Author: Mark Allen, Partner and Pete Marshall, Assistant Manager, Corporate Finance.
As we wrap up the final quarter of 2024, it's clear that the UK technology sector has needed to show resilience during a turbulent year. Despite strong headwinds caused by ongoing global conflicts, US and UK elections, changes in domestic fiscal policy and sluggish economic growth, the UK Technology deals market has stood up remarkably well. Across 2024, a total of 735 deals were completed, representing a dip of just 4% from 2023, and the sector finished the year strongly with the highest quarterly total in nearly two years. UK Technology businesses continue to attract interest from domestic and overseas acquirers and quality businesses with strong market positions continue to command premium multiples.

Looking ahead to 2025, it's a pivotal year for policymakers. We're at a crucial juncture where inflation is flattening, and interest rates are starting to fall. The key takeaway here is that the technology sector continues to remain resilient compared with other sectors, regardless of the macroeconomic climate. This resilience is driven by the increasing integration of technology solutions in our daily lives and the rapid growth of AI-powered solutions to drive much needed productivity gains.

While the Bank of England cut interest rates from 5% to 4.75% in November, the Monetary Policy Committee voted to hold the rate at December’s meeting, signalling that we're not out of the woods yet. The Consumer Prices Index (CPI) rose by 2.5% in the 12 months to December 2024, up from 1.7% YoY in September, and it is expected to rise again in early 2025. The Bank of England will need to tread carefully as we move into 2025, balancing the timing of further interest rate cuts to avoid unfavourable outcomes. Growth is also fragile, with GDP flatlining in October and November and UK businesses fighting to mitigate the National Insurance and other changes announced in the Autumn Budget.   

Despite the macroeconomic challenges, the chart below shows that UK Technology M&A activity has settled at above pre-pandemic levels, reflecting growing confidence and optimism in the sector. Q4 2024 was a standout quarter, with deal volumes up 20% to 215 and disclosed/estimated deal values up 46% to £9.8 billion, likely driven by the anticipation of a CGT rate increase in the Autumn Budget.

Chart 1 - Deals Dispatch Q4 V2

Highlights

  • October Budget spike: We saw the highest deal count in seven quarters as businesses rushed to finalize deals before anticipated changes to CGT rates. The actual CGT rate decision was less severe than many expected, but even so we predict a period of lower deal volumes as shareholders digest the impact of wider fiscal policy changes.
  • General Atlantic agrees a deal to take LTG private: Subject to shareholder approval, this significant deal would mark another large UK technology group being taken off the UK public market. This would build on General Atlantic's portfolio of ed-tech companies including Duolingo and Kahoot and is a continuation of the trend of overseas interest in UK technology businesses.
  • Return of Fintech: After a period of turbulence, the fintech sector rebounded in 2024 with notable deals including Preqin, Featurespace, and CubeLogic. Trends such as open banking, analytics, and digital assets continue to drive growth in this sector.
     

Observations

  • US technology market volatility: Despite global macroeconomic uncertainties, US technology stocks continued to climb through Q4 2024, however the recent emergence of the Chinese company DeepSeek's AI model built for a reported $6 million has caused a shock to the market – though the cost of development outside of training the model is unknown. Whilst there will be many use cases for the larger infrastructure heavy AI Models such as OpenAI, if models like DeepSeek can grab a chunk of the market at a much lower price point then this will likely cause further volatility.
  • Private equity activity increases: Q4 2024 saw a significant increase in PE activity, with growth in both deal numbers and values as funds looked to finish the year strongly and take advantage of Budget concerns. In general, 2024 was a relatively quiet year for PE activity in the technology sector, which suggests pent up demand and the potential for more activity in 2025, particularly if the cost of debt continues to fall.
  • Slow UK growth starts to take its toll: The UK technology sector has not been completely immune to slower economic growth and this will have had an impact on exit timelines of PE portfolio companies due to missed revenue and profit targets. A recent report showed one in five UK listed companies issued a profit warning in 2024, the third highest ratio in 25 years, behind only the pandemic and the dot-com bubble. Contract delays and cancellation was the most common factor reported. 

Outlook

The UK technology deals market has been relatively flat over the past 24 months. While the Q4 2024 activity spike is likely a one-off Budget bounce, sentiment is improving, and we expect 2025 to be more active than 2024. With fiscal uncertainty now resolved, at least in the short term, technology business owners should remain optimistic. There is good appetite from both trade and financial acquirers for quality technology businesses that can demonstrate growth and strategic value. The weakened pound, compared to its peak in September, should also help tempt US acquirers. Valuation expectations may need to be more modest though, particularly compared to the risk-off era of 2021-22. The Bank of England base rate has lagged inflation as the chart below shows, so we look forward to further reductions, particularly in a year of predicted low growth.

Chart 2 - Deals Dispatch Q4

Technology M&A Heat Map

Below is a heat map of UK technology M&A activity, showing the key statistics in the sector and their movements on both prior quarter (QoQ) and prior year (YoY).

Key: Green (positive change) and Red (negative change).

 

Technology Heat Map Chart Q4 V6
Please note we have excluded all deals over £5 billion and any valuations above 50x EV/EBITDA and below 2x EV/EBITDA in this report. The average deal size excludes deals with no EV reported.

Capital Markets

Chart 4 - Deals Dispatch Q4
  • UK capital market outflows persist: After breaking the run of 41 consecutive months of outflows from UK equities in November, the December data returned to the norm and showed another outflow (Calastone). Investors continue to take money out of the UK and into global and US funds and UK share prices continue to underperform. The new UK government will need to act in order to break this cycle and make the UK public markets an attractive place for global investors again.
  • Global stock markets continue to go higher: The large tech heavy Nasdaq continues to outperform the rest of the market, buoyed on by the investment and adoption of AI. It will be interesting to see under a new US president if the giant tech companies’ dominance continues to increase or if they will start to come under stricter regulation. There have already been rumours in recent months that Google may be forced to sell Chrome because of the search engine monopoly they hold.

SME Focus

Chart 3 and 4 - Deals Dispatch Q4 V2
  • Noticeable jump in lower mid-market trade and PE deals: Deal volumes jumped by 33% and 60% respectively in the quarter, a substantial increase, particularly for trade deals which had consistently declined from Q4 2022 to Q3 2024. We suspect this increase is again aligned with the Autumn Budget, but we are hopeful that lower mid-market deal activity will continue to improve in 2025.
  • Smaller technology businesses have felt the tougher trading environment: We have started to see smaller technology businesses, particularly with a reliance on public sector clients feel the squeeze of inflationary pressures and fiscal policy. We suspect this will only be short term but shows the importance of a diverse customer base and resilient delivery model.
  • Iomart acquisition of Atech Cloud: This was an interesting deal due to the relative weakness of the IT services sector in the past year and the 17.3x EBITDA multiple that was paid. Atech Cloud delivers cloud transformation and other services and sits in the fast-growing Microsoft space. It is also profitable and doubled revenue in FY23 to £28 million. The deal proves that differentiated businesses aligned with market growth and opportunity are still attracting premium multiples. 
     

Spotlight on Labour's AI Action Plan:

In January 2025, the UK Government unveiled its ‘AI Opportunities Action Plan’, designed to boost the UK’s AI capabilities and infrastructure, including significant investment over the next five years. A key part of this strategy is building a new supercomputer (previously announced in 2023) to position the UK as a leader in the global AI race. This powerful machine will join existing high-performance computing systems like Isambard-AI at the University of Bristol and Dawn at the University of Cambridge, enhancing the UK's computing power by a factor of 20. 

The Government-owned supercomputer will support AI research and development in academia and public sector applications.

While this initiative is a positive step, it's important to recognize that building a world-class AI ecosystem takes time and sustained effort. The financial details of this ambitious project are yet to be disclosed, with funding expected from the Department for Science, Innovation and Technology's R&D budget.

Despite these considerations, the initial response from the private sector has been overwhelmingly positive, with over £14 billion in new investment which has flowed into the UK's AI sector. This surge aligns with significant commitments from global tech giants like Microsoft and Vantage Data Centers, signalling growing confidence in the UK's AI ambitions.

Crowe Activity

Over the last quarter, Crowe is pleased to have advised on the following UK technology transactions.

  • Acquisition of Hosted Desktop UK by Your.Cloud.
  • Sale of The Scale Factory to Ten10.
  • Acquisition of the trade and assets of Crossword Consulting by SysGroup.

Sources: Pitchbook, Megabuyte, Calastone, LSE, FT

Supporting you

Our Corporate Finance team are here to assist you with every step of your M&A journey. Please contact Mark Allen or your usual Crowe contact for more information.

Insights

First quarter of 2024 review of the mergers and acquisition market for technology and media in the UK.
Second quarter of 2024 review of the mergers and acquisition market for technology and media in the UK.
Third quarter of 2024 review of the mergers and acquisition market for technology and media in the UK.
First quarter of 2024 review of the mergers and acquisition market for technology and media in the UK.
Second quarter of 2024 review of the mergers and acquisition market for technology and media in the UK.
Third quarter of 2024 review of the mergers and acquisition market for technology and media in the UK.

Contact us

Mark Allen
Mark Allen
Partner, Corporate Finance 
Thames Valley