azure, Google and IBM cannot meet the demand with their mega-networks of data centres.
There is a huge market for data centre companies to build and manage these facilities. In fact, the big players are often tenants of Australian owned wholesale data centres (not building their own). Data centres are the new 21st century Westfield shopping centres except they hold data and not consumer products. China too is accelerating their data centre businesses with mega enterprises like China Telecom and China Unicom. I predict huge growth in Australia of local data centre owner-operator companies like NextDC.
How does this market for the technology of “everything” change the sector?
The technology silos that we know of in traditional tech are blending because the borders are increasing dissolving – ultimately technology companies will have to face the fact that there is a merger of requirements for B2B companies.
When I entered the sector everyone very much had to be specialised but the expansion of the internet has very much democratised the sector and consumers are demanding multiple solutions from one vendor, rather than buy many solutions from multiple niche vendors.
We have too many ASX-listed companies in the small-to- mid cap group. None of them could
double or quadruple in size through organic growth. In order to grow and be worth more, small caps need to recognise opportunities in mergers and acquisitions but unfortunately egos often get in the way. What I see time after time is that the directors, founders or CEOs of say a $50 million dollar business egos that resist the idea of merging with another because this would mean that one always has to lose their crown.
One of the biggest inhibitions is ego and I think in order to adapt to the changing environment more of the companies on the small end need to see mergers where they would usually see competition. Although these small-cap companies are usually receptive to acquisitions, they often have limited access to capital and end up buying tiny businesses. There is a bid difference between two mid-cap companies merging and one mid-cap company buying one or two very small, usually privately held, companies. Speed of scaling is achieved faster with mergers than with acquisitions. But the degree of difficulty is much higher.
Shareholders in the lower end of the market are looking for substantial growth because they are taking bigger risks. If a tech company cannot effect speedy growth there is little possibility for their share price to grow enough to satisfy their shareholders.
Hani Iskander, a partner at Cube Capital, a specialist technology investment bank. Before
moving to investment banking, he was a serial entrepreneur having started and built 7 software companies and holding several C-level roles with global technology companies.
Over the years, Hani has held a regional management role with SAP and has been Vice President of Asia Pacific and Japan with two NASDAQ-listed technology companies. He founded Accelerator Capital in 2000 and managed M&A transactions for 15 years.
With over 18 years’ experience in the software industry and 15 years in investment banking, Hani has a unique understanding of the technology sector and especially information technology. His special interest is in artificial intelligence which goes back to his honours research at UTS where he obtained a Bachelor of Applied Science (Computer Science) with Honours.