UK Tech Sector Witnesses Growth in Mergers and Acquisitions Driven by Cyber and Artificial Intelligence Technology
Record Breaking Year for UK's Software M&A Market
The United Kingdom's software mergers and acquisitions (M&A) market has set a new record, with £13.2 billion invested across 420 deals over the past year. This marked a 27% year-on-year increase, demonstrating the country's pivotal role in Europe's tech investment arena.
A report by BearingPoint Capital revealed that despite increasing macroeconomic pressures and growing valuation disparities, private equity (PE) interest in software and Software as a Service (SaaS) deals remains robust. The UK held onto its dominant position in the region, accounting for nearly one-third of software buyouts in Europe, even as deal volumes escalate faster in Nordic and French markets.
Cybersecurity, vertical SaaS, and fintech SaaS sectors were identified as the most sought-after in the UK, reflecting investor focus on mission-critical tech infrastructure and risk management tools.
The survey comes on the heels of a recent acquisition by multinational services firm Org Group of Manchester-based tech firm Venturi, extending its market presence in the UK.
A Shift in M&A Dynamics
Despite record-breaking activity, the market is undergoing a transformation. Valuation mismatches, which affected half of respondents – more than double last year's figures – represent a key concern for investors. However, this apparent friction hasn't dampened enthusiasm, with 60% of PE firms planning to increase their software and SaaS investments this year.
What has evolved is the M&A process itself. stricter negotiation processes, longer timelines, and rigorous due diligence have become defining characteristics of the landscape. Over a third of respondents reported increased spending on more detailed assessments, particularly in areas like cybersecurity, artificial intelligence (AI), and scalable technology.
Moreover, technology due diligence is playing an increasingly pivotal role in strategic planning. Over half of PE firms stated that specialised tech assessments have directly impacted their long-term value creation plans.
The integration of AI is escalating at a rapid pace, leading buyers to become increasingly discerning about AI functionality, distinguishing it from marketing hype. Cybersecurity, too, is moving to the forefront. Standalone cyber due diligence is becoming standard practice, as more than half of firms report using, or being open to using, dedicated assessments.
This development coincides with a surge in cybercrime in the UK, with major retailers such as M&S, Harrods, and the Co-op recently falling victim to a spate of attacks.
London: A Resilient and Adaptive Tech Hub
While the broader European tech market evolves, London and the wider UK ecosystem remain crucial players in the deal activity. The combination of deep capital pools, a strong software development workforce, and a maturing exit environment has drawn investors to the UK, even amidst interest rate pressure and geopolitical uncertainty.
However, concerns about the UK's competitiveness in the sector have intensified recently. Yesterday saw the collapse of one of London's best-known AI unicorns, Builder AI. Meanwhile, earlier this month, London-listed Deliveroo agreed terms for a takeover by its larger US rival DoorDash, while fintech giant Revolut chose Paris as a base for continental European expansion this week.
Tech expert and former government adviser Dr Sue Black OBE urged the UK to bolster its tech-positive culture to avoid falling behind. The BearingPoint Capital report indicated that firms are prioritising tech-focused strategies from the outset, with cybersecurity and AI as essential areas of expertise. The key for the UK lies in maintaining its competitive edge in this burgeoning field.
The survey also found a rebound in exit confidence, with the number of companies reporting no exit strategy declining from 25% to 15% in the last year.
- The UK's software M&A market has shown a shift in dynamics, with valuation mismatches and increased focus on tech-focused areas like cybersecurity, artificial intelligence (AI), and scalable technology, a response to the growing concerns over cybercrime and the evolving tech landscape.
- As the UK's software M&A market continues to break records, a greater emphasis is being placed on the integration of AI, making buyers more discerning about AI functionality and distinguishing it from marketing hype.
- Cybersecurity due diligence is becoming standard practice in the UK's software M&A market, with more than half of firms reporting the use or openness to using dedicated cyber assessments.
- As London and the wider UK ecosystem remain crucial players in the deal activity, tech expert and former government adviser Dr Sue Black OBE has urged the UK to bolster its tech-positive culture to avoid falling behind in the burgeoning tech field, particularly in areas like cybersecurity and AI, considered essential areas of expertise by firms prioritizing tech-focused strategies.
