The UK M&A landscape in TMT remains strong, with a healthy mix of strategic trade, private equity and public market appetite for businesses with the right characteristics.
Attractive projects for investment
The UK software market in particular has developed a solid reputation for technical excellence as well as welcoming international investment.
The migration to the cloud continues to accelerate, providing continued momentum for subscription model software businesses as well as those who can help corporates navigate the right infrastructure solutions to meet their specific requirements.
Regulatory and compliance driven solutions continue to generate both momentum and M&A attention, while buy and build platforms in both software and services are attracting significant capital backing and proving to be key engines for M&A activity in the sector.
There is also a strong demand for cyber-security assets. Solutions that address a broad spectrum of problems and are specifically suited to SMEs are particularly well placed in the current environment.
The challenge of protecting both data and intellectual property is as real for SMEs as it is for global corporations. This reality is focusing corporate investment as SMEs recognise they are no less immune to cyber-crime than nation states or blue-chip corporates.
As businesses wise up to the risks of cyber attack, spending on security is moving away from remediation to long-term preventative measures, including ongoing management and education for employees. This is highlighted in the transaction valuations for both consolidators and those being acquired.
High levels of liquidity are supporting full – perhaps heady – valuations, as businesses with the right track record of growth, market position and recurring revenue profile are chased by equity and debt funds who see the sector as a key area in which to deploy capital. The Rule of 40 - the idea that growth rate plus profit margin should exceed 40% - as a benchmark for what a high growth technology business looks like has moved beyond the world of specialist venture investors and into the mainstream.
Promising returns from Fintech
While crypto markets shrunk in 2018, we have seen some interesting uses of the underlying blockchain technology within the financial services space. This is an area where we expect to see continued experimentation as developers explore its full potential.
Within Fintech, the up and coming field in 2018 was RegTech. Companies and products that help clients cope with the bureaucracy associated with tightening regulation have received increasingly attractive valuations. The UK remains at the forefront in this area, with significant revenue synergies possible for international buyers enabling a smooth path for UK solutions to be deployed internationally.
Content and data are increasingly seen as key drivers of future value, whether as a platform play or a route to differentiate the offering and lock in customers. This applies equally in the B2B and B2C markets.
Looking ahead, we expect to see real momentum for businesses that can deliver the best client experience in terms of data quality and access, and real insight for customers across multiple data sources and channels.
The role of TMT in the UK economy
Regardless of the current political and economic uncertainty, we expect the TMT industry will continue to have a positive impact on the rest of the economy. Touching every industry and how we deliver the public services of the future, the vibrancy of the UK TMT sector is key to our future prosperity.
Read more about our latest TMT credentials in our annual report, Leading the way. If you’re considering strategic options for 2019 and beyond, we would be delighted to discuss this with you. Please contact Andy Morgan for further information.