The shape of tech M&A

The technology industry is innovative by nature, so it’s no surprise that the past 12 months have seen the sector’s M&A landscape continue to evolve rapidly.

Underpinned by innovations in fast-growth technology such as AI combined with a more selective investment climate, buyer priorities have shifted dramatically and are set to continue doing so in the months ahead.

At FRP Corporate Finance, we’ve witnessed this first hand. Over the past year we’ve been at the coalface of this change, advising on a plethora of technology-related transactions that have indicated the direction of travel for deal activity.

From working with management teams to source growth funding to identifying exit opportunities and preparing a business for sale and successfully completing the sale of businesses, our experience has shed light on a number of key trends for dealmakers and management teams alike to keep in mind.

Buyer appetite and criteria

In particular, we’ve seen buyers narrowing their acquisition criteria and developing a specific M&A roadmap where they have identified capabilities to fill whitespace in their own business enabling them to enhance their own solution or geographic portfolio, strengthen existing customer relationships to increase stickiness and drive growth from these customer accounts, and win new customers.

FRP saw these trends from their experience of leading the sale of network consultancy and managed services provider, Intuitive Systems & Networks (ISN), to international technology services firm, Conscia, The acquisition of ISN  established Conscia’s presence in the UK commercial sector and helped it rapidly expand its managed services coverage.

Another example from FRP’s experience is leading the sale of contact centre specialist Brightcloud Group to communication services provider Gamma. As the leading European enterprise partner for Cisco, Brightcloud’s integration into Gamma allowed the buyer to enhance its existing Enterprise CCaaS capabilities, support its expansion across Europe while simultaneously deepening its partnership with Cisco.

Growth and consistency are key

As ever, high growth remains a key priority and is linked to scalable and resilient sectors, coupled with companies that can evidence highly successful sales strategies. Buyers, particularly private equity firms, are seeking high quality businesses with consistent performance metrics, and targeting companies with strong growth, high quality earnings and cash conversion.

In the face of ongoing economic uncertainty investors are particularly focused on businesses that can provide reliable returns, and are thus favouring businesses that can demonstrate recurring revenues, strong and loyal client bases and large market headroom to grow with strong market tail winds.

This includes PMC – a technology services provider based across UK and India, which we worked with closely to secure investment to drive continued growth. With a large market opportunity and a solid customer base with new customer win momentum, PMC represented an attractive option for private equity investment, and ultimately secured a growth equity investment from BGF that will allow it to double the size of its global workforce.

Looking ahead

For businesses looking to capitalise on the tech sector’s dynamic performance, it’s worth keeping an eye on how these trends are likely to evolve.

Much ink has been spilled chronicling how AI is reshaping the operating landscape across all sectors. Strategic buyers and investors are considering how an acquisition will benefit from AI, but also how AI will change the market of an acquisition, including whether it is a threat to an acquisition’s operating model and solutions. Either way, AI is here to stay and having an AI strategy is key, even if adopters are at an early stage of formulating their strategy and structuring their data to harness the power of AI.

Cybersecurity acquisitions continue to remain as a priority for tech service buyers due to the strong market dynamics for cybersecurity. This is further reinforced by recent high-profile attacks bringing risk management into sharper focus – particularly in complex environments where businesses are operating across multiple clouds and networks or particularly specific sectors that are being targeted by attacks such as the retail sector over the past 12 months.

Notably, while enterprise-level adoption is progressing, the cost and complexity of integrating cybersecurity solutions is making it difficult for mid-market firms to follow suit. This creates an opening for businesses offering cost-effective Security-as-a-Service (SaaS) platforms to flourish.

Seeking support

One of the challenges – and most rewarding aspects of working in the tech industry is keeping up with the speed at which it evolves, and the impact this has on the buyer universe and investor landscape.

Engaging with an adviser can be key in navigating this deal landscape. Whether preparing a business for sale, guiding a complex carve-out, or securing the right investment partner, our team is well versed in supporting businesses in identifying and meeting well-defined buyer criteria.