Tech Talk: Ernst & Young's Jeff Liu

Ernst and Young’s US M&A leader, Jeff Liu, says Australia can develop a viable venture capital community and that the tech drain won't last forever.

With the tech M&A scene on the rise, one of men working behind the scenes, Ernst and Young’s US M&A guru, Jeff Liu, talks to Technology Spectator about what's driving the boom and how Australia’s brain drain problem may eventually fix itself.

Harrison Polites: Well Jeff, let's start with the lay of the land in the global tech M&A scene, is it speeding up, slowing down or holding steady?

Jeff Liu: I think it’s continuing to accelerate in a landscape that’s seen a lot of transaction flow. And that will continue in a very exciting way for the next three to five years.

The reason for this is that the actual technology changes have been much more dramatic than what people generally regard as the main tectonic shift; the dot-com and the web era in the 90s.

What’s happened, is that the cloud, mobility, the porousness of the enterprise and the compute state, have changed the way that a lot of the incumbents have had to approach their customers. That is turn has also changed what their customers want. As a result, there are companies who are acquiring more because they want to solidify their good position.

Even in the US now, a very active catalyst for M&A has been very activist shareholders. These are folks that used to raid casinos and airlines, they’re  now they have focused in on some of the laggards in tech. This in turn is creating a lot of M&A through investor cheerleading and forced sales.

HP: If you had to give us the top three drivers in M&A at the moment, what do you reckon they are?

JL: Well, I would say the first is the buzzwords that have been around for the last couple of years. They are very pervasive in developed countries. That’s cloud, virtualization, mobility and big data.

Second, the investment pools of capital are much more diversified. In addition to traditional venture capital, many capital pools recognise that tech such a big part of the global economy. They have to invest to continue their own returns.

The third factor is that tech has become a much more mature industry. I like to say that it’s not a pre-adolescent any more. There are teenage, adults and middle-age companies. And so there’s a lot of change as a result of that.

HP: How big a role are patents going to play on the future of acquisitions?

JL: Patents in technology will always have their place, because it is an innovation industry. But I would say, they would have of an less impactful role than in say pharmaceuticals or biotech. That’s because its possible to develop very strong, defensible relationships through the types of behaviour and social types of attributes of your solution that you couldn’t really patent.

Think about the screen that you would be most familiar with - the one now on your mobile device. The power isn’t in some patent or in how you interact with it. It’s the fact that it has changed your desire to interact with those around you.

It has changed the way you behave and you can’t necessarily patent that.

HP: Just moving now to more of a local focus in Australia, what kind of international appetite is there for local Australian start-ups?

JL: Well, I’ve been asked about this alot in my week here. I think there is a growing appetite for technology innovation in developed countries by US and international investors.

In a country like this where there are a lot of sophisticated users, there are interesting solutions.So I expect it to grow. I think this will be more evident once there are a couple investment exits that are successful or are perceived successful in the international investing circles.

The one question that many entrepreneurs this week have asked me is when and if Australia will ever have a real venture capital community. And I say, you're almost there. There certainly have been international investments and I think many are waiting for those investments to pay off. And I think some are about to.

HP: From your perspective in the US, is there a brain drain in Australia? Is most of our talent going overseas?

JL:You know, I’m a bit bias because I come from San Francisco and there are plenty of Australians in the tech industry there. For the same reason, that I think the tech solutions set are becoming globalised I think Australian entrepreneurs - especially serial one’s that have been successful in the US - are going to come back to Australia.

I have spoken to many who are coming back, or who are figuring out ways to come back.  So, while there may have been a brain drain at the moment I expect that flow to be stemmed. 

HP: Thank you so much for talking to us. 

Jeff: Thanks a lot. 

Jeffrey Liu  is the US Technology Sector Leader for Ernst & Young Capital Advisors, LLC, and brings 15 years of corporate finance and M&A experience in the technology industry. Prior to joining Ernst & Young, Liu was a Managing Director in Global Technology Banking at Bank of America Merrill Lynch. Prior to that, he was managing director at Deutsche Bank and a management consultant at McKinsey & Company.

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