Foreign buyers are snapping up UK tech firms
Brexit, Covid, a struggling pound and an incoming recession have crashed UK valuations
British tech firms have become attractive acquisition targets for foreign businesses, posing a risk that the UK market could lose what little access it still has to high-growth assets.
For example, US private equity firm GTCR announced this week that it is considering making an offer for Chester-based GB Group, which specialises in identity verification and fraud protection.
This comes on the heels of other acquisition offers, including one made by Canadian Open Text Corp for Micro Focus International, and NortonLifeLock's purchase of Avast.
US group Thoma Bravo has recently made an acquisition offer for AI security company Darktrace, while France's Schneider Electric SE is showing interest in industrial software developer Aveva Group.
Other potential acquisition candidates in the UK tech sector are Kape Technologies, The Sage Group, Redcentric and Keywords Studios.
Armed with record amounts of cash, US-based companies are looking across the Atlantic in an attempt to acquire British firms at a breakneck speed, say analysts.
Weak pound, pandemic and Brexit have slashed valuations
The valuation of UK-listed firms has fallen in the wake of the pandemic and Brexit. At the same time, foreign firms are looking to bolster their portfolios by taking advantage of a prolonged sell-off in growth assets and a depreciating pound.
According to research by Fidelity International in March 2021, UK companies were selling to global stock markets at a discount of almost 40%, and at an even greater discount of 50% to US markets. Those levels have doubtless increased since.
The overseas spending binge is utterly at odds with the British government's initiatives to support a robust local tech ecosystem and draw new growth listings to London.
Six years after Softbank Group took chip designer Arm private, the government has been pushing hard for the company to be listed at the London Stock Exchange.
Masayoshi Son, Softbank's founder, has repeatedly said he wants to list Arm in the US because of its strong investor base and attractive values, although the political appeals are making him consider a UK listing.
"The swoop on UK targets by overseas buyers will undoubtedly cause unease among politicians," Susannah Streeter, senior analyst at Hargreaves Lansdown, told Bloomberg.
"It's fresh evidence that UK assets are considered to be cheap, weighed down by the impact of Brexit, the weakening pound, the energy crisis and the looming recession set to hit the economy."
Government stymies foreign buyouts
The recent wave of tech buyouts has drawn the attention of British lawmakers.
In April, the Foreign Affairs Committee demanded an explanation for why a government review into the purchase of Newport Wafer Fab (NWF) had not been completed - months after Boris Johnson ordered it in July 2021.
The head of the Committee, Tom Tugendhat, said it had raised its concerns over the transaction, but the government had yet to provide any details on its findings.
In July, the government prohibited the University of Manchester from granting a Chinese firm a licence for its vision-sensing technology, under the National Security and Investment Act 2021.
The soaring global interest in purchasing British businesses comes against a backdrop of increasing M&A activity worldwide, with global dealmaking totalling $2.4 trillion in the first five months of 2021, according to Refinitiv.
"The relative cheap valuations of many UK tech companies compared to their US peers, combined with the weakness of sterling are likely to continue to attract suitors," said Neil Campling, head of technology, media, and telecom research at Mirabaud Securities.