Our analysis of 500 UK software acquisitions reveals new insights on the exit options for software business owners, why now is a good time to sell equity, and which niches are seeing the most M&A action.
What’s going on?
The £32bn UK software industry is currently growing at an estimated 10% a year – five times faster than the overall economy. However, some experts are predicting that will dip to around 7% from next year onwards as new segments begin to mature.
The big three drivers since 2012 have undoubtedly been largescale cloud migration, the popularity of SaaS applications, and accelerated investment in cybersecurity after a string of expensive high-profile breaches. Indeed, the £9bn SaaS market is growing at 18% a year, while cybersecurity is growing at 20%.
Unsurprisingly, software investor sentiment has remained very positive – with no shortage of possible backers for application developers – however the emerging signs are that many segments are reaching saturation point as new entrants continue to pile in.
In 2018 alone, an extra 12,000 software firms started up in the UK – a 14% increase on the year before – and that doesn’t take account of overseas products and services competing remotely for UK business.
Take marketing technology (“martech”) for example. There are currently 5000 product choices globally, including well-known platforms such as Marketo and Hubspot. Today’s martech developers would need to consolidate by 85% just to get down to 1000 products. That’s a lot of M&A, but in reality it won’t all happen. Not everyone is worth buying or backing, and those big enough to acquire want to leave enough headroom for organic growth.