VC & PE Activity in the Tech Sector Over the Last Year

Technology deals were extremely active in 2021, as the widespread adoption of remote working and the lockdowns' speeding up digital transformation across many sectors led to sustained investment in companies in the TMT sector, which saw an around 65% increase in deal activity versus the previous year.

Despite the fact that deal activity was severely restricted as a result of the early stages of the pandemic in 2020, deals in the TMT sector have rebounded to levels that were last seen prior to the lockdown.

The TMT sector accounted for roughly a quarter of all transactions in the UK in 2021, the biggest single sector for mergers and acquisitions (trade, private equity, initial public offerings, and early-stage investment).

During the pandemic, we became so dependent on the digital platforms that assisted remote working and collaboration that they are still a vital part of the job environment. We may settle into a mixed-style working strategy in the future, but collaboration tools will always be a part of it.

Technology requirements have evolved beyond those initial applications to include cloud integration and enterprise software that supports a mixed workforce, better control and oversight, seamless mobile technology and edge computing.

PE firms are anticipated to remain interested in tech firms in 2022, as the sector maintains its strength and enterprise clients demand digital and SaaS solutions for everyday lives. Because tech firms are typically fast-moving, they frequently require large investments early in their lifecycle, entrepreneurs and owners may be open to accepting outside funding. Due to this, PE has been a highly active player in the TMT sector.

There are other even more established tech hubs in London (like most sectors) aside from London; these cities, including Manchester, Leeds, Cambridge and Glasgow, among others, are considered magnets for institutional investment. Outside of London, we have seen a lot of private equity-backed deal activity.

Private equity has been extremely active. More and more in the UK and the US, private equity is acquiring high-quality assets and bidding aggressively for them, even for those that would previously have been considered too small for American interest.

In terms of enterprise software sub-verticals, there is a clear surge of activity in areas like accounting and financial software, such as the acquisition of asset finance software provider White Clarke Group by Thoma Bravo-backed IDS and process automation provider Xceptor by Astorg and Corsair Capital. Architecture, engineering, and construction (AEC) software is also becoming increasingly popular with investors, as evidenced by deals such as the acquisition of NBS by Byggfakta Group and Causeway Technologies by Five Arrows.

There have been noticeable increases in deal activity in the software sector in other sub-sectors, such as supply chain, logistics, and workforce management. Because of inefficiencies caused by the pandemic, Brexit, or other economic factors, it's believed that digital transformation and innovation are growing in these areas to solve difficult problems.

The desire to invest across the enterprise software sector has obviously risen, resulting in higher valuation multiples. We can see comparable evidence in the public markets, where global listed SaaS businesses have seen their valuations rise from historic averages of around 10x revenues to mid-to-high teens.

It is difficult to predict the future and what this will bring in terms of valuations, but the UK, and other developed nations, are moving towards creative and digital industries, which has driven much of this activity and will continue to do so. Furthermore, digital transformations across traditional industries, in addition to being used to seek efficiencies throughout the supply chain, are also additional proof that the demand for software businesses will continue to rise.

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