M&A in the UK IT services sector:
Q3 2024
UK market enters growth phase
162
deals completed
+3%
Moore Kingston Smith
IT Services Index
67%
deals backed by PE
Our view of the market
IT services deal-makers were busy this summer. Q3 2024 has shown a significant increase in the number of deals completing – 162 deals, compared with the 151 transactions we logged in Q2, an increase of 7%. We suggested in our Q2 report that the UK market was poised for growth, with an improving economy, expected lower interest rates and business owners predicting changes in the UK’s capital gains tax regime. These drivers have now translated into higher levels of activity.
After four consecutive quarters of growth in private equity activity, Q3’s data shows a reduction in the percentage of transactions involving private equity. Private equity still accounts for most transactions but the increasing percentage of non-private equity deals demonstrates that trade buyers are returning to the fray.
We expect there to be a flurry of activity in October as business owners rush to complete deals before the upcoming Budget on 30 October. It will be interesting to see how any changes the Chancellor announces may impact the appetite for M&A activity.
Nick Thompson, Partner, comments: “As we predicted, deal volumes continued to increase in Q3 and the start of Q4 despite, and to some extent driven by, Budget-related uncertainty. The second half of Q4 is likely to see decreased activity. One of the many possible Budget outcomes is an increase to both the CGT tax rate and BADR relief threshold (above the existing £1 million). There has certainly been a rush to complete deals before 30 October but only time will tell if those beating the Budget deadline are winners or losers. We watch with interest.”
Quarterly deal volume
“This deal reinforces StatsBomb’s commitment and belief in the power of data in sport. We know data-driven teams make better decisions. Pairing StatsBomb’s data and statistical models with Hudl’s video capabilities will enable superior match analysis, scouting and player recruitment.”
Ted Knutson, CEO and Co-founder of StatsBomb
Spotlight on: software distribution
Software distribution deals made up 36% of all the Q3 transactions we recorded in the outsourcing and distribution space.
One cross-border deal we saw in the software distribution space in Q3 was the acquisition of UK-based provider of vending and coffee management software SB Software by Nasdaq-listed Cantaloupe. Cantaloupe is a global provider of end-to-end technology solutions for self-service commerce, and the strategic acquisition of SB Software is set to enhance its operational capabilities and market reach throughout Europe.
Q3 deals by sector
Trending: cyber security
Cyber security deals accounted for 65% of all the Q3 transactions we recorded in the data and security space, which is a huge increase on the 28% we recorded in Q2. This is not surprising, given the year-on-year increases in cyber crime. If it were measured as a country, then cyber crime — which, according to Cybersecurity Ventures, is predicted to inflict damages of $9.5 trillion globally in 2024 — would be the world’s third-largest economy after the USA and China.
One notable UK cyber security deal in Q3 was the acquisition of UK-based identity management specialist Atlas Identity by Intragen, which is backed by FPE Capital, a software and services-focused lower mid-market growth investor. This deal marks Intragen’s third acquisition in the last 12 months.
“As cyber threats continue to develop and expand, organisations are increasingly looking for us to deliver identity transformations and maintain their identity service as a fully managed support service.”
Private equity taking a smaller share
Private equity-backed investments accounted for 67% of all IT services deals completing in Q3 2024, which is 7% below the level we recorded in Q2. Clearly private equity-backed deals continue to dominate but, after four consecutive quarters of activity growth, it seems private equity investors are starting to see more trade competitors in the market.
US private equity house Bain Capital turned its sights on the UK in Q3, with its specialist high-growth tech investment fund, Bain Capital Tech Opportunities, completing several UK transactions. In August, it acquired Finova and MSO, two of the UK’s leading providers of mortgage and savings software, with a view to merging them into a combined entity. Also in August, its portfolio company, Hudl, acquired Bath-based football analytics company StatsBomb.
Percentage of PE-backed deals
Notable UK mid-market deals
AIM-listed IQGeo, a developer of geospatial software for telecom and utility operators, was acquired for £333 million and taken private by global investment firm KKR.
Infinite Reality, a company making AI and immersive technologies for digital media and e-commerce, acquired UK-based Landvault, a specialist in immersive technology for Fortune 500 companies and government organisations for $450 million.
US private equity house Mainsail Partners acquired Manchester-based MirrorWeb, a digital communications archiving, supervision and surveillance software provider, for c. $63 million from Maven.
Stock market performance
In Q3 2024, global stock markets showed some small gains. The S&P 500 was up by 5% in Q3. The Moore Kingston Smith IT Services Index was up by 3%, lagging the overall market but ahead of the two technology-specific indices, the FTSE TechMark Focus Index and the MSCI World Information Technology Index, which both ended Q3 flat.
Of the 21 companies in the Moore Kingston Smith IT Services Index, 12 ended the quarter in positive territory in Q3. IBM was the star performer in Q3, with its share price increasing by 26% during the period. IBM’s share price hit an all-time high at the end of September as investors cheered its ongoing growth and exposure to AI.
The worst performer in Q3 was yet again Atos, which saw its share price decline by 28% across the period. Atos – once seen as one of Europe’s champions in the software and technology sector – has been teetering on the brink of financial collapse in recent months, although a restructuring deal was approved by its shareholders and creditors in September. The deal includes the conversion of €2.9 billion of debt into equity, and the receipt of c. €1.5 billion of new debt, as part of a package of transactions to take place between November 2024 and January 2025.
Moore Kingston Smith IT services index
Q3 2024 sector subcategories
Contact us
Methodology
In compiling our deal tracker we use Pitchbook, an international financial data provider that gives access to comprehensive data on the private and public markets. We analyse every deal with either a UK buyer or UK seller or both. Where the target company is classified as IT consulting, outsourcing and distribution, or data and security, the transaction is entered into the deal tracker. We classify IT consulting into four sub-categories, outsourcing and distribution into eight sub-categories,
and data and security into three sub-categories.
As well as the data extracted from Pitchbook we have used information from the following sources: idoxgroup.com, sage.com, insidermedia.com, osf.digital, intercede.com, cnbc.com, marketbeat.com, babble.cloud, pinnacle-online.com, pehubeurope.com, quoteddata.com.
