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

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

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.

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

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

February in the UK tech sector continued to prove the notion that downturns are sudden and universal whereas recoveries are slow and patchy.

While some companies report improved trading, others are still finding it hard going, especially those focused on the financial services sector. Share prices were weak in the UK but much stronger in the US, evidencing an emerging (and worrying) trend that the UK is not benefiting from the AI bounce. Deal volumes remain subdued, with similar trends to the previous month with solid private equity numbers, ongoing weakness in M&A volumes, especially in ICT services, and essentially no fundraising activity in the capital markets. Meanwhile, February was a record low month for VC fundraising as later-stage deals completely evaporated but there is increasing evidence of an underlying recovery giving confidence for improved deal flow as we move through the year.

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News Analysis 05m 05s

Capital Markets 11m 44s

Private Equity 17m 49s

Venture & Growth Capital 21m 56s

M&A 24m 26s

It has been a rather subdued start to the year in most parts of the UK tech sector, but the overall picture does seem to be improving.

Trading news, of which there has been plenty, is broadly positive with the emphasis very much on utilising operational leverage to build back to the Rule of 40. Share prices on both sides of the Atlantic consolidated recent gains, but UK stock market corporate activity is still at rock-bottom. Once again, private equity activity was robust with SBOs leading the way, while VC and M&A activity continued the stable trends established in the last few months of 2023.

While it remains a bumpy ride, the recovery does seem slowly to be gathering momentum.

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News Analysis 04m 54s

Capital Markets 09m 47s

Private Equity 13m 41s

Venture & Growth Capital 19m 41s

M&A 23m 56s

As we kick off 2024, this month’s Megabuyte CEOBarometer follows a slightly different format.

In addition to reviewing all of the key share price and corporate activity trends for 2023, this month’s show is all about looking forward to the coming year and beyond. We present on our 10 key predictions for 2024, exploring tech demand trends, valuation dynamics, and the outlook for corporate activity. Focused on actionable insights, we also share five key recommendations for tech company Boards looking to capitalise on these trends.

So what of 2023? While the recovery was slower than expected to get going, the signs were there towards the end of the year, with stronger share prices and increased secondary buyout activity coming through.  As we look forward to 2024, we expect those signs of recovery to gather momentum, but there will undoubtedly still be bumps along the way given a patchy macro-economic recovery, ongoing geo-political uncertainly and continuing high interest rates.

So what will equip UK tech companies to successfully navigate those choppy waters as we head into the second half of the decade?  Our view is that it is those companies with progressive Chapter 2 and AI strategies that stand to take the lion’s share of the growth and attract premium valuations.

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2023 Year in Review 01m 53s

     - Share Prices 01m 53s

     - Deal Activity 05m 18s

2024 Key Trends 12m 40s

5 Key Recommendations for Boards 28m 46s

In this month's podcast:

Finally, there's some positive news to discuss regarding UK tech share prices, as they surged by 11% in November, hinting at the first signs that investors anticipate brighter prospects ahead. Let's hope that this upturn proves to be sustainable this time. Unfortunately, that's where the positive developments for this month largely conclude. Trading conditions remain challenging, and indications from FDM and Kainos updates suggest a continued deterioration.

Moreover, activity in capital markets, mergers and acquisitions, as well as venture capital, was notably feeble in November, with only private equity activity remaining robust. This was particularly evident in secondary buyouts, most notably observed in the case of Civica, which have been scarce lately as investors await confirmation of the new norms for valuations.

Looking ahead to 2024, the data suggests that the year will be a mirror image of 2023, starting off poorly but gradually improving.

For a comprehensive overview of our annual predictions, make sure you tune in to January’s CEOBarometer podcast.

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.