Like the British sense of humour, our tech sector is unique, yet powerful. It adds £130 billion a year to the economy and boasts over 70 'unicorns' – billion-dollar companies – more than twice that of any other European country.
Yet, its engine room is a competitive community of mid-market players, nimbly disrupting traditional business. The recent Grant Thornton-backed Megabuyte Emerging Stars report showcased 25 rising companies that are set to join them. Its analysis of tomorrow’s industry leaders provides a glimpse of the future. Here, we discuss six trends that will impact anyone looking to invest in or grow a UK tech business in 2020.
Investors are backing UK tech
From Edinburgh to London, and in the silicone suburbs between, UK tech is booming. There are roughly 150 publicly listed and thousands of privately owned mid-market tech firms. The leaders have a standout ability to replace legacy systems with smarter solutions. They do this more quickly and effectively than incumbent suppliers, and with exceptional customer service.
Buyers have taken note. British government figures show that investment in UK tech grew 44% to £10.1 billion in 2019, far outpacing other European countries. This is due to a strong investment community and support, in the form of tax credits and grants.
Trade buyers are driving M&A as they scoop up competitors and expand their capabilities. Some 20% of the Emerging Stars (the 25 top performing UK tech businesses with a turnover between £3-10 million) were acquired by larger companies. Big deals are also afoot, such as Thomson Reuters’ £365-million purchase of legal software firm HighQ last year. Meanwhile, online rail booking company Trainline’s 2019 IPO valued it at almost £2 billion.
We’re all tech companies now
With all that money flying around, it’s no wonder everyone is calling themselves a tech company. The line between a ‘technology company’ and a ‘tech-enabled service’ is becoming increasingly blurred. As every area of our lives becomes increasingly digital, tech and data are the natural bedrock of any new venture.
Is a budget airline a ‘travel company’ or a ‘tech company’, if the key to its success is the variable pricing algorithm on its smart booking platform? In the age of programmatic advertising, when does a traditional advertising firm become a digital marketing agency?
Call them what you want, the prize for most tech companies is to become the top platform in their sector. Trainline, mentioned above, is a good example.
Fintech continues to fly
Despite years of industry buzz, opportunities in fintech continue to grow. Financial services are ripe for disruption, with fast-moving challenger companies snapping at the heels of legacy institutions. In turn, incumbents have mounted a defence, instructing IT consulting companies to modernise unwieldy historic systems.
Trading and payments is a particularly fertile area. Three of the Emerging Stars were banking and insurance software specialists, including the Overall Fastest Growing Company, Aquis Exchange. This exchange provider has disrupted the industry with a unique subscription pricing model, another trend that we will see a lot in 2020.
Telecoms opportunities for the well-connected
Telecoms is another sector where new entrants are piling the pressure on established institutions. A new wave of mid-market firms is moving fast to market, offering disruptive connectivity and unified services coupled with superior user experience. These companies are typically targeting SMEs where adoption of cloud-based ICT services is most prominent, and where the country’s ageing telecom giants have struggled to move quickly.
5G has arrived in the UK with the potential not only to transform human-to-human but also machine-to-machine communication. The prize for this relatively new technology is up for grabs for both network providers and first-mover software companies that can leverage the potential of its faster and more-reliable connections.
Five of the 2020 Emerging Stars were in telecoms services, following in the footsteps of UK success story Gamma Communications – the listed cloud communications company that disrupted the UK telecoms market with its offer of broadband and data connections, mobile services, fixed telephony and hosted phone systems.
A healthy opportunity in government
Though purse strings have been tight in recent years, there is still lots of tech-related opportunity in government. However, the challenge for small, and even mid-market, companies is navigating to the person making the buying decision. The overall Emerging Star winner, CDSM, which makes learning and development software, has managed to do just this through relationships with schools and local government.
Healthcare is becoming an important issue for government as the population ages. According to the World Health Organisation, the top five chronic diseases will cost the global economy trillions by 2030. Governments are seeking to combat this through proactive rather than reactive solutions, for example, getting people to exercise more to avoid expensive heart surgery. The opportunity is huge for healthtech companies that can help with this, as demonstrated by the continuing rise of wearable solutions.
There is also a significant opportunity to transform the patient experience and drive a more joined-up approach across health and social care. The UK has some strong and established specialists in this area, such as EMIS and Craneware, while there is a rising cohort of businesses focusing on data analytics and AI to improve outcomes.
IoT is still very much a thing
The Internet of Things is another sector showing exponential growth. Battery-preserving advances in hardware, the arrival of 5G, and the ever-falling cost of processing power mean the number of connected devices is growing rapidly in previously non-viable markets, from mousetraps to streetlights to vending machines.
The opportunity lies in reliable machine-to-machine connectivity, or getting them to talk to each other. If the Emerging Stars are looking for a role model in this space, they should look no further than Wireless Logic. The listed UK company, which provides connectivity and platform service management for mobile machine-to-machine services, achieves consistent organic revenue growth. It claims to connect a new ‘thing’ to its platform every 18 seconds!
The above trends just hint at the potential of the UK tech market. If you would like to know more, Nick Watson and the team are here to help.
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