Deals Dispatch - UK Technology

After a tentative year for the UK tech sector, 2025 closed with a welcome rebound in Q4. Deal activity for the full year fell short of 2024, but the sharp rebound this quarter – the strongest in more than two years for deal volumes (ignoring the Q4 2024 pre-budget spike) – signals a potential turning point. While wider economic growth remains subdued, fiscal uncertainty has eased, and the market appears to be anticipating a more stable operating environment.

As we look ahead to 2026, the hope is that this late-year upswing translates into a sustained improvement in deal flow. In this edition, we break down the differences between 2024 and 2025 and what they could mean for tech business owners moving into 2026.

In terms of the economic backdrop, growth in the UK economy continued to stall into Q4 2025, with the ONS reporting a 0.1% contraction in real GDP in October, although November delivered a positive surprise with 0.3% growth, setting a more encouraging tone for December and into 2026. Inflation is easing but remains above the Bank of England's 2% target; the latest CPI reading of 3.2% coupled with persistent wage pressures leaves policymakers treading a fine line. While we would have liked more growth-oriented policies in the Chancellor’s December budget, it generally proved less disruptive than many had anticipated. However, technology business owners still face several near-term considerations, including a further reduction in Business Asset Disposal Relief from April 2026.

Deal volumes rose sharply by 47% in Q4 (to 188), with deal values increasing 180% (to £12.1bn), driven primarily by the £3.5bn Wireless Logic SBO. Year-on-year comparisons are skewed by the October 2024 budget, which resulted in a significant spike in transaction activity in Q4 2024; deal volumes are 13% lower as a result. The strength of the quarter was led by a 37% increase in trade sales, though PE posted the larger proportional gain, with platform investments more than doubling to 26. We believe this sharp recovery reflects the unwinding of economic uncertainty that characterised the early part of the year, given the inherent lead time on transactions. Our expectation is that this momentum signals a return to more typical M&A market conditions, underpinned by pent-up demand from owners/investors waiting for the right exit window coupled with the need for PE to deploy capital. In January 2026 there were 57 deals recorded, which puts us on track for a strong first quarter of 2026.

• Transformational M&A in the VAR sector:
  The Trustmarque and Ultima merger marks a shift in the UK mid market, bringing together two long established VARs to create a £1bn gross invoiced income, 1,000 employee IT services platform serving over 3,000 customers. The combination of Trustmarque’s public sector and professional services strength with Ultima’s corporate focused managed services and automation capabilities demonstrates that today’s market environment is once again supporting large scale, transformational M&A. The merger will enable competition against top tier UK VARs like Softcat and Computacenter.
• Buying AI over building:
  Accenture’s acquisition of Faculty announced at the start of 2026 underscores how demand for AI native capability is accelerating to the point where global consultancies are choosing to buy, not build. Faculty — a UK based, AI native firm with AI expertise, and a decision intelligence platform used in high stakes environments like the NHS — gives Accenture immediate capacity in AI strategy, safety and large-scale deployment. The deal signals a clear step change in the market: corporates are increasingly willing to acquire at premium multiples, fully formed AI native IP and platforms to shortcut years of internal development.
• Equity market momentum shifts from US tech to broader global equities:
  While 2025 was dominated by the US outperforming global equities, the final quarter saw a notable shift: Europe and emerging markets outpaced the US on a relative basis, supported by easing inflation and expectations of central bank rate cuts. UK equities participated meaningfully in this reversal, with the FTSE 100 hitting record highs. With US valuations increasingly stretched after years of tech-led dominance, this recent shift raises the prospect of investors reassessing undervalued UK tech names, with relatively more attractive pricing and regulatory reforms (such as AIM rule modernisation) potentially improving the UK’s appeal as a listing venue.

• Valuations uplift: Private market valuation sentiment continued to improve this quarter, with a notable step up in average EV/EBITDA multiples across both software and services. Average services valuations, which were recorded at 7–8x at the start of 2025, have recovered to 12-13x this quarterSoftware valuations have been more volatile: after bottoming out at 14–15x last year, average multiples have pushed past the 20x mark in each of the last two quarters, signalling a clear return of confidence and competition for good quality tech businesses. A shortage of high-quality investment opportunities and a change in the mix of deals may also have contributed to these improvements.
• Tactical M&A supplements lower organic growth: With organic growth proving hard to come by across the technology sector during 2025 (according to Megabuyte around two-thirds of software companies reported a deceleration in organic growth rates in Q4 2025), many businesses — particularly in the UK mid-market — are finding that traditional levers (pricing, cross sell, international expansion) are not delivering the required returns. As a result, M&A offers opportunities to maintain momentum and has become a key strategic focus for PE backed businesses as they look to meet investor growth expectations.
• PE exit pressure: PE exit pressure is increasing as data from the FT shows Global PE managers are relying more heavily on continuation vehicles as traditional exit routes are increasingly challenging. We are seeing a similar need for flexibility in funds and exit strategies amongst mid-market UK tech.

Across the UK technology market, indicators are broadly positive: deal volumes and valuation metrics are moving steadily in the right direction, supported by increasing buyer appetite and heightened competition from overseas acquirers for high quality assets. At the same time, buyers remain disciplined, favouring businesses with strong recurring revenues, high customer retention, demonstrable scalability and robust second tier management.

Global dynamics will continue to shape sentiment. US tech valuations remain elevated, supported by vast AI related capex and no immediate signs of investment slowing down. As US valuations stretch, the relative value on offer in UK listed tech will likely lead to a continuation of public to private transactions.

For owner-managers, we suspect that cumulative fatigue from Brexit, Covid, geopolitical shocks and shifting tax and regulatory frameworks will have formed a backlog of exit plans which may start to unwind over the next year. For good technology businesses, a more stable outlook may provide an attractive window to realise value — provided they are deal ready.

The UK mid-market tech sector had a challenging 2025, recording the lowest number of deals since 2020. Deal volumes fell 11% year on year, while total deal value declined 20%,  impacted by a smaller number of mega deals completing during the year. Despite this contraction, indicators point to a market beginning to rebalance. Average tech valuations across the whole universe edged up from 13.5x to 14.2x, public markets sentiment strengthened — with the FTSE 250 rising and NASDAQ maintaining strong momentum — and interest rates easing by nearly a full percentage point. Sub-sectors such as Telecoms, IT Managed Services and Business & Consumer software continued to anchor activity, with Information Management and Human Capital Management also showing resilience. The data below sets out the full comparison between 2024 and 2025.

Building on these positive indicators into 2026, the UK tech landscape is also seeing strong momentum in new tech companies. In 2025, the UK registered 56,615 new tech incorporations, a 17% rise on the previous year and 47% more than five years ago. This sharp increase highlights how attractive the sector has become, particularly given its ability to support and accelerate innovation across a wide range of industries. While recruitment and talent development remain areas where the UK continues to lag, the sustained growth in entrepreneurial activity suggests the ecosystem is still strengthening and will likely remain the most active sector in the UK.

Highlights

• Valuations remain resilient:
  Both our listed UK software and services indices remained resilient in the quarter. The average listed software EBITDA valuation was at 12.9x at the end of Q4, only 0.2x down on the previous quarter and the average services EBITDA valuation was at 10.1x, only 0.5x down on the previous quarter.
• Broader rotation in equity markets but listed tech still struggles:
  As mentioned earlier, UK equity markets had a good quarter comparatively, with the FTSE 100 reaching all-time highs and the more UK headquartered and slightly more tech focused FTSE 250 up 3% in the quarter. However, this performance contrasts with our tech indices as both software and services share prices were down significantly in the quarter.

Key trends

• Spike in PE activity:
  Private equity activity accelerated sharply this quarter, rising from just two lower mid- market deals to nine. As market confidence rebuilds and operating conditions stabilise, PE investors are increasingly willing to deploy capital into smaller, higher growth potential businesses and explore opportunities in adjacent or emerging markets.
• Standout sectors:
  Among lower mid-market corporate transactions this quarter, the most active sectors were IT Consulting, Financial Services, Human Capital Management, and Information Management — each benefiting from continued digital transformation and the demand for operational efficiency.

During 2025 we advised:

• Skillwell on its acquisition of immersive and adaptive e-learning platform provider, Realizeit.
• Microsoft Solutions Partner, mhance Group on its sale to SilverTree Equity.
• Wilmington plc on its acquisition of RegTech documentation generation software solutions provider, Conversia, S.L.U.
• Your.Cloud on the acquisition of telecoms and IT services provider, Comm-Tech Voice & Data.
• Dotdigital Group plc on the acquisition of influencer and affiliate marketing platform, Social Snowball.
• BGF on its investment into retail technology consulting business, PMC.
• Data analytics platform, Clear Box Analytics on its sale to Crisp Inc.

Sources for article: Pitchbook, Megabuyte, ONS, Bank of England, Financial Times, UK Tech News.