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A spotlight on technology

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 £184bn, up by 8.2 per cent from the previous year due to the UK’s innovation and creativity, building its inherent strengths in research and development.

Acquiring innovation has therefore naturally become a key mergers and acquisition (M&A) driver for non-tech businesses, and so this trend is not just likely to continue, but accelerate.

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

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.

With London 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.

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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. At Quantuma, we have successfully completed a range of deals in this sector, providing 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.

The rapid growth of the technology sector also brings with it significant challenges. Although many companies 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.

By exploiting the opportunities and managing the challenges, the technology sector and its culture of innovation underscores its own continuing rapid growth.

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 per cent 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 and investors alike to realise substantial value and for larger players to consolidate and differentiate their position in the marketplace.

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