Wave of M&A deals ahead as tech firms eye growth window
● UK firms in the sector can accelerate expansion by acquiring European peers
A wave of takeovers and mergers in the UK technology sector, the rise of so-called robojobs and further dramatic growth in the sharing economy behind the likes of Airbnb are among the key themes which will dominate the business world next year, according to analysts.
Shares of companies in sectors including the environment, financial technology, cyber security, healthcare, robotics and gene editing are also tipped to be among the strongest performing for investors.
Analysts at Peel Hunt argue that although the Brexit vote has created uncertainty, there is also now a unique “window of opportunity” for M&A in the technology sector.
“It is the simplest way for technology companies to accelerate R&D and grow customers. Therefore, we see this trend continuing and accelerating going forward. We believe there is a small window of opportunity for UK companies to accelerate acquisitions of European businesses, to remain attractive as a gateway to Europe for potential US acquirers,” said analyst Paraag Amin in an overview of the sector.
“European tech businesses also are typically lower rated than UK companies and provide an opportunity for enhancing earnings. And, of course, UK companies continue to be picked off by the US.”
Peel Hunt’s top three picks for the sector include Edinburgh-based healthcare software firm Craneware, which it is house broker for.
John Wyn-evans, head of investment strategy at Investec Wealth & Investment, which has produced a forecast report for 2017, also argues that “profound technological and social innovations” are continuing to generate exciting investment opportunities across the world.
On robojobs, Investec said the scope of activities that are open to the application of labour-saving techniques is “essentially limitless”. “Computing power is doubling every 18 months to two years and for the first time computers are starting to think for themselves. Large numbers of clerical and professional tasks that were the preserve of the educated are under threat,” its Vision 2017 report points out.
The value of transactions in the UK’S sharing economy, which includes companies such as Uber, have already reached £7.4 billion a year and by 2025 this is expected to have grown to £140bn.
Other key themes for 2017 highlighted by Investec include the end of the 35-year bond bull market and the rise of “angry politics”. It argues that rising rates of inequality were a major factor in Brexit and the election of Donald Trump and that populist policies will favour safe haven assets such as US treasuries.
Peel Hunt has also highlighted robotics and automation as key themes for next year in its latest technology overview and it also believes that M&A (mergers and acquisitions), big data and artificial intelligence will be major trends.