International Perspective - Game Changers - Staying Nimble as Emerging Tech Crosses Borders and Sectors

1. Introduction

The desire to create, innovate and advance is deeply woven into the fabric of human DNA. Since the beginning of time, we humans have been on a mission to invent technology to solve problems, enhance convenience and just generally make our lives better, cheaper and faster. In recent years, “big tech” has led the spacing – companies like Google, Amazon, Facebook, Apple, Microsoft, Oracle, Salesforce, Intel and dozens of others – and their effect on the economy and on capital markets has been pervasive. At this point, it is almost axiomatic to suggest that tech advancement drives the markets and the economy, and few investors, public or private, don’t have a position in a healthy basket of key technology investments.

As the leading mid-market, tech-focused and growth-oriented investment bank, Raymond James has played a big part in this trend – since 2012, Raymond James has advised on more than 280 M&A transactions and executed more than 160 equity offerings, representing nearly $100 billion in deal value in the tech sector alone. But a lesser appreciated aspect of the tech revolution of the past 10 years is that advanced technology is now meaningfully impacting ever  industry, not just tech, and our bankers are “in the trenches” of technology innovation in every sector we cover, including some (like Industrial and Consumer) that others might consider “old school.” Tech is here to stay, but not just in the tech sector alone.

2. Transforming the Landscape

Technologies such as mobile, social media, big data, predictive analytics, cloud computing, artificial intelligence, cybersecurity, robotics, nanomaterials, biotech, biometrics, quantum computing and the Internet of Things (IoT) are transforming the world. Here’s a look, from Raymond James’ perspective, at how tech is transforming some of the sectors that may not normally be considered as “techy” as the tech sector itself.

3. Healthcare

Healthcare has a long history of innovation in clinical technologies and information services, such as new pharmaceuticals, devices and surgical techniques, as well as advanced patient analytics – improving outcomes, making treatments more effective and extending patients’ lives and their quality of life. With today’s aging demographics, healthcare advancements now focus on the challenges associated with higher utilization as people live longer and chronic diseases rise. The goal now in many instances is to achieve great patient outcomes while increasing efficiency and dramatically reducing the cost to deliver high-quality care.

4. Case in Point

Raymond James has developed a special capability in the area of emerging data and systems interoperability, which gives providers and insurers the ability to efficiently and safely share patient data across disparate systems, enabling better clinical decisions across a continuum of care. Machine learning and AI have exciting implications for this sector as well. For example, Raymond James’ recent client Jvion is competing against the likes of IBM Watson with its exclusive searchable database of patient care paths. Jvion’s analytics are capable of comparing and contrasting success rates of protocols and patient behavior with the goal of improving patient outcomes and lowering costs. This small but nimble analytics company relied on Raymond James to manage its sale process, ultimately pursuing a majority recapitalization with a well-respected private equity firm with a proven track record in tech and healthcare investing. Over the past decade, Raymond James has served a number of companies in the interoperability sector both in Europe and the U.S., including such firms as Axolotl, Medicity, Carefx, Medseek, Surescripts, Voalte, PatientKeeper, Navi/Curaspan, Rhapsody, Cambio Health Systems and Corepoint Health.

Factors to consider: Healthcare trends often involve short decision and usage cycles and quickly evolving political, regulatory and market risks. Policy shifts can quickly draw attention to or away from certain technologies or objectives. Investment banking judgment is required for investors to prudently value companies in the healthcare space as well as appropriately assess risk and reward in companies that are subject to regulatory risk or dependent upon specific legislative agendas.

5. Consumer and Retail

Technology, especially the internet and smart devices, has triggered a tremendous shift in the consumer and retail space, resulting in increasingly complex interactions between consumers and providers across an array of channels. Moreover, the supply chain to consumers has evolved exponentially as Amazon has completely changed consumer expectations of timeliness and reliability. Retailers must now optimize their supply chains to offer a comparable shopping experience as the majority of consumers now expect free shipping and next-day delivery. Retailers that can’t keep pace are unlikely to survive. Consumers want information and convenience at the tap of a finger, and companies must adapt accordingly. Game changers include integration with the IoT, big data and cloud technology, as well as integration with ever-advancing payment capabilities.

From Alexa to wearable devices to everything cloudbased, “things” are now connected in real time and increasingly personalized to the desires of the consumer. Advanced data capabilities allow companies to analyze shifts in buying behavior and improve algorithms to better meet (and exceed) their customers’ wishes. Raymond James has been very active in this sector, recently advising a company that has disrupted consumer behavior in the pet food sector by providing advanced analytics on brand-based consumer buying patterns.

Factors to consider: Consumer and retail is ripe for tech innovation, and private equity investors are keen to get a jump on the market as groundbreaking trends create new investment opportunities. As startups mature, they become more attractive within this high-growth and high-profitability segment. While traditional, stable consumer companies see relatively conservative multiples, smartly positioning a tech angle has allowed our clients to achieve higher multiples than would otherwise have been the case.

While there are exciting developments globally, it’s difficult to tell which innovations will dominate a specific subsector. The biggest hurdle is not investing in companies that will be notably changed by technology, but in identifying the “winning technologies” and predicting how the market and consumers will react. Early identification is difficult and thorough due diligence is essential.

6. Travel and Leisure

Travel & Leisure (T&L) is a subsector within consumer and retail that has experienced extraordinary disruption over the past decade. In the pre-internet era, T&L (at least from a bookings perspective) was a local business – a local agent served customers in a face-to-face setting from a brick and mortar location. The internet, of course, blew that up, and the advent of online travel agencies (OTAs) like Expedia, Travelocity, Hotels.com and Kayak completely transformed the industry, altering the competitive landscape from being exclusively service-oriented to one with a cutthroat focus on both price and user experience (not either/or). This has created a keen focus on consumer-facing technologies that can seamlessly handle consumer demands without live agent intervention. For example, etraveli is a pioneer in hands-free booking, and now books over 95% of its transactions without the participation of a live agent. OTAs can follow two strategies, “brand” or “meta”. The brand strategy is more focused on less price sensitive customers with higher personalization demands; while the meta strategy focuses on winning price sensitive customers on channels such as Skyscanner or Kayak through price (About 80% of clicks go to the top three positions/listings). The key in the meta strategy becomes the aspect of up-selling items like airline seats, luggage, check-in, and insurance, which flow directly through the P&L to the bottom line.

7. Case in Point

Raymond James is actively serving a travel tech company based in Central and Eastern Europe, which is transforming the T&L industry by leveraging the power of its proprietary virtual interlining technology. In a 100% automated manner, the company structures large masses of flight data from a variety of sources such as direct airline APIs, GDS, direct sourcing etc. to create unique flight itinerary combinations. From a technology perspective, the key advance is to store all itineraries in real time, creating a skymap and in a dynamically searchable manner to provide the best result, utilizing any combination of airlines, not just those within the same alliance. Customers can now fly anywhere, anytime, on any leg combination, for up to 90% less than before.

Factors to consider: Up next, we believe these players will need to build on their meta-traffic and convert it to direct/organic traffic to upsell dynamic packages and diversify their revenues and expand margins. Companies with strong dynamic packaging technology will be trying to penetrate the more traditional consumer and retail segments, which in turn will allow those retailer brands to capitalize on their large customer bases.

8. Other Advances

As noted at the outset, advanced technologies are creating disruption across a number of different sectors. Machine learning and artificial intelligence have shown incredible promise within fields like process automation, fraud detection and software development and testing.

We’re also closely tracking cloud storage, which has changed data storage, processing and management across sectors, but particularly within the IT services and hosting industries. Digitalization of financial services and non-cash/mobile payments continue to impact the banking and payments industry, and autonomous driving and electric vehicles are making headway (pun intended) through the automotive industry, disrupting the current value chain and placing software development and data analytics on par in terms of their importance, with more traditional values such as “German engineering.”

In short, technology is now woven into the fabric of virtually every investment sector. Savvy investors are taking this fact into account, as well as looking at the operating leverage potentially available through the deployment of new technologies across their entire investment portfolio. Given Raymond James’ heritage as a leading provider of investment banking services to tech-oriented, growth companies, understanding the impact of technology across sectors is fundamental to our continued success. We look forward to working with innovative companies and their entrepreneurs to continue to help them find capital, make acquisitions and achieve exits that allow their technologies to not just survive, but also thrive, as the economies of the Western world continue to develop and advance.