Software, media and technology remained attractive to investors during 2023, although transaction activity slowed significantly as the year progressed.
Lower listed-company valuations, high borrowing costs and a stronger investor focus on profitability created a gap between buyer and seller expectations. This caused some shareholders to delay bringing their businesses to market.
Polestar Corporate Finance’s Software, Media & Technology 2023/2024 Sector Review and Outlook examines transaction activity, valuation trends and investor appetite across AI and machine learning, data and analytics, digital media, e-commerce, FinTech, software, telecommunications and technology-enabled services.
The sector recorded:
The first quarter accounted for 45% of transactions completed during the year. Activity then declined consistently, resulting in a particularly quiet fourth quarter.
Data and analytics, and software, telecommunications and services, recorded the highest transaction volumes across 2023. However, activity in both subsectors fell significantly during the final quarter.
Listed technology valuations declined as investors moved their focus from scale towards profitability.
The combination of lower public-market multiples and high interest rates reduced the valuations available to some private companies, particularly those unable to demonstrate the strongest business quality.
Some shareholders consequently decided to delay going to market rather than accept a lower valuation.
Approximately £50 billion of private equity dry powder remained available in the UK. However, the availability of investment capital did not remove the gap between buyer and seller expectations.
Stabilising debt markets were expected to help reduce this valuation gap and support renewed transaction activity.
The UK economy performed better than expected during 2023.
House prices declined by 1.8%, compared with a forecast reduction of 8%, while GDP grew by approximately 0.5% rather than contracting by the anticipated 1%.
Growth was concentrated in the first half of the year. GDP declined by 0.1% in the third quarter and 0.3% in the fourth quarter.
Headline inflation fell from its peak of 11.1% in October 2022 to 4% in December 2023. Core inflation remained at 5.1%, reflecting the tight labour market, services inflation and businesses passing increased costs to customers.
High borrowing costs continued to affect business confidence, investment and acquisition financing.
Artificial intelligence attracted considerable attention during 2023 following the launch of ChatGPT in November 2022.
Traditional AI analyses large datasets and identifies patterns. Generative AI can use similar analysis to create new content and data.
AI and machine-learning businesses continued to attract strong investor interest and recorded higher average public-company valuation multiples than the other subsectors reviewed. However, unresolved questions made individual companies more difficult to assess and value.
These questions included:
These uncertainties created particular challenges for lower middle-market businesses deciding when and how much to invest in generative AI.
Larger companies, private equity-backed businesses and specialist firms operating in clearly defined niches were expected to lead early adoption.
The Internet of Things connects devices and enables them to communicate with cloud-based technology.
Connected systems can automate processes and collect large volumes of data. This information can then be used by AI systems to provide products and services to businesses and consumers.
The quality of training data was becoming increasingly important. As AI-generated material became more common online, there was a risk that generative AI systems would begin training on other AI-generated content.
This could lead to “model collapse”, where models reproduce increasingly similar information rather than generating reliable new outputs.
For smaller businesses with limited resources, priorities included preparing their infrastructure, IT-service management and cybersecurity for future automation.
Sustainability and carbon reduction remained important considerations for boards, investors and regulators.
Global investment in renewable energy reached $1.1 trillion during 2023, exceeding investment in carbon-based energy for the first time.
The EU Corporate Sustainability Reporting Directive came into effect during 2024 for qualifying large and listed businesses operating in Europe. This included relevant companies headquartered outside the EU.
Greater reporting and transparency requirements supported demand for technology capable of collecting, measuring and monitoring sustainability data.
Listed technology-company multiples declined overall during 2023.
AI and machine learning, and data and analytics, continued to trade at higher average multiples than the other subsectors reviewed, despite the wider valuation correction.
The difference reflected stronger growth expectations and increasing adoption of AI and data-led technology. However, identifying the companies most likely to become long-term market leaders remained difficult.
More established verticals, including software, telecommunications and e-commerce, offered slower organic growth. This encouraged larger companies to pursue acquisitions as an alternative route to expansion.
AI and machine learning recorded the highest average EV/EBITDA and EV/revenue multiples among the public companies reviewed.
Growth was supported by the rollout and adoption of AI tools across different areas of the economy.
Competition remained high, and the number of developing products made it difficult to identify which companies would become dominant.
Private equity firms were already using platform investments to consolidate the market. Insight Partners’ AI and machine-learning platform companies acquired RankedRight and Cadeera during the year.
Data and analytics businesses also attracted comparatively high public-market multiples.
Demand was supported by the growing need for tools that could:
The sector remained highly competitive as investors waited for clear market leaders and applications to emerge.
Software, telecommunications and services recorded the highest transaction volumes during 2023, alongside data and analytics.
The subsector nevertheless experienced a significant reduction in activity during the fourth quarter.
Organic growth was slower than in emerging technology verticals. Larger companies therefore used acquisitions to add products, capabilities and market share.
Consolidation was particularly visible in telecommunications. 4Com completed four acquisitions:
Hg completed ten investments across software, telecommunications and services, making it the most active private equity investor identified in the subsector.
FinTech investors continued to use acquisitions to develop and integrate financial-services technology.
Motive Partners completed four FinTech investments during 2023.
Twenty7Tec acquired BrokerSense, a platform that helps mortgage advisers assess client affordability against lender criteria. The acquisition supported Twenty7Tec’s strategy of simplifying, streamlining and digitising financial services.
E-commerce remained an area of consolidation.
JPC Capital Investment Group acquired Top Labels Online and Urban Home, adding the businesses to its previous investment in VitalGym.
Frasers Group was also active in the e-commerce sector during the year.
Organic growth within the mature e-commerce market was expected to be slower than in newer technology verticals. Acquisitions offered established companies another way to increase scale and add capabilities.
The UK media industry ranked first in Europe, but many businesses faced difficulty obtaining the funding required to scale.
Only 33% of respondents to an RSM survey had accessed the funding they required during the preceding six months. More than half had higher debt levels than six months earlier.
The end of the US writers’ and actors’ strikes allowed production to begin recovering. However, potential consolidation across the media industry continued to restrict production budgets.
Streaming platforms were no longer expected to provide all the finance required for individual productions. Producers increasingly needed to assemble groups of funders with more complex equity arrangements.
Content creation was also becoming more accessible through platforms such as:
These platforms enabled creators to develop content and intellectual property at relatively low cost. Successful properties could then be expanded into television, film and gaming.
Passby Technologies acquired Olvin and Tamoco to develop an end-to-end digital-media platform.
International investment remained an important feature of the UK software and technology market.
Active international investors included:
Akamai Technologies completed six investments during 2023, including one acquisition within data and analytics.
International interest was expected to continue as the UK software and technology market matured.
Private equity investors used acquisitions to consolidate emerging and established technology verticals.
Platform investments enabled investors to combine complementary products, capabilities and customer bases.
Active private equity and venture capital investors included:
| Investor | Principal subsector | Investments in 2023 |
|---|---|---|
| Insight Partners | AI and machine learning | 2 |
| Mubadala Investment Company | Data and analytics | 2 |
| Providence Equity Partners | Digital media | 5 |
| JPC Capital Investment Group | E-commerce | 2 |
| Motive Partners | FinTech | 4 |
| Hg | Software, telecommunications and services | 10 |
Hg’s investments had a median valuation of approximately £45 million.
Active trade buyers included:
| Acquirer | Principal subsector | Investments |
|---|---|---|
| Accenture | AI and machine learning | 1 |
| Akamai Technologies | Data and analytics | 1 |
| Passby Technologies | Digital media | 2 |
| Frasers Group | E-commerce | 1 |
| Twenty7Tec | FinTech | 1 |
| 4Com | Software, telecommunications and services | 4 |
These transactions reflected consolidation, the acquisition of specialist technology and the integration of complementary products.
Kidswear Collective acquired second-hand luxury childrenswear reseller Cheeky Cherub in October 2023.
The acquisition consolidated Kidswear Collective’s position within the luxury children’s resale market.
Believe acquired Sentric for £48.4 million in March 2023.
The transaction represented reported multiples of:
Sentric provided technology-enabled music-publishing services. The acquisition marked Believe’s first step towards developing a digital-first music-publishing business.
Codan acquired Eagle NewCo for £11.5 million in August 2023.
The transaction represented reported multiples of:
Eagle NewCo was carved out from NEC Software Solutions UK and supplied software to emergency services, public-safety organisations and control rooms.
CUBE acquired The Hub in January 2023.
The Hub developed AI technology for capturing and monitoring unstructured regulatory information. CUBE planned to integrate the technology with its RegPlatform to automate compliance processes and reduce risk and operating costs.
Akamai Technologies acquired Ondat for £20.6 million in March 2023.
Ondat developed cloud-native storage technology for containerised databases, workloads and public-cloud environments.
Twenty7Tec acquired BrokerSense in January 2023.
BrokerSense provided technology that allowed mortgage advisers to assess customer affordability against lender criteria.
LDC and The Carlyle Group acquired Evolution Funding in September 2023.
Evolution operated a technology-led motor-finance platform connecting car dealers and finance providers with multiple lenders.
The investors intended to support:
Hippo Digital acquired The Data Shed in March 2023.
The combination created a team of approximately 400 people and increased the companies’ ability to deliver digital-transformation services.
ToolsGroup, backed by Accel-KKR, acquired Evo for £12.37 million in September 2023.
The transaction represented reported multiples of:
Evo developed AI and machine-learning technology for business-performance optimisation, including nonlinear optimisation, quantum learning and advanced prescriptive analytics.
FSP secured investment from LDC and CBPE in February 2023. LDC reinvested after initially backing the business in 2020.
FSP had more than doubled its revenue and workforce through the expansion of its customer base and services.
The investment supported its acquisition of cybersecurity consultancy Savanti.
Tryzens completed a management buyout supported by WestBridge in August 2023.
The £36 million transaction represented reported multiples of:
Tryzens provided digital-commerce strategy, technology, operational support and data-led optimisation services to international brands.
JPC Capital Investment Group acquired Top Labels Online in January 2023.
The company operated an online fashion retail platform selling branded clothing and accessories.
The market entered 2024 with lower transaction volumes but continued investor interest.
Important themes included:
The sector recorded 439 private equity transactions, 398 M&A transactions and 342 venture capital transactions. The first quarter accounted for 45% of annual deal activity.
Data and analytics, and software, telecommunications and services, recorded the highest transaction volumes. Both experienced significantly lower activity during the fourth quarter.
Listed-company valuations declined as investors shifted their focus from scale to profitability. High interest rates and a gap between buyer and seller valuation expectations also affected transaction volumes.
Approximately £50 billion of UK private equity dry powder remained available.
No. Listed technology multiples declined overall, but AI and machine learning, and data and analytics, continued to trade at higher average multiples than the other subsectors reviewed.
Growth expectations were supported by the increasing adoption of AI across the economy. However, uncertainty around regulation, intellectual property and future market leaders made individual companies more difficult to assess.
Organic growth was slower in mature markets such as software, telecommunications and e-commerce. Acquisitions offered larger businesses another way to add technology, customers, capabilities and market share.
International investors were active across AI, data and analytics, digital media, e-commerce and FinTech. Overseas interest was expected to continue as the UK software and technology market matured.
Available private equity capital and stabilising debt markets were expected to reduce differences between buyer and seller valuations. AI, data analytics, international investment and consolidation remained important areas of focus.
