Cyber and AI fuel surge in UK tech M&A deals
The UK’s software M&A market has hit a record high, with £13.2bn deployed across 420 deals over the past year, marking a 27 per cent year on year rise and revealing the nation’s pivotal role in Europe’s tech investment scene.
A recent survey from BearingPoint Capital found that despite escalating macroeconomic headwinds and growing valuation mismatches, private equity (PE) appetite for software and Software as a Service (SaaS) deals has remained remarkably resilient.
The UK continues to dominate the region, the study found, commanding nearly one in three software buyouts in Europe, even as deal volumes rise faster in Nordic and French markets.
Cybersecurity, vertical SaaS, and fintech Saas emerged as the most in-demand UK sectors, reflecting heightened investor focus on mission-critical tech infrastructure and risk mitigation tools.
The survey follows multinational services firm Org Group recently acquiring Manchester-based tech firm Venturi, expanding its market presence in the UK.
A cybersecurity and AI era
Despite record-breaking deal activity, the market is undergoing a shift in dynamics.
A key concern for many investors is the rise in valuation mismatches, which was cited by 50 per cent of respondents – and more than double last year’s figures.
But this friction doesn’t seem to have dulled enthusiasm, with 60 per cent of PE firms still planning to increase their software and SaaS investments this year.
What has changed, however, is how those deals are made.
Tougher negotiation processes, longer timelines and increasingly rigorous due diligence have become defining characteristics of the M&A landscape.
Over a third of respondents revealed increased spending to more detailed assessments, particularly around cyber, AI, and scaleable tech.
What’s more, tech due diligence is playing an increasingly major role in value creation strategies.
Over 50 per cent of PE firms said specialising tech assessments has had a direct impact on their long-term value creation plans.
With the integration of AI escalating at a dizzying rate, buyers are increasingly wary of its hype.
A growing number of businesses have flagged the difficulty of separating real AI functionality from marketing spin.
Cyber, too, is taking centre stage. Standalone cyber due diligence is becoming the norm, as more than half of firms report using, or being open to using, dedicated assessments.
This comes amid a cyber crime rampage in the UK, with leading retailers like M&S, Harrods, and Co-op recently being targeted by a spree of attacks in the last month.
London: a resilient and adaptive tech hub
While the broader European tech market continues to evolve, London and the wider UK ecosystem remain influential players in deal activity.
The combination of deep pools of capital and a strong software development talent base, as well as a maturing exist environment has driven the UK’s attraction, even despite interest rate pressure and geopolitical uncertainty.
The need to adapt accordingly has lead firms to diversify their exit strategies and look beyond traditional paths.
Yet, concerns on the country’s competitiveness in the sector have recently ramped up.
Just yesterday, the capital saw the collapse of one of its best-known AI unicorns, Builder AI.
Meanwhile, earlier this month London-listed Deliveroo agreed the terms of a takeover by its larger US rival Doordash, and fintech giant Revolut this week chose Paris as a base for continental European expansion.
Dr Sue Black OBE, a tech expert and former government adviser, urged the UK to “double down on fostering a tech positive culture before it is too late.”
According to BearingPoint Capital, firms are increasingly focused on building tech-focused plans from the outset, with cyber security and AI as necessary points of experties. The UK just needs to stay competitive in this burgeoning field.
The report found that exit confidence is rebounding, too, with the number of companies reporting no exit strategy falling from 25 to 15 per cent in the last year.