The third quarter of the year showed that TMT isn't immune to general sentiment. Deal volume was 9% down on Q2 2023 and 28% down on the Q3 2022 comparator; and completed deal value of £4.9 billion in the quarter was a hefty 81% down on Q3 2022. It's clear the large-deal market – and PE to PE activity – has been most impacted by the cost of debt and the relative lack of liquidity to support transformational M&A. Most of the action is happening in the lower mid-market which is proving more resilient. A third successive quarter of declining volumes, with deals closed hitting their lowest level since the COVID-19 nadir in Q2 2020, means we're firmly in 'M&A recession' territory.

On a positive note, there are signs UK 12-month CPI inflation is finally easing, though the unexpectedly high fall from 7.9% in June to 6.7% in August flattened out in September. The BoE still expects CPI inflation to return to its target of 2% by Q2 2025, which, if it plays out, should help stimulate a sharp recovery in M&A activity. This isn't a UK-phenomenon. The global M&A market is following a similar trend, as LSEG reports the total value of global announced M&A deals in the first three quarters of 2023 was down 27% on the year to USD 2 trillion. In that context the 29% year-to-date drop in UK TMT M&A deal volumes is broadly in line, although the 39% drop in completed deal value tells its own story. Context is everything, however, and it's worth reflecting that the sector still remains the most active across the UK market.


Public to privates a key theme of the quarter

Interest in publicly quoted UK technology stocks continues to remain high, with potential bidders continuously circling, reflected in the increasing number of public to privates. Two large software deals in the quarter were taken off market by Private Equity, with Francisco Partners acquiring cybersecurity business Blancco Technology, and ARCHIMED picking up life science tech business, Instem. We also have the pending completion of the acquisition of healthcare software business EMIS by the Optum subsidiary of UnitedHealth following CMA clearance, while leasing software platform Alfa Systems has experienced a couple of abortive approaches from PE.

IPO markets are subdued, but listing in the US continues to appear a more attractive option for UK technology businesses with the big news being the decision of ARM to opt to list on Nasdaq in a USD 54bn deal, citing liquidity and board composition as key drivers.

“UK and US equity capital markets continue to languish weighed down by macroeconomic and geopolitical factors that stoke volatility and undermine confidence. Market commentators look to 2024 for the revival of IPO activity that has seen muted volumes in 2023, but elections on both sides of the Atlantic will undoubtedly influence the shape of any recovery, with IPO windows open only for the most prepared candidates able to articulate strong equity stories.”
“The loss of high profile UK technology businesses to US equity markets where liquidity is often cited as a persuasive factor has prompted the London Stock Exchange to highlight that London liquidity figures have not shown the true picture due to different market structures and once taken into account the average daily free float turnover ratio for 2022 was higher for the FTSE 100, 350 and All Share indices than the S&P 500 and NASDAQ 100."

Philip Secrett, Head of ECM and IPO readiness


ARM is a poster child for UK technology. However, the broader TMT sector is very firmly mid-market, and in this environment the PE-landscape continues to expand and remains a very attractive option for UK tech businesses. The quality bar has certainly been raised for PE investment, with more stringent requirements over growth; scalability, and business criticality, as well as profitability and scale.


A closer look at deal stats – light at the end of tunnel?

While the overall picture shows little sign of an immediate upturn, the combination of a pick-up in large venture capital investment activity; stronger share price performance across TMT in 2023; the dry powder and appetite to invest of PE funds; and the continuing pace of digitisation of the economy gives us confidence that the uptick in deal activity won't be too far away – in line with the macroeconomic recovery expected as we move into 2024.

The total number of deals was down again, a 9% fall on Q2 2023 and a 28% fall on Q3 2023. While the total 2023 M&A statistics are certainly going to be underwhelming for the TMT sector, it does feel like we're reaching the bottom as the pace of decline in M&A volumes has pared back.

The bright spots in the quarter for deal activity was telecoms services, which saw a 117% increase in deal volumes as we begin to see the emergence of the much anticipated consolidation within the FTTP landscape. Software is also turning a corner with M&A deals 3.4% up on the quarter.

Quarterly M&A deal activity

Quarterly M&A deal activity graph




IT services




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Public markets struggling for momentum

Public share prices had a very strong start to 2023, however have struggled in the last quarter for any real momentum – a factor undoubtedly contributing to the re-emergence of the technology public-to-private transaction. It's interesting to note the divergence between the FTSE 250 and the Tech heavy Nasdaq, with the FTSE 250 down 4.5% YTD while Nasdaq is up 27%. Growth may be more challenging right now, but the strategic importance of technology and data to companies across all sectors makes it a fundamental part of any investor portfolio.

Listed company share price performance by sector 2023 year to dateListed company share price performance by sector 2023 year to date graph





SaaS Cloud


FTSE 250

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Valuation metrics across the sector remain in positive territory for the year in all areas, however the quarter to September 2023 saw public market valuation metrics soften a little. In particular, the SaaS cloud peer group and the media peer group suffered valuation declines, as a combination of perceived exposure to macroeconomic pressures and a refocus on profitable growth led to some recalibration of core valuation metrics.


Software peer group performance in detailSoftware peer group performance in detail graph


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Media, telecoms and IT services peer group performance in detail

Media, telecoms and IT services peer group performance in detail graph


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Valuations in the private company M&A market

We saw an interesting divergence in private company M&A multiples between software and services in the quarter, with a notable sharp fall in the average software transaction multiple to 3.1x revenue, some way below the 4.7x 5 year average. However, in IT services, the average multiple increased to 2.2x revenues some 10% ahead of the 2x five year average. At face value, software assets that are trading are looking more affordable now than they have for a number of years. One quarter's data doesn't support a fundamental rebasing of software valuation metrics. In our view, this is more about the mix of the deals that actually closed in the quarter, and the tendency for PE to extend hold periods for good quality software assets rather than sell into the current market. However, it does evidence a more disciplined approach to pricing and the raised bar to attract the real premium valuations.

M&A valuation multiples for software and IT services sector

M&A valuation multiples for software and IT services sector graph


EV/Sales multiple



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Private equity

The environment continues to be a lot tougher for PE investment in the sector than it has been in the last few years as the increased cost of debt weighs on the sector. However, it has been quite surprising how well PE has held up given the environment. Deals are still getting done. Notable transactions included Kerridge Commercial Systems moving to CapVest from Accel-KKR; and ECI Partners completing the acquisition of Commify from Hg Capital. We also saw some interesting primary PE deals. Including the investment in asset finance and supply chain finance software specialist HPD Lendscape by Bowmark.

61% of deals completed in the quarter were by trade acquirers, the highest level we have seen for some time. Cash-rich trade acquirers are looking increasingly attractive to vendors relative to the perceived execution risk and extended timescales often associated with a PE-transaction.Q3 deals by acquirer type


Top five PE-investments in the quarter


Top five PE-investments in the quarter


Spotlight on health and social care

  • Access Group acquired Oysta Technology
  • Nourish Care Systems acquired CarePlanner
  • OneTouch acquired AutumnCare

The health and social care sector was pretty active with 10 deals recorded in the quarter. Healthcare is typically a strong sector in macroeconomic downturns as more pressure on the general public puts more pressure on healthcare services. The question is usually whether supply can keep up, and we have seen a lot of innovative technology businesses getting increased attention as they look to drive greater efficiency and improve service and capacity across the broader healthcare market.

Notable TMT deals in Q3 2023


How we helped

In Q3 we supported X deals in the TMT sector, with a total value of £147 m. These are some highlights:

  • Advised Air IT on its acquisition of Vital technology
  • Advised Havas UK on its acquisition of creative studio Uncommon
  • Advised Oysta Technology on its sale to Access Group
  • Advised CloudClevr on its acquisition of 4Sight
  • Advised StarTraq on its acquisition of FGL
  • Advised Dye&Durham on its sale of TM group
  • Advised Sumo Group on its acquisition of Midoki


For more insight and guidance, get in touch with Andy Morgan.

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