Are you equipped for the macroeconomic headwinds coming in 2022? The technology sector has been resilient so far, posting a strong start to the year from an M&A perspective. In our first edition of 2022, our experts share their insight on the changing economic picture and what it might mean for TMT businesses.


A perfect storm of supply chain disruption, high inflation, rising interest rates and the ongoing conflict in Ukraine is driving much press commentary around an expected decline in M&A deal activity in 2022. However, our Q1 analysis shows that the UK tech sector has proved resilient to that trend with no slowdown in dealmaking across the industry.

Below we explore:

  • Q1 2022 deal volumes and values
  • The most active sectors in TMT
  • 2022 investment hotspots
  • Deal valuation expectations for 2022

Deal value and volume per technology sub-sector


Deal values are sourced from corporate websites, deal databases including Capital IQ, Megabuyte and Mergermarket, or from press commentary released at the time of the deal. Deal values may be amended as further detail is released by the acquirer.

Q1 2022 deal volume and values

The year got off to a strong start with a total of 296 deals in UK TMT, the second-highest quarter since the beginning of the pandemic. This marked an increase of 11% compared to Q4 2021, although a modest decrease (-2%) on Q1 2021.

Disclosed deal value reached £11.1 billion, a 30% decline on Q4 2021 as mega-deal activity took a pause for breath. Only two transactions reached over £1 billion in deal value closing in the quarter, and none reaching the heights of Permira’s £4.4 billion acquisition of Mimecast which led the way in Q4 2021. UK TMT remains a predominantly mid-market play from a deals perspective, and this provides a strong degree of insulation for deal activity against the background of broader macroeconomic uncertainty. 

Private equity (PE) continues to drive activity through a heavy focus on buy-and-build platforms across the sector, most notably in software, IT services and unified communications. Strategic trade buyers continue to pursue tuck-in deals that can accelerate penetration of new markets. Appetite for businesses across the sector with robust revenue models and strong growth prospects remains strong.

Notable Q1 deals

Spanish IT services firm Telefónica Tech acquired Incremental Group for £175 million at an EBITDA multiple of 13.7x. The deal significantly increases its scale in the UK and its Microsoft solutions offering.

B2B telecoms specialist Daisy Group acquired business broadband, phone and card payment provider XLN for a reported £210 million. The acquisition boosts Daisy’s small business division.

Capital markets

Equity market indices


Stock markets worldwide continue to be shaken by macroeconomic pressures, including geopolitics, slow post-COVID-19 GDP growth, and the materialising threat of higher interest rates to combat accelerating inflation.

While tech stocks have not been immune, and there has been a recalibration of public market appetite for growth stocks more broadly, it is notable that they have since recovered 50%+ of the drop that occurred from January to mid-March across all sub sectors. With the exception of fintech, which remains the laggard in terms of public market performance, all sub-sectors remain firmly in positive market performance territory over the last 12 months.


While public market performance may remain volatile, it is interesting that we have not seen any reset in valuation metrics flowing through to the M&A market at this stage. Valuations remain very strong for quality assets, with perhaps only the slightest easing back from the peak multiple levels of Q3 2021.

Private equity continues to be engine room of M&A 


Q1 saw strong competitive interest from both PE and trade, resulting in more dual-track-focused processes. PE and PE-backed trade won out in 55% of the UK deals closed in the period, maintaining the high levels we have seen over the last three quarters. 

Secondary PE transactions continue to act as the bedrock for deal activity, particularly in the software market, as established platforms trade up the PE fund size pyramid. PE houses are increasingly looking to keep a stake in existing platforms rather than exiting in full.

Notable Q1 private equity deals

Nordic Capital joined existing backers Five Arrows and TA Associates in healthcare governance, risk, and compliance specialist RLDatix. The investment will “accelerate RLDatix’s journey as the leading provider of SaaS solutions that make healthcare safer for patients and organisations”.

Apax acquired Alcumus, a global leader in technology-led risk management and compliance solutions, from Inflexion in a reported £600 million deal.

Switzerland’s Partners Group acquired ERP company Forterro from Battery Ventures for €1 billion. It will use the investment to expand its capabilities to serve more deeply the industrial mid-market across Europe.  

Q1 saw strong international demand for UK assets, particularly from the US, attracted by resilient growth stories and increased confidence in the UK’s post-pandemic and post-Brexit economy.

Sector spotlight


Software continued to be the most active TMT sector, accounting for 53% of deals, its strongest quarter since the pandemic began. Numbers were bolstered by a high volume of smaller deals as buyers seek targets at an early point in their growth cycle, and the established PE-backed buy-and-build platforms continue to bolt on assets at an impressive rate.

There was a notable step up in advertising and marketing services deal activity (35 deals v 21 in Q4 2021). This reflects increased confidence in the end market as economies emerge from pandemic restrictions and the bounce back in events starts to happen, supporting the industry’s ongoing migration to digital.

In March, WestBridge Capital sold bChannels to US-based The Channel Company for a 4.2x return on investment. The deal expands The Channel Company’s digital marketing services reach and enables it to take advantage of bChannels’ AI-driven marketing platform.

2022 investment hot spots

We expect to see particularly strong appetite in the following three sectors throughout 2022:


What will happen to valuations in 2022?

Private market valuations appear to have held their ground in Q1, even as public markets reset.  Some of the frothier transaction multiples may become thinner on the ground but we don't expect a market-wide readjustment of valuation multiples as private markets get spooked by the same macroeconomic pressures that have hit capital markets. There may however be a flight to quality, with the casualties being marginal deals, which simply don’t get done as the bar is raised on what an acquisition needs to deliver.

Valuations will hold for assets that have:

  • a consistent three-year growth record
  • proved resilient during the pandemic
  • have strong levels of recurring and visible revenues, with good cash conversion
  • a long-term tier 1 customer base
  • potential for up and cross-selling and international expansion

Diligence requirements are also likely to tighten. It has never been more important to ensure target businesses are set up to cope with rising input costs, ever-increasing pressure on talent acquisition and retention, and supply chain risk.

Our TMT deals team remains incredibly active. To talk to us about any of the topics raised here, contact Andy Morgan.

TMT businesses are applying their innovation to rethinking what successful transformation should look like

Moving forward from the traditional focus on quantitative outcomes: cost reduction and responding to new legislation, and finding value in people, skills, and infrastructure. 

Inflation has been rising steadily and is forecast by the Bank of England (BoE) to increase to 8% in Q2 2022. These inflation rates – not seen since the early 1980s – have been driven by a series of large shocks to the UK economy including the pandemic-related rebound of demand, supply chain disruption, war in Ukraine, and high energy and tradeable good prices of which the UK is a net importer. The Office for Budget Responsibility (OBR) expects inflation to rise further in the second half of 2022.   

Although technology, media, and telecom businesses may be more resilient than others, the macro-economic position and the response of the Bank of England will be of clear concern to TMT clients. 

How will a rise in interest rates affect TMT?

The BoE is tasked with keeping inflation at a 2% target and sets the bank interest rate at a level to achieve this. In March, it voted 8:1 to increase the interest rate to 0.75%. Given the strong inflationary pressures, we can expect that further interest rate rises might occur soon.

TMT businesses will see higher interest payments on existing business loans, less disposable income and larger overheads. Higher interest rates could also mean businesses opting for shorter-term loans tied to cash flow and presenting greater risks, potentially leading to falling UK investment.

“This may result in a short-term flight out of riskier capital and a reduction in investment in some parts of the sector,” says Nick Watson, partner and global head of technology at Grant Thornton UK. “But we continue to see active investment appetite for recurring revenue-based technology and tech-enabled services which appears here to stay. Managing capital will become a heavier priority for the cash-burning, higher risk tech companies in 2022.”

Could investor interest cool?

Many TMT businesses face greater cost pressures as input prices grow, particularly energy prices and wages. Given the cost of the living squeeze, it may prove difficult to pass these costs on in the form of higher prices as both businesses and consumers are adjusting their purchasing decisions.

There is also the continued impact of a shortage of appropriately skilled labour following Brexit. These cost pressures are set to be compounded by higher bank lending rates and potentially stricter lending requirements as banks become more cautious and undertake greater working capital diligence.

The result could be market sentiment cooling for tech growth stocks.

“Given the rapid growth over last two years, there is the likelihood of a slowing growth rate and pressure on valuations,” says Steven Perkins, national leader for technology and telecommunications at Grant Thornton US.

“For tech companies, 2021 saw all-time highs in terms of capital raising from PE/VC investors and also, global listings, both under direct route and SPACs (special purpose acquisition companies),” adds Raja Lahiri, partner at Grant Thornton Bharat. “In 2022, we are already seeing signs of valuations of tech companies moderating.”

Support for TMT sector

The government has a broader policy objective than targeting inflation. It has sought to use fiscal measures to partially reduce the cost of living squeeze, for example through council tax support, energy bill support and a fuel duty reduction. But these measures have been largely targeted at households as opposed to businesses.

In the longer term, it is support that encourages R&D, productivity gains and increasing capital intensity – pushing us towards the higher levels seen in Germany and France – that will allow sectors such as TMT to thrive and mitigate future external shocks.

For bespoke economic analysis that helps you make the right decisions, contact Schellion Horn or visit our economic consulting page.

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