UK Trends and Developments Contributed by: Ronnie Preiskel, Karthyaeni Vittala, Daniel Preiskel and Paul Stelges, Preiskel & Co
of low-Earth-orbit (LEO) satellites continues, despite concerns about potential collisions. In higher orbits, the development of radiation- resistant microchips is revolutionising space technology. Additionally, virtual production techniques are becoming integral to modern blockbuster films and the emerging metaverse, shaping the future of entertainment and digital experiences. Current TMT M&A Market Trends The increasing availability of AI, along with the ongoing development of AI-driven processes and generative AI, has positioned software as the primary driver of M&A within the TMT sec- tor. According to PwC, nearly 70% of the top ten technology deals by value in the first half of 2024 were software-related, amounting to over USD70 billion. The authors’ clients have increasingly integrated AI systems into their products across various secondary sectors, such as energy, hospitality and professional services. This integration has enabled them to secure multiple funding rounds, highlighting the growing importance and invest- ment in AI technologies. The demand for AI and the digital infrastructure required for its implementation has led to private equity (PE) funds and investors preferring direct capital investments in AI processes over tradi- tional M&A activities. This shift has necessitated PE funds’ exploration of innovative strategies to generate liquidity for their investors. Furthermore, the valuation of UK companies remains lower than pre-Brexit levels. Strategic corporates are taking advantage of this discount to diversify and consolidate their respective mar- kets, using the current economic landscape to their benefit.
Advancements in AI and its applications are reshaping investment strategies within the TMT sector, with a notable shift towards direct capi- tal investments in AI technologies, rather than through M&A. This trend is expected to continue as AI becomes increasingly integral to various industries, driving both innovation and economic growth. Smaller Deal Values In today’s competitive landscape, many busi- nesses view digital transformation as a strategic opportunity to secure the “early bird” advantage over their competitors. For others, the focus is on achieving operational efficiency and strin- gent cost control to boost profit margins. Over the past year, there has been a notable surge in AI-focused transactional activity, a trend which shows no signs of slowing down. Technology- driven companies continue to attract the highest valuations, encouraging shareholders and man- agement teams to explore various investment and exit strategies. Investors are becoming more risk-averse, with acquirers opting for more mod- est transactions, rather than taking a gamble on seed or A-series targets. Recent interest-rate cuts by the European Central Bank may be a nod towards further interest-rate cutbacks. These long-anticipated interest-rate cuts are set to be a welcome relief for deal makers aiming to use debt to finance acquisitions. In the current climate, higher inter- est rates have been squeezing returns, placing greater emphasis on the value-creation potential of deals. This shift in focus has become particu- larly concerning for some start-ups, which find the heightened scrutiny challenging. Evolution of Deal Structures Valuation differences have led to the rise of performance-based deal structures to bridge
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