Lacklustre VC and PE market for tech deals in Australia in 2024

Venture capital (VC) dealmaking in Australia and New Zealand started slowly in 2024, with the lowest number of deals in nearly seven years in the early part of the year. Only 97 deals worth around $600 million completed, representing a drop in deal count and value from the previous quarter. This trend, if continued, would result in significantly lower VC figures for the year compared to 2023.
 
The number of first-time VC deals in the region fell for the first time since 2018, although 2024 is still the third-highest year on record. Late-stage deals dominated the Q1 deal count, with early-stage start-ups increasing their share of overall rounds. VC-backed exit activity has also dropped, with acquisitions being the primary exit route. VC fundraising in Australia and New Zealand is concentrated among smaller funds, with more than 80% of funds having raised less than $100 million, and many coming from first-time managers.
 
Private equity (PE) activity has dropped markedly, due to the impact of higher interest rates, which have raised the cost of debt finance. Only 65 PE deals were done in Q1, with a total of $2.8 billion involved in these transactions. If this trend persists, the Australia and New Zealand market is heading towards its slowest year in terms of PE deal value since 2015. Buyouts have been particularly affected by market pressures, while growth equity has shown more resilience in the challenging environment.
 
Looking closer at Ansarada data, Australia and New Zealand showed strong deal room activity, experiencing a 6% year-on-year increase in new tech and telecoms M&A transactions from October 2023 to September 2024. In further evidence of an upward trend, there was also a 20% lift to tech deal room activity in Q3 2024 versus Q3 2023. On a quarterly basis, there was a 26% drop in new tech and telecomes M&A transactions in Q3 2024 compared to Q2 2024, however, when comparing Q3 2024 to Q3 2023, there was a 20% increase in tech & telecoms M&A transactions.
 
In the AI milieu, a highlight was Blackstone’s acquisition of AirTrunk, a leading data centre platform in the Asia Pacific region from Macquarie Asset Management and the Public Sector Pension Investment Board. The acquisition is valued at over A$24 billion, marking Blackstone's most significant investment in the Asia Pacific to date. The deal is contingent upon approval by the Australian Foreign Investment Review Board. AirTrunk is one of the top data centre companies across the Asia Pacific, with a substantial presence in Australia, Japan, Malaysia, Hong Kong, and Singapore. It has committed over 800MW of capacity to its clients and holds land that can accommodate the development of over 1GW of additional capacity across the region.
 
Another significant deal this year has been visual communication platform Canva’s acquisition of its generative AI image competitor, Leonardo.Ai to bolster Canva's suite of AI products. While the purchase price has not been announced it’s understood to be around AUD$300 million, with Leonardo.AI only having limited, if any, revenue.
 
“Canva’s acquisition of Leonardo.Ai was an expression of the classic buy versus build decision. The purchase is about bolting on capability to compete with some of the larger players globally,” says Brendan Mulheron, co-head of technology, media and telecoms, ANZ, UBS Investment Bank.
 
Mulheron says Australasia is likely to see more bolt-on AI acquisitions in the future, but these deals are technology dependent in the problem they are trying solve. “The handbrake on Australian deals is the lack of investible businesses of scale,” he says.
 
Despite the transformative potential of AI, investors are not rushing to back nascent AI vehicles still creating products that generate revenue and address real-world problems. Nevertheless, venture capitalists remain optimistic AI will drive the next wave of investment and the emergence of new unicorns.
 
While more of a long-term play, as Ginger Chambless, JPMorgan’s head of research, commercial banking, explained[1], in April 2024 the Australian and Queensland governments invested $660 million into PsiQuantum, to build what is understood to be the world’s first fault-tolerant quantum computer. This is a theoretical machine designed to perform quantum computations reliably, even in the presence of errors and noise. The investment has subsequently attracted the interest of the Australian National Audit Office as to whether the funds are an appropriate use of public money. 
 
The Australian federal government has invested in other local quantum computing firms, such as Silicon Quantum Computing, Diraq and Q-CTRL. These companies are trying to develop commercially-viable quantum computer technology, which could impact AI business models in the future. 
 
In other local tech transactions, there has been some activity in the ed tech space, with US education firm, EAB, buying job simulator, Forage. There is also some noise around the potential sale of BHG Capital’s cyber rollup, CyberCX, which itself is extremely acquisitive. 
 
Looking ahead, the market is awaiting data centre AirTrunk’s touted $20 billion IPO. It’s understood the final capital structure is being negotiated with debt and equity partners. More broadly, some tech firms are waiting for the IPO market to open to secure equity finance, with many deals being done privately at the moment using private equity funds’ dry powder. 
 
All figures in US dollars.