Reports of the death of the tech sector have been greatly exaggerated

It's hard to see the UK's pivotal role in the global technology ecosystem coming to an end, argues Kemp Little Partner Andy Moseby

A recent UK Tech Monitor report from KPMG suggests that growth in the UK tech sector - consistently the fastest-growing sector of the economy year-on-year since 2012 - has begun to slow down. By their measurements, where a mark of 50 indicates no change in growth, transactions and business activity across the UK technology market have dropped from 54.4 in the first quarter to 53 in the second.

Although signs of a deceleration should never be dismissed out-of-hand, it would seem that reports of the death of the UK tech sector have been greatly exaggerated. The figures indicate a reduction in the rate of growth and not an actual shrinkage. Corporate acquisitions in the UK tech sector have continued apace since the start of the year, despite the current unstable global geopolitical environment and - naturally - the general uncertainty over Brexit.

Potential acquirers appear to be confident that tech M&A in the UK will remain buoyant

Other recent reports from corporate financiers tell a different story, suggesting that global tech acquirers are hungry for UK assets, with the UK ranked as one of the top five most investable countries, ahead of the US, Germany and France. While financial conservatism is rife in the current environment, with buyers remaining cautious and sellers holding out for top valuations, we certainly haven't seen any significant reduction in the number of UK tech M&A deals being undertaken.

Deal value also appears to be remaining high. Strategic targets are still attracting premium valuations: Nuvei's announcement to acquire SafeCharge International, the UK payments technology business providing an omni-channel payment service, for $889 million represented a 25 per cent premium to the closing price of the shares the day before the announcement.

According to GlobalData's deal database, the total value of UK tech M&A deals in May 2019 was more than $2.7 billion - the highest monthly total in the previous 12-month period. Although, compared to other months in the last year, this seems to be an outlier, it's a clear indicator that mega-deals are still being done in the UK.

The current political uncertainty in the UK, causing a weak pound against the dollar, is no doubt also a factor in making UK assets attractive to US buyers

Fintech deals, such as Nuvei/SafeCharge, continue to represent a large proportion of the current M&A tech deals in the UK. This is mainly due to the ongoing technology transformation of the financial services sector. Disruptive fintech businesses are also highly attractive to both strategic and private equity acquirers - the insurance and payments industries, for example, are currently being transformed by developments in AI and machine learning.

We're also seeing a substantial amount of continued inbound investment from the United States. Corporate finance firm Alantra recently recorded over 400 UK tech deals for the first six calendar months of 2019, with more than half of the buyers being US strategic or private purchasers.

There appears to be a real trend of US tech companies looking towards acquisition to enable them grow and find a footprint in other territories, allowing them to expand out of Silicon Valley. The current political uncertainty in the UK, causing a weak pound against the dollar, is no doubt also a factor in making UK assets attractive to US buyers.

Despite KPMG's figures showing a reduction in growth, potential acquirers also appear to be confident that tech M&A in the UK will remain buoyant.

Deloitte's recent annual The state of the deal: M&A trends report for 2019 showed a bullishness from its respondents. Only 25 per cent of corporate respondents said that deal flow during 2019 would be the same as in in the previous year or lower (down from 32 per cent in the 2018 report), whilst private equity respondents were even more confident: only 12 per cent anticipated the same or less activity, less than half the 25 per cent that had anticipated a slowdown in 2018.

Whilst, in the current economic climate, it takes a brave person to make any kind of prediction, it possibly takes a braver person to bet against the UK tech sector continuing to outpace the growth of other sectors. The UK continues to play a pivotal role in the global technology ecosystem, and it's hard to see that suddenly coming to an end.

Andy Moseby is a Partner at Kemp Little, a London law firm specialising in technical and digital media