Intense competition and soaring prices in domestic markets are pushing droves of savvy investors to seek opportunities abroad.
However, these investment nomads are quickly realising that not all investment destinations are created equal.
The sophisticated systems of governance, robust legal systems, and pervasive technological advancement and innovation we take for granted at home are not always present. They also represent the most basic requisites for overseas investments.
In addition to solid fundamentals, investors should also be on the lookout for economies that display untapped potential — a Goldilocks scenario of sorts, where you won’t get burnt, but you know there’s also plenty of consumption to be enjoyed.
Enter the great untapped Down Under
Australia is obviously among the top developed economies globally, being part of the OECD. It witnessed unprecedented and consistent GDP growth for an incredible 27 years before the COVID-19 pandemic, and this incredible growth looks set to continue in 2024 and even surpass the OECD average in 2025. This makes it an attractive option amid ongoing global economic challenges stemming from geopolitical tensions and climate change.
Yet perceptions of Australia’s capabilities are often incomplete.
For instance, Australia may traditionally be known for its prowess in financial services, mining, energy, and agriculture. But it also demonstrates notable capabilities in the technology sector.
Despite representing only 1.6 percent of global GDP, Australia accounts for 2.3 percent of the world’s technology unicorns. It also excels in future-critical niches such as biotechnology, medical devices, business software, payment technology, AI and other blossoming industries.
This is not to mention the highly critical climate technology sector, which is set to experience a boost after the Australian government recently announced plans for a bold legislative framework to incentivise home-grown clean energy solutions.
In short, the economy is diverse and positively ripe for investment.
Its stability and diversity provide a valuable hedge against global uncertainties, mitigating risks associated with volatile markets. The country’s resilient economy, coupled with its diverse range of industries and sectors, fosters a secure investment environment conducive to sustained growth and prosperity.
Yet the latest numbers from the KPMG Private Enterprise Pulse report show a 53 percent drop in total deal value in the country.
Also Read: Embracing neurodiversity: Hiring individuals with autism in Australian workplaces
So why aren’t investors flocking to Australia?
As the saying goes, if it was easy, everyone would do it.
High-quality investment destinations like Australia typically contain some barriers to entry that deter less savvy investors. But this simply means more untapped potential for anyone in the know.
For instance, the Australian foreign investment process can be quite intricate, which often deters investors seeking simplicity and easy wins. The Treasurer also makes the ultimate decision based on national interest and security, with guidance from FIRB, which can result in a somewhat lengthy investment process.
However, a detailed process allows for thorough due diligence and helps to ensure that the deals are made following legal requirements. This reduces investment risk and the likelihood of facing regulatory issues down the road. It also means less investment competition.
Australia’s high environmental standards can also add costs and compliance hurdles for certain industries like manufacturing and energy where costs for going green are common.
Yet long-term cost savings emerge from investments in sustainable practices, such as energy efficiency and waste reduction, leading to decreased operational expenses. This commitment to environmental responsibility also spurs innovation, driving companies to develop new, green technologies and processes that enhance competitiveness in the global market.
As adherence to stringent environmental norms increasingly becomes a prerequisite for market entry and investment decisions, environmental compliance will additionally open doors to international markets and attract eco-conscious investors.
These benefits collectively underscore the value of integrating environmental standards into business operations, positioning companies for future success and sustainability.
Finally, Australia’s geographic isolation can increase transportation and communication costs, impacting the competitiveness of some industries.
But this geographic isolation also creates niches in the market that are underserved or have specific needs not fully met by global competitors. By focusing on these niche markets and becoming experts in meeting local demand, businesses in Australia can refine their offerings, optimise their operations, and build strong customer relationships.
As businesses develop expertise in serving niche markets locally, they also often acquire valuable knowledge, insights, and capabilities that can be leveraged to expand internationally.
The specialised skills, unique products, and innovative approaches can differentiate companies from competitors in global markets where similar needs may exist but are not adequately addressed by existing solutions.
What this all adds up to is a country with all the elements of an excellent investment landscape, but vast amounts of untapped potential.
Case in point: Energy Exemplar
Australia may be best known to overseas investors by its media darlings like Canva and Atlassian. But what truly makes Australia an investment jewel is the economic stability that has birthed attractive mid-market listed companies that are ripe for lucrative private equity investment.
Last year’s acquisition of Energy Exemplar by Blackstone and Vista Equity Partners is a great example of this.
Energy Exemplar’s growth trajectory, under our ownership and its subsequent acquisition by these prominent private equity players, resulted in increased market presence for the company.
While in our portfolio, it became a leading global player in energy market simulation software, expanding its market presence significantly. This increased visibility and market share likely contributed to expanded investor confidence.
The company’s revenue also saw a substantial increase due to its expanded customer base and improved product offerings. The 30 percent compound annual growth rate since 2018 was very attractive to investors.
The success of this acquisition can be attributed to several pivotal factors that highlight just why the Australian mid-market, via private equity, is such an attractive investment destination.
Firstly, Australia offers compelling valuations and exciting growth prospects compared to saturated markets, making it an attractive destination for investment.
Secondly, partnering with established, profitable private equity companies grants access to proven business models and recurring revenue streams, enhancing the attractiveness of such ventures to investors.
Finally, the involvement of experienced private equity firms brings a wealth of expertise and resources to the table. Through their strategic guidance, these firms can fuel international expansion initiatives and unlock untapped growth potential within companies like Energy Exemplar, thus augmenting their value proposition and appeal to investors.
The acquisition underscores not only the economic stability of Australia but also the confidence of global private equity firms in its business environment — something all investors should be watching closely.
Australia is an easy choice
In the end, the world has had too much “hard”.
Investors survived COVID-19, and we’re battling through rising geopolitical conflict. It is time for something that is the diametric opposite of hard.
The US is already seeing a reinvigoration of its investment activity through initiatives such as the enactment of the Inflation Reduction Act, which spurred a surge in innovative ventures across the nation.
It is evident that Australia stands at the cusp of similar transformative growth – and that savvy investors who move now could get in at the ground level.
Australia’s renewed commitment to green initiatives also signals a turning point in its investment landscape.
Buoyed by government initiatives aimed at fostering innovation and bolstering investor confidence, Australia is poised to capitalise on rapid technological advancements, such as Artificial Intelligence, and the global shift towards renewable energy.
These developments not only promise to attract foreign capital but also position Australia as a hub for cutting-edge ventures and sustainable growth.
So don’t risk becoming a laggard. The time to move is now.
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