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While it feels like most tech CEOs are getting on with the new norm, the statistics over the summer tell a different story. While UK tech sector share prices were solid across July and August, and valuations are generally stable, corporate activity in all categories was down, even in the otherwise resilient private equity sector, where weak MBO numbers mean that year-to-date deal volumes are now flat. M&A activity also remains muted with increased polarisation between ICT Services and Software, with the latter enjoying decent deal volumes and some chunky transactions over the summer. The same goes for venture and growth capital, where activity is stubbornly refusing to recover. Some of this weakness is likely to result from the decision to delay liquidity events made after the snap election was called. But now, many will be waiting to see the details of inevitable tax changes coming in the budget.

About this podcast

The CEOBarometer podcast is a monthly publication hosted by Ian Spence, Founder and Chairman of Megabuyte. In each episode, Ian provides expert analysis of key trends in UK tech M&A, capital markets, private equity, and venture capital, and explores their implications for the boards of UK tech companies.

Megabuyte supports UK scale-up and mid-market Software and ICT Services companies to develop robust growth strategies, understand their competitive landscape and customer sentiment, benchmark their financial performance and valuation, and identify and track M&A targets.

Learn how at www.megabuyte.com or search ‘Megabuyte for CxOs’.

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News Analysis 01m 00s

Capital Markets 10m 37s

Private Equity 18m 18s

Venture & Growth Capital 25m 44s

M&A 31m 38s

As we head into the summer lull, June was relatively quiet on the corporate activity front, although the massive valuation on Preqin’s sale to Blackrock certainly caught the eye. Trends observed this year have persisted, with strong private equity volumes contrasting with ongoing, though moderating, weaknesses in M&A, venture capital, and capital markets activities. Meanwhile, notwithstanding the undoubted success of the Raspberry Pi IPO, UK tech sector share prices and quoted valuations remain at near 10-year lows after another soggy month, especially for software. However, the outlook for the second half of the year looks increasingly bright, with improving sentiment, greater political stability – in the UK at least – and the likely start of a period of downward movement in interest rates.

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News Analysis 04m 41s

Capital Markets 08m 27s

Private Equity 12m 18s

Venture & Growth Capital 16m 06s

M&A 19m 26s

In this month's podcast:

After a brief summer uptick, the UK tech sector faced a Q4 setback, grappling with tough trading conditions, escalating costs, and, in some cases, excessive leverage. October's 5% drop in tech sector share prices pushed valuations to a decade low, dimming the optimism sparked earlier in the year. Capital investments from venture capitalists hit a five-year low, and apart from public takeovers, M&A activities stagnated. While the private equity market offered some relief, deal flow remained below last year's levels. Despite the prevailing gloom, history reminds us that in moments of despair, recovery often begins to take shape, hinting at brighter prospects ahead.

In this month’s podcast:

The market adapts to the 'new norm' of higher interest rates and lower valuations, witnessing a thaw in the SBO market and a resurgence in VC funding in September. However, persistent weakness in M&A volumes, burdened by increased debt servicing costs, prevails. Tech share prices, especially in software, hit a 5-year low, hindering the revival of capital markets deal activity.

In this month’s podcast:

The summer got off to a roaring start with strong share prices and enhanced corporate activity, but August rolled back much of the gains. Overall, UK tech sector share prices were broadly flat across July and August, modestly underperforming the wider market, and the picture was similar in the US. Public company valuations have largely stabilised at their lower levels but there is still some price discovery going on in the private equity world. Kerridge’s buyout by CapVest was a particularly interesting case in point. Indeed, it was surprising strong period for PE transactions, especially MBOs, and we also saw the return of the P2P after a few months’ absence. After a torrid few quarters, VC also looks like it’s over the worst but M&A activity remains somewhat subdued. Overall, the outlook feels a lot stronger than it did in June and evidence is growing to support a meaningful recovery next year.  

In this month’s podcast:

While UK tech sector share prices were stronger in June, valuations remain stubbornly low, especially in ICT Services. Meanwhile, the US tech sector continues its rapid recovery with a 33% jump in the tech-heavy NASDAQ so far this year compared to just 7% in the UK. Nevertheless, confidence in capital markets does seem to be recovering, albeit from rock bottom levels, with more fundraising and M&A activity amongst listed businesses. Likewise, AI-driven green shoots continue in the UK tech VC market where deal numbers were better than they have been all year. Conversely, the private equity outlook is less positive, with activity remaining slow, especially in secondaries, and M&A volumes were also weak, albeit better than a very quiet May. So, as we head into the second half of the year, it will be fascinating to see if this changing of the guard continues and confidence builds in UK tech capital markets and UK tech VC.

June: It's quiet out there people! Weakening confidence finally spills over into M&A and private equity.

May: Reasonable deal stats hide underlying disquiet while medium-term clouds are gathering for private equity investors.

April: What a difference a month makes: the UK tech sector marks time as the mini banking crisis weighs heavily on sentiment while the quoted markets are rocked by the WANdisco sh*t show.

March: Growth rates continue to revert to the mean; the toughest of comps for VC fundraising; while PE remains rock solid

February: Stronger share prices belie continuing caution in many parts of the tech sector, as anecdotal evidence of tougher trading slowly grows. 

January: Our 12 key predictions for the UK tech sector this year

The patchy recovery continued in May, marked by a notable pop in UK share prices. Trading conditions continue to be mixed but are improving overall, while evidence of the gap between the AI haves and have-nots is growing. Regarding corporate activity, private equity continues to be the bright spot; fundraising numbers clearly suggest that VC has turned a corner, but it was another flat month for M&A. Meanwhile, there’s good and bad news on the IPO front. The good news is that Raspberry Pi has pulled the trigger on its IPO, and it seems to be going well, which may precipitate others in the sector to follow suit. The bad news is that the founder and former CEO of WANdisco is trying to make a return to public company life just months after he presided over the near-collapse of that company. You really couldn’t make it up!

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News Analysis 05m 39s

Capital Markets 12m 56s

Private Equity 19m 44s

Venture & Growth Capital 22m 53s

M&A 25m 27s

December: Share prices move from stability to recovery as PE activity slows and it’s a bumper month of ICT Services M&A activity. 

November: Despite clear signs of a trading slowdown in enterprise tech spending, Trans-Atlantic share prices hold steady. And in news that will surprise no-one, private equity deals continue apace.

October: The share price rout returns after a brief summer lull as we wait to see how the coming recession impacts trading.

September: A lacklustre summer rally belies a continuation for first half trends. But no-one seems to be talking about the trading outlook?

July: Capital markets activity reaches rock bottom … VC continues to trend downwards … but the private equity guys continue to make hay

June 2022: Oh dear, this is getting serious! The VC bubble is bursting and share prices are continuing to fall… someone needs to let the PE guys know that the party’s over!

May 2022: After another tough month, share prices and deal volumes are largely back to pre-pandemic levels, but where do they go from here?

April 2022: Private equity and M&A activity normalises, capital markets deal flow slows and VC megadeals are noticeably absent; blip or new trend?

March 2022: Has the correction arrived? Will the market uncertainty triggered by recent geo-political events extend to deal volumes & valuations?

February 2022: With tech share prices dropping on both sides of the Atlantic, what next for corporate activity and valuations?

Over the last year, I've been working on a major research project on AI strategy. The genesis of this research programme was an AI-focused panel session at the 2023 Megabuyte CEOStrategy Offsite. The depth of audience engagement in that panel session, but also what appeared to be a lack of clear thinking around strategy on AI, left me in little doubt that there was more research needed in this critical area.

So I set about sense checking that interpretation with multiple CEOs. And the consensus was clear - there is a strong desire, or perhaps imperative is a better word, to advance AI strategies despite prevailing uncertainties. The question, of course, is how? So, leveraging Megabuyte's expertise in transforming evidence-based analysis into actionable insights for CEOs, we set out to provide a contextualised AI strategy framework for the boards of UK scale-up and mid-market tech companies.

The objective for tech companies in applying this framework is to optimise shareholder value by leveraging AI in the most effective and appropriate way, focusing on its integration into product strategy, operations, and also into corporate strategy. Our research at Megabuyte indicates that the UK tech sector is entering a phase of disruption as seismic as that of the early 2000s.

In this context, strategic decisions made in the next two to three years will have undoubtedly have a disproportionate impact on shareholder value over the medium to long term. The future certainly presents both vast opportunities but also significant threats to growth and valuations. The key question is how we can determine what good looks like in terms of AI strategy.

At Megabuyte we're privileged to have unique access to some 500 tech company boards here in the UK, and over the past year we solicited the views from many of the CEOs and CTOs in that network, and we triangulated them with our own research in order to answer this vitally important question. Our Strategy Framework Report synthesises insights from these interviews along with our own research and is now available to download free of charge from our website.

In this special episode of the Megabuyte CEOBarometer, I will talk you through key takeaways from that report. But there's more in store. This report serves really as just Phase One of our research. The next step is to apply our framework to key technology sub sectors and delve deeper into the themes and get some more detailed insights within those parts of the market. And that will be for the benefit of our subscribers.

If you're already a Megabuyte subscriber and you're interested in participating in this element of the research, please just do drop me a line or contact the person you speak to most frequently at Megabuyte. I fundamentally believe that this is the single most important strategic decision that every tech company, and indeed every company full stop, will face over the next decade.

January 2022: 2021 may have ended on a high, but are steadier-state deal volumes and valuations pointing to a more ‘normal’ 2022?

December 2021: M&A overtakes private equity in snaring MBO targets; £1bn fund raise emerges as the monthly venture capital ‘new norm’; and valuation inflation continues.

November 2021: While digital halos start to slip on the public markets, the M&A resurgence continues with data management and process automation the new flavour of the month.

October 2021: Troubled waters ahead? We think so, as valuations continue to overheat in both public and private markets.

September 2021: We report on the July & August silly season as UK tech share prices soar and deal flow records continue to be broken.

July 2021: Records are made to be broken: We analyse the UK tech IPO bonanza looking set to deliver the best performance of the decade, and a bumper month for deal volumes and valuations.

June 2021: Specialist data consultancies – the new darling of the investor community? London-listed companies go transatlantic and the rise of digitally-powered healthcare solutions providers.

May 2021: A return to steady-state corporate activity; transatlantic capital markets rev up and growth and venture capital steal a march on private equity.

April 2021: Effervescent deal activity; private capital hotspots; and IPO and SPAC momentum gathers pace.

March 2021: Private equity hot(ter) spots, stock market inflation jitters, more signs of the digital IPO wave and SPACs make their presence felt.

In April, some familiar trends became more pronounced in the UK tech sector - the most striking of which was the increasing juxtaposition of confidence levels between private equity and the capital markets. There were no fewer than four billion-dollar private equity deals announced - the Darktrace P2P and SBOs from Focus, Rimes, and Zellis – with only three small follow-on offerings in reply from the stock market. Soggy share prices once again only served to underline the stock market gloom, even if we did outperform NASDAQ for a change. Venture capital continues to bump along the bottom with another very quiet month for deals, as does M&A with another sub-50 transaction month, although both of those areas are actually showing underlying improvement if you look hard enough. Meanwhile, trading news from UK tech companies continued to be mixed, but, here again, the trend is gradually improving.

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Spotlight

Get involved in our AI Research Project 04m 18s

Your Monthly CEOBarometer

News Analysis 06m 06s

Capital Markets 14m 42s

Private Equity 18m 08s

Venture & Growth Capital 23m 08s

M&A 25m 26s

February 2021: Despite a tentative start to the year for capital markets, later-stage VC and mid-market PE power ahead evidencing our bullish outlook for 2021.

January 2021 - Company Financials & Trading Update: Stock market highs, a record month for corporate activity, resilience becomes confidence and the arrival of SPACs.

January 2021 - Markets & Deals Update: Stock market highs, a record month for corporate activity, resilience becomes confidence and the arrival of SPACs.

December 2020: Upbeat markets and valuations, the return of mid-market private equity and why NOW is the time to evaluate strategy.

November 2020: The country may be heading into ‘Lockdown 2.0’ but corporate activity and financial performance in the UK tech and digital sector continue to demonstrate remarkable resilience. In particular, mid-market private equity is back with a bang, and M&A activity continues to return to pre-COVID levels, especially in Enterprise Software. I discuss the key deals and valuation trends. Also this month, the wave of IPOs seems definitely now to have reached European shores and I look at where the next IPOs might come from - and where they won't. On trading, the picture remains broadly positive but there is something of an SME-shaped cloud on the horizon.

October 2020: As deal activity continued to recover in September; despite lockdown uncertainty, I take a look at ‘Chapter 2’ investment trends in venture and growth capital as well as recovering M&A and mid-market PE activity. Although share prices were more muted in September after a very strong run, the US IPO market continued its resurgence with some eye-watering valuations to match. Are these sustainable and will the IPO gold rush be exported to Europe? The signs are there. On trading, as well as more indications of resilience, I comment on horrible results from WANdisco. 

September 2020: As the summer progresses into its quietest month, there is still plenty to talk about in the tech sector. Mega-deals have returned with gusto, underlining resurgent confidence from management teams and investors alike. I examine the evidence for returning strength in the UK IPO market and how data strategies of every flavour are at the core of much of this activity right now. Meanwhile, I take my usual look at current trading and uncover some businesses that are now expecting higher profitability than before COVID. 

August 2020: As part of my usual review of key trends in trading, corporate activity and valuations, this month, I draw out the key themes in data showing a resurgence of M&A activity, assess the possibility of green shoots in the UK IPO market, examine news flow in fintech which suggests that it is entering a new, more uncertain phase and update on the recurrent theme of resilience. Last, but definitely not least, I summarise the latest installment of the reboot of our Generational Shift theory. 

July 2020: This month, as IPOs abound in the US, I examine the outlook for valuations in the face of seemingly ever-rising stock markets, with some surprising conclusions. I also give the usual deal stats which show continuing strength in growth capital and some green shoots in mid-market PE and M&A activity. On trading, the news remains good, but our four resilience measures will be even more crucial as the economic recession starts to bite.

June 2020: As our Barometer podcast goes monthly, markets continue to defy gravity, CEOs get more cheerful as they see ‘flat is the new growth’ and there’s mixed news on transaction volumes and valuations. I give my take on the key recent trading, transaction and funding news and to look forward to what that might mean for the outlook - the earthquake may be over, but are we missing the tsunami now rushing towards the beach?

March was a busy month for public company results, painting a solid picture overall.  Nonetheless, there were notable exceptions as share prices and public company valuations remained stagnant. Looking at deal flow, a superficial analysis of the data suggests that activity levels in March mirrored those of January and February – and were notably lower than the levels achieved in Q1 2023. While this observation holds true, it overlooks some crucial underlying trends, the most striking of which is the significant surge in private equity activity, with deals up 2.5 times from March 2023. Similarly, although M&A deal statistics were generally lacklustre, this masks some really interesting M&A activity in the software sector, particularly in fintech. Venture capital fundraising rebounded after an exceptionally poor February, with fintech deals also playing a significant role.

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News Analysis 04m 55s

Capital Markets 12m 47s

Private Equity 15m 07s

Venture & Growth Capital 20m 25s

M&A 23m 59s

Friday 1st May: It has been another busy week for trading news but, as expected, corporate activity has slowed to a trickle. This week we focus on a few key results including, Microsoft’s Q3s, talk about the valuation outlook and consider our ongoing theme of resilience. My thought for the week is ‘are you running your business better because of COVID-19?'

Friday 24th April: In another busy week for COVID-19 related news, we discuss trading and corporate news from Blue Prism, Just Eat, Computacenter, BT, GB Group, Alfa Financial Software and GoCo, and our thought for the week centres on the coming digital revolution.

Friday 17th April: Tales of resilient software, VC investor focus and media sector stock market support

Thursday 9th April: Markets bounce, trading updates abound, another busy week for corporate activity and we get granular