More than half (58 per cent) of UK private equity and venture capitalists expect the level of PE investment in the technology sector to increase over the next two years, with cloud and managed services viewed as the top two most attractive sub sectors, according to a report from business and financial adviser Grant Thornton UK.
Whilst deal volumes are around 60 to 70 per cent of the 2008 peak, the technology sector has fared much better than most and 2012 has seen the return of PE hunger for the best UK technology deals.
Over the next 12 months, two thirds of respondents expect fierce competition for deals amongst UK PE firms. A quarter of respondents anticipate that trade buyers will be their most significant competition and 93 per cent predict that trade sales to be the most likely exit strategy. This compares to nearly a quarter (23 per cent) predicting a sale to another financial investor and only eight per cent believing exits will be achieved via an initial public offering (IPO).
Over half of respondents do however recognise that the financing environment and Eurozone uncertainty will continue to be significant obstacles for UK technology businesses over the next two years.
Wendy Hart, head of technology, Grant Thornton UK, says: “We’re witnessing two emerging trends in the technology sector: firstly, whilst the industry doesn’t see overseas acquirers as a big trend over the next 12 months, the little we see will be from US PE firms, as they are raising larger funds and are finding it increasingly difficult to locate good investment opportunities in the US. Secondly, we’re starting to see US-style financing in the UK and European markets and we can expect this to increase.
“Investors have rediscovered their appetite for technology assets, especially as fragmentation is creating a large number of specialists in niche areas, with attractive scaling options and buy-and-build opportunities for the cloud, managed services, Big Data and mobile enterprise applications sub-sectors.”
Grant Thornton UK has continued to be very active in this sector completing more than 20 mid-market transactions over the last 18 months.
