Sector Spotlight: Technology

An exploration of the opportunities presented by the explosive growth in the technology sector


by Ian Barton

The relentless pace of technological change has meant that growth in the UK’s technology sector continues to outstrip that of the economy as a whole.

By the end of last year, the digital sector was worth £184 billion, up by 8.2% from the previous year.

With innovation built on the UK’s inherent strengths in research and development as well as creativity, acquiring innovation has become a key mergers and acquisition (M&A) driver for non-tech businesses, and so this trend is not only likely to continue, but also accelerate.

As specialists in lower to mid-market transactions, we look at the explosive growth in the technology sector and the opportunities this brings to those looking to buy, sell or invest in businesses in these sectors.

Background

Whilst the last few months have been tough for the majority of previously high-growth sectors, technology has not been pained by the same challenges experienced by others. In fact, despite Brexit and the uncertainty surrounding it, the UK technology sector has attracted approximately £6 billion worth of venture capital investment over the last year; substantially more than anywhere else in Europe according to Tech Nation.

Driven largely by collaboration, connectivity and culture, Tech Nation’s 2018 Report attributes the success of this sector to the nature of its community. There are over 3,500 UK technology groups with 16 million members spread across almost 300 locations who meet up regularly to discuss emerging technologies. Divided by specialisation, these forums provide an opportunity for technology professionals to innovate together, sharing the strengths, challenges and learned experiences gained throughout their individual journeys.

Outlook

With London recently hailed as the second most connected business ecosystem globally, the UK is currently home to a healthy mix of businesses in varying growth stages. The UK’s technology boom is set to continue in spite of economic uncertainty as it operates in an environment driven by dynamics largely unaffected by Brexit. With the landscape comprising of clusters of balanced, scale-up and start-up companies, together with a proactive investor and acquirer market, this positive health of the technology market is indicative of future M&A activity. 

Opportunities

With the advent of big data, artificial intelligence (AI), the internet of things and blockchain technology, together with the further application of cloud-based services there is an increasing reliance on digital solutions to drive top-line growth in many sectors in line with ‘Industry 4.0’.

The opportunities presented by the accelerating technological evolution are far-reaching and include the generation of both employment and investment opportunities, which ultimately contribute positively to the wider economy. We have also witnessed the emergence of technology hotspots in places like Welwyn Garden City, Stevenage and Reading, giving rise to greater innovation.

Challenges

The rapid growth felt amongst the technology sector also brings with it significant challenges. Although many companies (such as start-ups) wish to recruit heavily over the next few years, many are unable to do to so due to lack of existing funding and appropriate talent available to recruit. The lack of AI talent has led to a boom in acquisitions and private equity (PE) investment in this space to fill corporate demands in the sector. In addition, and especially for the smaller technology players in the market, PE provides the opportunity for businesses to support their rapid expansion via capital, management expertise and strategic positioning whilst maintaining their independence.

So, what does this mean for technology?

By exploiting the opportunities and managing the challenges, the technology sector and its culture of innovation underscores its own continuing rapid growth. As a significant part of the UK economy and often acting as a connecting link to other sectors such as healthcare, industrials and transport, this digital disruption creates a multitude of opportunities.

For many non-tech companies, harnessing the pace of rapid technological change can be best achieved by making strategic acquisitions of smaller, innovative technology players and then applying their developments to their own business offerings, rather than the lost time and cost of re-invention in house. According to a study by Accenture, 48% of UK businesses had made an acquisition to gain next-generation technology applications for their own development.

This situation continues to represent real opportunities for innovative technology company owners, often still relatively small and at an early stage of the development cycle, to realise substantial value and for larger players to consolidate and differentiate their position in the marketplace.

Some of our recent successes

Having successfully completed a range of deals in this sector, the corporate finance team at Quantuma are in an optimal position to help you understand the market and achieve your ambitions. We can work with you to identify acquisition targets, support you in raising funds, or help you if you are looking to exit and maximise your returns.

We recently provided advisory services to the management team at media software development company, Miles 33. Our work included identifying both Ethos Partners as the company’s equity investor as well as debt funding to support their growth, particularly into the USA. Our team have also advised a variety of other businesses.

If you or a client are an ambitious, entrepreneurial business looking to explore growth opportunities in this sector we would be delighted to share our expertise and experiences with you.