Online business trend spells a reduction in listing: Deloitte

This article is quoted from Paul Smith journal, a technology editor based in Sydney's newsroom.
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Paul Smith

Rapid evolution of technology and frequent disruption wrought by the internet on established businesses will dramatically reduce the number of companies looking to list on public markets in the coming years and see a rush of listed players looking to go private.

This is the prediction of Deloitte Australia’s top technology, media and telecommunications expert.

Damien Tampling says the emergence of new and niche players in many market sectors has left incumbent players lead-footed. But nervous investors and the “short-termism” engendered by frequent reporting requirements means many companies are too fearful to make the bold moves needed to change course.

News last week that Google is partnering with MasterCard to launch its own credit card is a precursor to an era of joint ventures between incumbent and insurgent players, Tampling says. In a period of mutually beneficial co-operation, established players in various sectors will benefit from partnerships with more agile and innovative players.

Meanwhile, technology-focused companies will seek to piggyback on the reputations of established names to make an impact in new markets.

“In the next decade we are going to see an unprecedented level of joint ventures and alliances, and an increased preference for companies being privately owned,” Tampling says.

“Listing a company worked in the context when you could see a settled and positive outlook for the following three to five years, or even longer. Unfortunately the business environment and the speed that things are evolving doesn’t afford you that luxury.”

Companies need to react, and change direction quickly, if a new competitor emerges, he says, but admits that successfully managing a business in this manner would make any chief executive unpopular with investors.

Tampling says established retailers and media players are the most obvious examples of industry verticals being challenged by global technology players. But potentially smart moves to counteract the threat are likely to be punished by the markets.

“Investors may see bringing in a joint- venture partner as an admission that the business does not possess the necessary skills, and start selling off. Whereas it may be the best thing it could do for the longer term prospects of the company,” Tampling says.

“There is a degree of short-termism that exists for listed companies, but companies need to be able to think further ahead when making significant changes. They are being required to move quickly in so many different directions that I think being listed will just make it unnecessarily hard.”

Risk advisory partner at business advisory firm BDO, Stephen Coates, says he is yet to see a rush for the exit among listed companies.

But with more established businesses facing a make-or-break period, they need to reassess how they operate, Coates says.

He says there is an “alarming” under-representation of technology and internet experience on the boards of listed Australian companies. “[So] it is hard for established retailers to turn the juggernaut around when there is a speedboat running past them,” Coates says.

“A first step is for larger businesses to recognise that their market is broader than just the people that come and visit their stores, and to use their existing reputations to branch out online.”

Coates says businesses must boldly attack new product lines online, rather than protecting a perceived established reputation. For example, he says that while luxury retailers will struggle to compete for price online, that doesn’t mean they should ignore the internet.

“You look at Apple . . . they are a computer company that is essentially selling more cameras than anyone else in the world. I suspect if they sold scooters or wheelbarrows, people would go and buy Apple scooters and wheelbarrows, because they find a niche market and then retail to the customers in it.”

The Australian Financial Review