The UK software, media and technology sector remained resilient during the first half of 2024, completing 526 mid-market transactions with a combined disclosed investment value of £4 billion.
Polestar Corporate Finance’s Software, Media & Technology H1 2024 Sector Review explores M&A activity, investor appetite and valuation trends across software and telecommunications, FinTech, e-commerce, digital media, data and analytics, and artificial intelligence and machine learning.
The UK economy grew by 1.3% during the first half of 2024, following the recession recorded at the end of 2023.
The services sector grew by 0.8% in the second quarter, supported by scientific research, information technology and legal services.
At the time of the review, the International Monetary Fund forecast UK real GDP growth of 1.5% in 2025, which would have made it the third-fastest-growing economy in the G7.
Inflation was beginning to settle, creating a more positive environment for public equities, business valuations and M&A.
The number of UK job vacancies declined between May and July 2024, marking the 25th consecutive quarterly fall.
UK unemployment was estimated at 4.2% between April and June, while wage growth remained high at 5.4% in the three months to June.
Further interest-rate reductions were expected to:
UK government net debt remained just below 100% of GDP during the second quarter of 2024.
The UK became the third country to achieve a technology-sector valuation of $1 trillion in June 2022. By the first quarter of 2024, the sector was valued at approximately $1.1 trillion.
More than 51,000 new technology companies were incorporated in the UK during 2023, maintaining the country’s position as Europe’s leading technology ecosystem.
Artificial intelligence remained an important area of government policy. Planned support included removing barriers to data-centre development and establishing a Regulatory Innovation Office to help regulators update rules, coordinate cross-sector issues and improve approval times.
Geopolitical tensions continued to affect interconnected technology supply chains.
Technology businesses needed to consider the manufacturing processes supporting their products and systems to manage:
Modernising legacy systems and moving towards cloud and XaaS services offered businesses an opportunity to streamline their operations.
Areas of focus included:
Generative AI continued to produce growth during H1 2024, although at a more modest rate than during the previous year’s rapid expansion.
The General Data Protection Regulation and the EU AI Act were expected to provide greater clarity around:
Clearer regulation had the potential to increase confidence among both technology vendors and customers.
AI adoption also increased demand for computing capacity and storage, supporting continued investment in data centres and digital infrastructure. The number of data-centre transactions increased at a compound annual growth rate of 32% between 2017 and 2022.
Cybersecurity remained a priority for UK businesses during H1 2024:
Cyber risks extended across virtual, logical and physical systems. AI and hybrid working increased virtual and logical risks, while supply-chain disruption created physical risks.
The UK was home to approximately 2,100 cybersecurity product and service providers in 2023. Sector revenue was estimated at £1.9 billion in the 2024 financial year, representing a 13% annual increase.
Large businesses operating in telecommunications, aerospace, defence, security and consultancy generated 75% of this revenue.
UK cybersecurity businesses raised £400 million across 85 transactions in 2023. Financial investors were seeking both platform investments and bolt-on acquisitions involving specialist security technologies, while trade buyers used acquisitions to strengthen and protect their existing services.
Cloud software businesses performed strongly during the period, supported partly by the increasing price of premium cloud packages.
Chip shortages, high energy costs and growing demand from AI contributed to higher cloud-computing prices. Providers used this environment to offer premium services designed to improve business efficiency.
Some 46% of UK businesses expected to use multiple cloud platforms within the following three years, compared with 26% globally.
Reasons for adopting a multi-cloud strategy included:
Cloud infrastructure also created sustainability challenges because of its energy demands and reliance on fossil fuels. This supported opportunities to develop more efficient cooling systems, computing capacity and green hardware.
The sector completed 526 mid-market transactions during the first half of 2024, with a combined disclosed investment value of £4 billion.
This compared with 631 transactions and £3.5 billion of disclosed investment during H1 2023.
Software, media and technology represented 27% of all UK deals completed during H1 2024.
Among transactions with a disclosed value:
Private equity continued to consolidate smaller technology businesses, while listed companies acquired specialist intellectual property to integrate into their existing products and services.
Many AI and machine-learning businesses remained relatively small and had not yet reached profitability, limiting the number ready for sale.
Investor interest remained strong, however, and competition within the sector supported high valuations. Buyers were also mindful of AI-related risks, leading to detailed due diligence before transactions were completed.
Mid-market FinTech accounted for £3.3 million of the £5.7 billion invested across the wider UK FinTech sector during H1 2024.
Larger businesses were expected to consider acquisitions of enhanced software products, including solutions aligned with AI and machine-learning developments.
Approximately 67,200 new e-commerce businesses were registered in the UK during 2023, representing a 57% increase from 2022.
The UK was the world’s third-largest e-commerce market. Online retail benefited as consumers searched for affordable alternatives during the cost-of-living crisis.
Although transaction volumes were expected to remain limited, trade buyers continued to show interest in businesses offering technical features that could be incorporated into existing e-commerce platforms.
The UK media and entertainment market was expected to become the largest in Europe during 2024.
Gaming and cinema were expected to expand, while digital streaming and changes to broadcasting continued to create investment opportunities.
Private equity interest was expected to increase as augmented and virtual-reality technologies became more affordable and capable of generating recurring revenue.
Businesses providing software to streamline and automate data management continued to attract valuation premiums.
The growing use of data within the public sector also supported providers of predictive analytics and strategic resource-allocation services.
The UK continued to attract technology investment from domestic and international private equity firms and corporate buyers.
Its investment position was supported by:
US and European corporate buyers continued to expand through UK acquisitions during H1 2024. Rapid development in emerging technologies increased demand from international buyers seeking access to advanced products and intellectual property.
Public-company valuation multiples declined during H1 2024.
AI and machine learning experienced the largest reduction as the sector moved from its earlier period of heightened investor expectations towards a more established valuation environment.
The change reduced speculative investment and increased the focus on companies with established business models and innovative technologies.
Digital media and e-commerce remained relatively stable, while software, telecommunications and services continued to attract investment.
Data and analytics remained competitive as investors waited for clear market leaders to emerge. Companies offering effective solutions to data-intensive tasks continued to attract high multiples.
Private businesses were generally valued one to two EBITDA multiple points below listed companies because of differences in size, transparency and liquidity.
Epiris had invested £2.3 billion since 2011 and typically invested between £50 million and £250 million in UK and international businesses.
Portfolio company Nucleus Financial acquired Third Financial Group, a developer of custody and outsourcing software for investment and wealth-management businesses.
LDC portfolio company Croud acquired Metageni, a data analytics provider that uses AI to help businesses grow online.
The transaction expanded Croud’s AI and analytics expertise and broadened its international media-services offering.
Accel-KKR had completed more than 350 investments, with a focus on mid-market enterprise software.
Portfolio company SugarCRM acquired Sales-i, a sales-enablement platform that analyses back-office invoice data to identify sales opportunities and streamline processes.
Hg focused on software and service businesses across the UK, Europe and North America. It had more than $70 billion under management and a median transaction size of £40 million.
Hg completed nine UK software, telecommunications and services investments during H1 2024.
TowerBrook Capital Partners had raised almost $23 billion and maintained an active presence in technology and media. It completed two UK digital-media investments during H1 2024 and had a median deal size of £70 million.
Coupang acquired Farfetch and provided the luxury e-commerce company with $500 million of emergency funding.
Tembo Money acquired Nude Finance, a financial platform combining a savings account with financial coaching for first-time buyers.
Cloudflare
Cloudflare acquired two UK AI businesses during H1 2024 to expand its serverless application offering.
Exante Data acquired Trounceflow, a global data-analytics platform. The transaction expanded Exante’s product range and its emerging-markets and investment-flow coverage.
Autodesk acquired Datum360, an engineering-information and asset-data platform designed to improve efficiency in energy extraction.
Accenture acquired Unlimited, a marketing-insight and communications business.
Unlimited became part of Accenture Song, expanding its ability to deliver marketing transformation and generate value from generative AI.
Aprimo, backed by Main Capital, acquired Personify XP in June 2024.
Personify XP developed an AI and machine-learning platform that analysed online behaviour to identify a website visitor’s purpose and create personalised experiences.
STG acquired Gresham Technologies in April 2024.
Gresham provided mission-critical software and automation for financial services, helping businesses manage risk and regulatory compliance. STG intended to combine the company with portfolio business Alveo to create an enterprise data-automation provider.
Agilence, backed by Cuadrilla Capital, acquired IntelliQ in May 2024.
IntelliQ developed forensic analytics technology designed to help businesses generate sustainable returns. The acquisition expanded Agilence’s loss-prevention capabilities and its presence in the EMEA and Asia-Pacific markets.
TLC Worldwide was acquired by bd-capital for £150 million in February 2024.
The company provided customer-acquisition, engagement and loyalty programmes for global brands.
Hg acquired Focus Group from Bowmark Capital in April 2024.
Focus Group provided communications and information technology services, including hosted voice, cloud applications, mobile and connectivity solutions. The transaction followed four bolt-on acquisitions completed by Focus Group earlier in the year.
HiBob acquired Pento for £31.6 million in February 2024.
Pento developed an online payroll platform designed to automate workflows. The acquisition added payroll-automation capabilities to HiBob’s human resources information system.
Ipsos acquired Jarmany in January 2024.
Jarmany provided analytics and insight services that helped businesses manage and use data. The acquisition expanded Ipsos’s data-analytics capabilities.
Glory acquired Flooid for £153 million in January 2024, representing reported multiples of 4.9x revenue and 86.6x EBITDA.
Flooid developed cloud-hosted point-of-sale software for retailers.
AdvancedAdvT acquired Celaton for £5 million in May 2024.
Celaton developed machine-learning technology that automated information streams such as customer correspondence and employee records.
CuCo acquired Coast Agency in February 2024.
Coast Agency provided advertising services. The acquisition enabled CuCo to expand the range of services and expertise available to its clients.
Velstar acquired 9xb in May 2024.
9xb developed scalable and secure business-to-business e-commerce stores. The acquisition supported Velstar’s client-centred growth strategy.
The sector completed 526 mid-market transactions with a combined disclosed investment value of £4 billion. Software, media and technology accounted for 27% of all UK transactions during the period.
Private equity accounted for 36% of software, media and technology transactions during H1 2024.
Software, telecommunications and services recorded the largest number of transactions. Activity also covered FinTech, e-commerce, digital media, data and analytics, and AI and machine learning.
UK technology companies offered access to specialist expertise, emerging technologies, intellectual property and innovative products. The UK also benefited from established legal protections, a skilled workforce and links between businesses, universities and research institutions.
AI increased demand for computing capacity, cloud services, data centres and digital infrastructure. Investor interest remained strong, although buyers conducted detailed due diligence because many AI businesses were small, unprofitable or exposed to developing regulatory risks.
Half of UK businesses experienced a cybersecurity breach or attack during the preceding 12 months. The proportion increased to 70% among medium-sized businesses and 74% among large businesses.
UK businesses identified performance, cost, data sovereignty, malware protection and flexibility as reasons for using multiple cloud platforms. Some 46% expected to adopt a multi-cloud approach within the following three years.
Public-company multiples declined, with AI and machine learning experiencing the largest reduction. Digital media, e-commerce, software, telecommunications and services remained comparatively stable.
Businesses offering specialist intellectual property, data-management automation, predictive analytics and technical features capable of being integrated into larger platforms continued to attract investor interest.
