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Grant Thornton’s Solent 250 Sector Watch


Technology sector investment and its prospects


The recent turbulence across global financial markets and expectations of more stunted global economic growth have done little to assist businesses looking for investment or to execute transactions in the technology sector. The current economic environment has raised concerns as to whether the greatly improved technology investment climate seen through the first half of 2011 is threatened.


While there have been casualties from the market volatility, eg Micro-focus’ board ending talks with potential suitors, a significant amount of transactional activity has continued, such as Hewlett-Packard’s strategic move into software with the £7 billion acquisition of Autonomy, the UK infrastructure software player.


More importantly, investment activity remains strong in the UK mid-market, demonstrating the resilience of the sector. Recent examples include Attenda’s £50 million MBO (backed by Darwin private equity) and sale of Security Partnerships, managed security services, to Bytes Technology Group, both advised on by Grant Thornton.


These transactions are continuing because the fundamental drivers of investment in the technology sector remain strong, underpinned by a number of enduring themes as follows:


Strategic


Trade acquirers remain keen to complete transactions in areas which will facilitate strategic growth. This is especially the case where they can tap into growth verticals where IT spend is increasing at a higher rate than average or target firms which offer growth products and services in segmental hot spots such as cloud


Ones to watch


The technology sector incorporates a variety of businesses as the following selection demonstrates


Wireless Data Services


A provider of managed services to the wireless industry, the company has achieved annual turnover growth in excess of 37% over five years. Significant amount driven by international


www.businessmag.co.uk


services, security, mobile applications, predictive/ prescriptive analytics or Software as a Service (SaaS).


Increasingly, customers are looking for a trusted IT partner who can provide a ’one-stop-shop’ for all IT solutions. These solutions must be best of breed, leading many of the mid-market IT service providers to increase their service offering via acquisition. With a scarcity of strong, niche businesses vendors are seeing multiples rising.


Financing environment


This has improved markedly from its worst levels in 2009 with liquidity returning and more debt options available. The high level of recurring revenue within the IT sector enables finance providers to be more comfortable lending into these businesses than other, more volatile sectors. In addition, many corporates in the technology sector have built large cash reserves and are motivated to reinvest this capital.


Many of the global IT businesses have cut costs, traded profitability and reduced capital expenditure. These actions have led to large cash reserves that will either be paid back to investors or invested on aggressive acquisition strategies. With low global interest rates, shareholders are increasingly encouraging directors to reinvest profits for capital growth.


Resurgence of private equity


A number of private equity providers have raised new funds pre-credit crunch.


For more information on the


demand as the industry sees high growth due to popularity of smart phones. Outside of the UK WDS operates in the USA, South Africa, Dubai, Australia, New Zealand and Singapore.


Nimbus


This a business process management software vendor to a range of blue chip multinational firms including BP, JP Morgan, Lockheed Martin, Pfizer and Mercedez-Benz. Nimbus has embraced ’cloud computing’, is international in scope, and well positioned to continue to grow as its solutions deliver value.


technology sector in this region and throughout the UK, contact:


Caleb Lewington


Corporate finance manager 023-8038-1181


caleb.lewington@uk.gt.com www.grantthornton.co.uk


With many of these funds having a 10-year life, private equity are looking to invest. This excess capital is in an environment of limited quality assets which offer some or all of the following features: strong cash generation, strong growth prospects, more defensible revenue streams, strong recurring revenue streams and a diversified blue chip customer base.


International expansion


Continued globalisation means companies are increasingly competing cross border for clients requiring an international delivery of IT solutions. There is a continued motivation for firms to expand internationally, either through organic or acquisitive growth strategies, to mirror their increasingly multinational customer base.


The longer-term prospects for technology businesses across the region remain strong, despite the economic uncertainty, for those businesses which are well positioned to seize these growth opportunities in what remains a mixed domestic market.


Strong businesses will continue to attract competition among cash rich strategic purchasers or private equity investors, which will continue to support the improved valuations seen in the sector in the first half of 2011.


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – OCTOBER 2011


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