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By Andy Morgan and Adam Bunch
TMT has had a slow start to the year for deal completions. Q1 was the second slowest quarter since 2018. The previous quarter did see a mini-boom across the UK market as sellers rushed to complete in anticipation of capital gains tax changes, but the subsequent decline has been a global trend.
Late 2024 expectations of interest rate reductions across 2025 were strong; and with a backlog of PE assets yet to hit the market we were expecting a meaningful M&A pick up in 2025, but that hasn’t happened yet. The Q1 data is also before the macro-uncertainties that emerged in the first week of April took hold, causing many deals to hit the pause button. Tech is more insulated than other sectors, but headwinds are making investors cautious. Early signs are that Q2 may also be relatively subdued, so there will be much to do in H2 to deliver volume growth across 2025.
There are still good underlying fundamentals to drive positive momentum in deal activity, and technology will be at the front of the queue as deal volumes pick up. Demand for digital solutions is still strong and market consolidation and innovation remain priorities. The need to manage regulation and compliance; data and digital transformation; and cyber risk also aren’t going away. The PE-exit backlog will also need to unwind at some point soon. The funding is there, but the market needs the confidence and some valuation momentum to leverage the opportunities and bring assets to market in greater volume.
Before digging into the data, it’s important to remember that 2024 also started off slowly before turning out a good overall volume by the end of the year. So, it’s early days, but with extending deal timelines the market can ill-afford a slower quarter or two if we’re to see growth across the full year. More encouragingly, valuations on the key strategic deals that are getting done are holding up well – we’ve seen some pick up in services valuations in particular, which is a positive sign – and sellers may just be wanting to wait three to six months for some more macro-stability and positivity to feel the timing is right to take good software assets to market. The early signs point to that rebound in deal volumes moving out into 2026.
Confidence always comes back though, and when it does TMT is likely to hold its place at the top of the shopping list. In the interim, the key for shareholders is to focus on strategy execution – the winners will be those that are resilient and can best navigate the choppy economic and political waters. Businesses need to be deal-ready so they can act swiftly when the market upturn does happen.
There was a substantial fall in volume: 27% down on the previous quarter and 10% down on Q1 2024. This story was largely consistent across the sector. Media was down a hefty 64%; IT services by 38%; telecoms: 22%; and software by 11%, on Q4. Media and IT services were down by 41% and 12% on Q1 2024 respectively. Software did come up by 2% compared to the same period last year, while telecoms was stable.
Quarterly TMT deal volumes and disclosed deal values
Source: CIQ and Megabuyte
A general reduction in volume characterised all transaction types, but there were some seams of stronger activity. Cross-border deals fell by 7% quarter-on-quarter (QoQ) and 41% on Q1 2024 as international buyers took stock, and much of the activity focused on smaller bolt-on activity.
Private equity deal volumes fell 39% QoQ and 41% YoY in Q1 2025. PE-backed M&A dropped even more sharply on a quarterly basis (down 58%), but proved more resilient year-on-year, falling 29%. While bolt-on activity has slowed more recently, it has held up relatively better in the long term compared to new platform investments, which have seen a more sustained decline.
Trade deal activity has been more resilient; down a marginal 8% QoQ and actually up 1% on Q1 2024.
Deal volume by type
Source: CIQ and Megabuyte
The total value of all UK TMT deals for which the value was disclosed was c. £3.8 billion. This is a 59% decrease on Q1 2024 (£9.1 billion).
In Q1 2025, deal values were significantly supported by acquisitions in the digital transformation sector, including Bridewell Consulting Limited's acquisition by i-Tracing SAS for £280 million backed by Oakley Capital, and the purchase of Hippo Digital by Exponent for £150 million, with GCP reinvesting alongside. Aside from these notable transactions, the market was dominated by small and lower mid-market deals.
Private market M&A valuations exhibited more stability compared to the fluctuations seen in public markets. Although private software valuations experienced a slight quarterly decline, they still showed an increase year-on-year. In contrast, IT services valuations rose, reflecting the deal mix’s ongoing focus on the key markets of digital transformation and cyber supporting overall valuation metrics.
Public market valuations, however, have been more volatile. Fluctuating investor sentiment, macroeconomic uncertainties, and changes in interest rates have significantly impacted public company valuations, leading to quarterly and yearly declines.
Valuation of private TMT companies by EV/sales multiple
Source: CIQ and Megabuyte
Source: CIQ and Megabuyte
One positive sign is that while there’s caution across the global market, the appetite for international transactions remains strong. Deals are taking longer due to increased due diligence and regulatory compliance requirements, but they’re still getting done. It will be interesting to see if we get more diversity in the cross-border deal channels over the remainder of 2025. The events in the US mean there are real opportunities for European; APAC, and Middle East consolidators and investors to step in.
The mid-market continues to be the most resilient battle-ground for TMT M&A. We’ve seen higher activity in smaller deals, and a greater robustness in the sub-£50 million enterprise value (EV) range. This is a constant trait across the M&A cycle. Software still managed to show some volume growth and continues to be the strongest subsector, particularly in more specialist verticals: government; governance, risk and compliance (GRC); office of the CFO; human capital management, and cybersecurity. Our own pipeline across the software market remains robust, and Q1 did include some interesting deals.
The debt market has remained open in Q1 and is showing resilience, with capital available for good businesses with the right attributes. TMT remains an attractive market for lenders, especially for those businesses in the sector that demonstrate good levels of growth and forward visibility through recurring and contracted revenues.
Inflation is currently under control, and BoE base rates are forecast to come down more quickly through 2025, with additional reductions forecast in addition to May’s 0.25% reduction (the forth in 12 months), which should support higher leverage – increasing the funds that you can get for transactions and the amount that borrowers can raise.
Lender appetite has improved compared to last year, with strong activity and some new market entrants emerging. Competition among lenders has been reflected in decreasing margins, particularly from debt funds over the past 12 months, signalling positive intent.
Lenders’ assessment of the potential impacts of tariffs continues to evolve, which, coupled with some remaining caution over wider macro-issues, sees them still requiring higher levels of data and validation for borrower forecasts, however through planning and preparation this can be managed to provide the information they require.
We continue to be optimistic despite these challenges and demand from lenders remains strong.
Unsurprisingly, the ongoing volatility did mean that the arid conditions for IPO-activity which have been the norm over the last two years continued. A positive trend is seeing the equity market support secondary fundraisings, including Pinewood Technologies’s backing for the acquisition of the Seez, an automotive AI & ML Saas platform. An ongoing feature in these raises is retail offers being made alongside the institutional placing. Currently, as with ‘Pinewood’, this is limited to EUR 8 million to avoid the need for a prospectus, although the FCA’s proposed rule changes on this requirement should mitigate this issue. Q1 also saw a reduction in the level of public company takeover activity.
UK and European equity exchanges may also get an uplift from the number of IPOs on hold in the US, including Klarna and eToro, which have been deferred due to the current uncertainty over US markets and changing valuations. This valuation and sentiment shift may recalibrate the balance between the US and European markets.
We advised the shareholders of Meddbase, cloud-based practice management software, on its January 2025 sale to Canadian environmental, health and safety software provider Cority Software Inc., backed by Thoma Bravo. This acquisition supports Cority's mission to enhance employee care, reduce risks, and improve operational efficiency, setting a new standard in occupational health and workforce wellbeing.
We provided buy-side support and debt raise for Maven Capital’s March 2025 investment in DRG, a digitally-led closed user group discount platform which connects its members with attractions and partners in addition to providing loyalty-led brand partnership campaigns. The investment will be used to expand, enhance its technology, data, and products, and boost growth in the US market.
We provided financial due diligence and tax due diligence to the digital services consultancy for its investment from Exponent Private Equity. ‘Hippo’ was founded to provide design solutions for public sector organisations and now has a growing presence in the private and third sectors. The transaction also included minority reinvestment from Growth Capital Partners and management.
We assisted Peppermint Technology with vendor services, SPA, and tax advisory during its acquisition by Litera. Both companies offer tech-solutions to law firms, and their integration will enhance the legal experience within Microsoft applications by adding marketing, business development, and other workflows to Litera’s suite. In 2015, we sold Peppermint to Scottish Equity Partners, who exited during the sale to Litera.
We provided financial due diligence to ‘Re-flow’ on its investment from Kester Capital. The company provides field management software to organisations across the critical infrastructure sector. It will use the cash injection to support product development and expand its share of the UK market.
The numbers don’t lie, but they don’t tell everything. Reading across the trends highlighted here and learning from previous slow-downs shows how businesses can act positively in difficult growth conditions. The key priority should be managing existing client bases, and taking opportunities to upsell and expand within them. Recurring revenues continue to be the most valuable currency – current conditions are testing dealmakers’ creativity in articulating and supporting the robustness of companies contracted and repeatable revenue streams. If you do go into a transaction, being well-prepared for the execution will be critical, because the bar for completion is higher. As these macro-uncertainties look likely to continue for some time it will be interesting to see where we are at the end of it, and if the recoveries of previous years also play out in 2025.
