Sector Review: Tech Industry Flourishes Under Changing Consumer Habits - KBS

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Sector Review: Tech Industry Flourishes Under Changing Consumer Habits

Although already seen as the most fast-paced and dynamic industries in terms of innovation, developments, and advancements, the spotlight has truly shone on the significance of the technology sector during the Covid-19 pandemic. Through a surge of remote working, homeschooling, and online retail, relying on online solutions to meet our everyday needs, wants and obligations have never been more important.

These shifts in consumer and user behaviour have actively impacted global Mergers & Acquisitions (M&A) activity within the technology-related sectors, with total deal values eclipsing £187 billion for the year. Activity throughout the past 12 months has been spurred by the sudden and increased reliance on varying technologies, from software development to keep company networks secure whilst their employees work from home, to suppliers of more reliable hardware to ensure that video-conferencing with potential clients can go ahead without issue, companies involved within these sectors are enjoying a thriving M&A market.

Increased demand has driven deal values, with the average transaction size amongst technology companies increasing by over 30% in 2020 compared to 2019, according to data obtained by our research analysts from Bureau van Dijk.

Owing to continued social restrictions in the UK, most of these habits have continued into 2021 and are anticipated to last in the coming years as the sector is boosted through the demand of changing trends and needs of people pivoting between working from home and the workplace. Companies that have demonstrated resilience through this economic difficulty are more appealing to acquirers and as a result, several high-profile tech-related acquisitions have taken place over the last 12 months.

Online takeaway platform Just Eat plc has witnessed a surge in orders and deliveries throughout the UK lockdowns, and as a result, has merged with Dutch firm Takeaway.com in a £6.2 billion deal. William Hill plc, one of the world’s leading online and in-store betting and gaming companies, also experienced an increase in consumer activity through its online arm whilst its UK high street stores were closed, was acquired by Caesars UK Holdings Ltd., whilst Refinitiv, a provider of financial markets data, and arguably a ‘pandemic-resistant’ company, was acquired by London Stock Exchange Group for £31 billion.

Although demand for video communications platforms, such as Zoom, Microsoft Teams, and Skype is likely to see a slight decrease as more and more employees head back into the office, it is widely expected that video conferencing will be seen as a quicker and cheaper way to replace often costly and time-consuming business trips and face-to-face meetings in many cases, with many users, who may not have been familiar with such applications pre-COVID, now understanding how to use the software to create operational efficiencies. Throughout the midst of the pandemic, KBS Corporate oversaw the sale of Videocall Limited, a global leader in video conferencing and telepresence solutions, to New Era Technology, an area which we fully expect acquirers and private investors alike will be monitoring over the next year, looking for potential growth opportunities in this booming field.

The handiness of click and collect services as well as speedy delivery, such as those offered by several online retailers, has become a habit of those grown accustomed to the convenience. So much that consumers are now more willing to purchase larger ticket items through online platforms without visiting the physical location. Wayfair Inc. experienced a tripled digit growth with the firm’s stock settling over 180% in 2020, despite the effects the pandemic has on economies the world over, giving credit to the accessibility of e-commerce.

 

The pandemic has encouraged numerous businesses to advance their e-commerce feature in order to retain their market share while customers are forced to stay at home. An example can be seen at Peloton Interactive, which has gained a competitive edge through the digitisation of the fitness sector. The company enjoyed a surge in the sale of fitness equipment in addition to an increase in memberships, allowing users to take advantage of all fitness facets in the comfort of their own homes whilst their main competitors, high-street gyms, experienced a tough trading period as a result of the national lockdowns along with public hesitation around sharing confined spaces with other people. Similarly, Six to Start Ltd, an independent games developer and entertainment company based in London, were acknowledged as the world leaders in the health and fitness gaming space. Through the use of smartphones and the incorporation of technology with health, the company have created a successful fitness game that was funded by the UK Departments of Health and designed with and for the NHS. As a result of its success and buoyancy in the field, Six to Start was acquired by OliveX, a Hong Kong-based digital health and fitness company.

The advancement of the industry has also been influenced by the digitisation of low-tech sectors through the transformation of paperwork to online statements. The majority of banking customers already take advantage of this service through their online banking facility, highlighting a more permanent and effective way forward with the purpose of going paperless or environmentally friendly. Additionally, the development of digital platforms has also been active in the health and education sectors, where educational institutions were forced to transform classroom learning into virtual learning during the pandemic. As previously mentioned, the use of services such as Zoom and Microsoft Teams increased, as a result, pushing the software provider to improve this facility with the purpose of easy use and navigation.

Other tech-related companies that have flourished through this growth acceleration have contributed to the UK acquisition pool. Their demonstration of resilience through economic turmoil highlights their buoyancy to acquirers and investors alike – both national as well as international. Some of the recent acquisitions within the sector include the acquisition of Entain plc by MGM Resorts International for £8 million; ASDA Group Ltd by TDR Capital LLP for £6.8 million; Alliance Healthcare (Distribution) Ltd by AmerisourceBergen Corporation for £4 million; Cobham plc by Meggitt plc for £3 million; and Improbable Worlds Ltd by United Talent Agency LLC for £1 million. Evidently, in terms of total UK transactions within the sector, business intelligence specialists, Bureau Van Dijk, highlighted more than 3,300 transactions within the sector in 2020, an increase of more than 8% in just 3 years.

2020 has impacted many lives and businesses, however, the rate at which technology was adopted during the pandemic influenced the revenues and business models of the companies that chose to adapt to the new ways in which our society is operating – a trend we are expecting to continue over the coming years.

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