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By Andy Morgan and Adam Bunch
Growth was more challenging to come by for TMT companies in 2024. The cohort of companies driving north of Rule of 40 performance narrowed as businesses struggled to match previous growth levels in 2024, grappling with increased costs, regulatory pressure, and longer sales cycles as corporate customers took a more cautious view on investment decisions.
This resulted in a second subdued year for M&A, though the sector remains one of the most active in terms of deal completions and continues to be at the top of the list for most investors.
Our analysis of data from CIQ and MegaBuyte showed quarterly dealmaking activity pick up in Spring and gain momentum throughout the year.
Software was the growth story in 2025 and remained the largest driver of M&A, as its high margins, recurring revenues and predictable cash flow offered investors relative safety amid economic uncertainty. There’s a backlog of deal flow in software, particularly in private equity, where hold periods have extended as investors aim to increase value ahead of an exit and in anticipation of improved market conditions.
We expect deal volumes to continue to tick up in 2025 as investors have more clarity on UK interest rates and political direction on both sides of the Atlantic. There are plenty of potential macro headwinds, but the direction of travel is positive for TMT dealmaking in 2025.
Source: CIQ and MegaBuyte
In a sluggish year for M&A in general, there was no year-on-year growth in TMT deal volumes. There were 981 transactions in 2024, compared to 989 in 2023.
Activity ramped up in the last three months of 2024, when volumes increased by 20% compared to Q3 2024 (285 v 238) and by 33% against the same quarter last year (285 v 215).
This bumper quarter had some irregular M&A timings as business owners raced to transact ahead of anticipated increases to capital gains tax (CGT) in the Autumn Budget. There were 121 deals in October compared to 48 in December.
This scramble contributed to rising Q4 2024 deal volumes, but clarity following major global elections and an improving UK economy also boosted numbers.
| IT services | Media | Software | Telecoms | |
|---|---|---|---|---|
|
No. of deals |
91 |
36 |
135 |
23 |
|
QoQ % change – Q3 2024 vs Q4 2024 |
47% |
20% |
2% |
64% |
|
YoY % change – Q4 2023 vs Q4 2024 |
54% |
29% |
26% |
10% |
Source: CIQ and MegaBuyte
The total value of all UK TMT deals for which the value was disclosed was c.£42.7 billion. This is a 21% decrease on 2023 (£53.8 billion).
Deal values dramatically rose by 47% in Q4 2024 compared to Q3 2024, bolstered by the £2.2 billion public to private takeover of LSE- listed Keywords Studios by EQT, which completed in October 2024.
| EV/sales multiple | Software | IT services |
|---|---|---|
|
Quarterly end-valuation
|
4.9x
|
1.2x
|
|
Five-year average
|
4.6x
|
1.9x
|
|
Quarterly change
|
0.0x
|
-0.2x
|
|
YoY change
|
1.8x
|
-0.5x
|
| EV/sales multiple | Software | IT services |
|---|---|---|
|
Year-end valuation |
4.6x |
1.1x |
|
Five-year average |
4.7x |
1.9x |
|
YoY change |
0.7x |
-0.8x |
Source: CIQ and MegaBuyte
Throughout 2024, valuations of private software companies have steadily increased, and are now ahead of the five-year average. Confidence is returning but the picture is quite polarised. There’s significant volatility in valuation points based on scale; growth; profitability; and KPI metrics. To be at the top end of the valuation multiple spectrum, businesses need to make sure their data is in good shape.
We advised cloud-based secretarial software specialist, Inform Direct on its October 2024 sale to accountancy software specialist, Bright Software Group (Bright), backed by Hg Capital. The deal adds Inform Direct's cloud-based management platform for company statutory reporting to Bright's suite of tools for SMEs and accountants.
We advised Meddbase on its January 2025 sale to environmental, health, and safety (EHS) and sustainability software expert Cority, backed by Thoma Bravo. Meddbase specialises in software management solutions for occupational medicine and medical practice management.
Transactions involving retail and hospitality tech have been increasingly popular since the global pandemic as the sectors seek solutions for rising input and staffing costs.
Both industries have been investing in software to improve customer experience, drive greater efficiency, and streamline processes to attract post-lockdown business since the latter part of 2021.
| PE | VC | Corporate | Other | Total | |
|---|---|---|---|---|---|
|
Pre-COVID 2018-2020 (inclusive) |
3 |
26 |
6 |
1 |
36 |
|
Post-COVID 2021-2024 (inclusive) |
2 |
30 |
21 |
1 |
53 |
Source: CIQ and MegaBuyte
Source: CIQ and MegaBuyte
The retail and hospitality technology sectors are fragmented. Both comprise a considerable number of smaller and fast-growing companies, which are increasingly attracting attention from venture capitalists, who were responsible for 61% TMT of deals between 2018 and 2024.
The pandemic catalysed significant retail sector transformation, particularly in the adoption of e-commerce. TMT M&A activity between 2018 and 2024 reveals a strong focus on retail operations management software, accounting for 22% of transactions, with the majority occurring after 2020.
This trend highlights the industry's desire to optimise and integrate operational aspects, including inventory management, workforce scheduling, CRM, analytics, and store operations.
E-commerce and omnichannel platforms emerged as one of the top investment categories, securing 22% of TMT deals in the period. This reflects the growing imperative to seamlessly blend online and offline channels.
Customer engagement and experience management solutions also gained significant traction, comprising 19% of TMT deals, underscoring the sector's commitment to enhancing contactless interactions and personalised customer experiences.
In the hospitality industry, enterprise software led the investment categories, accounting for 23% of TMT deals between 2018 and 2024. This signals a strong emphasis on comprehensive management solutions to enhance operational efficiency. POS systems followed closely, accounting for 21% of investments, while guest/customer experience management software secured 17% of deals.
In January 2025, the UK Government unveiled its AI Opportunities Action Plan, to position the UK as a global leader in artificial intelligence. Initiatives include expansion of AI infrastructure, support for research and development, integration of AI into public services, and a pro-innovation regulatory environment. Although there’s much work to do, the efficiencies and disruption promised by AI, and the need to manage its risks and compliance within companies, creates a positive backdrop for tech M&A.
Also in January, Microsoft CEO Satya Nadella announced the creation of 'CoreAI – Platform and Tools,' a new division aimed at integrating AI capabilities across all Microsoft products. The question for investors is: will the battle for AI growth be dominated by overarching platforms, such as this, or AI embedded within individual vertical or horizontal applications?
Whatever the answer, data's role in the successful application of AI remains a constant. Companies are increasingly recognising that the first step in capitalising on AI is having good data. BlackRock recognised this in its acquisition of Preqin, a provider of private markets data, for £2.55 billion, and we expect to see more data-related deals in 2025.
Takeover deals were responsible for twelve TMT companies leaving UK public listings in 2024. Headline exits included Darktrace's USD 5.3 billion sale to Thoma Bravo and Spirent Communications' £1.16 billion sale to Keysight Technologies. In addition, there were five de-listings across the main market and AIM.
To counter this, there were two main market TMT listings – Raspberry Pi and Canal+ – in an extremely quiet year for UK IPOs. Meanwhile, AIM saw the addition of games developer Winking Studios.
There are several initiatives underway to revitalise London public markets, including the FCA's revised listing rules. However, we expect the exodus to continue until these changes start to filter through.
Investors typically like TMT assets for their strong growth potential and resilience. We don't anticipate the general IPO market returning in the first half of the year. However, if and when it comes back after that, TMT firms will be the first in line.
While TMT remains one of the most attractive sectors for M&A, dealmaking has, to a degree, been stymied by macroeconomic and political uncertainty. As we enter 2025, investors in UK companies have a clearer outlook on both of these points. Falling interest rates continue to open up debt markets and offer more favourable conditions for buyers.
We’re preparing for a year of growth.
