Technology sector remains an attractive market in the East Midlands
The East Midlands continues to be one of the most attractive and thriving areas for technology businesses in the UK, says Richard Ellis, associate director at Clearwater International.
It has established itself as one of the key regions when it comes to digital and tech start-ups, with over three times the number of start-ups than the national average.
There are a number of factors which contribute to making it a highly attractive and innovative region. Nottingham is one of the youngest cities in the UK, with more than half of its residents aged under 30 which, combined with the abundance of high-quality local universities, provides a large and innovative talent pool.
The trend of new entrants to the sector looking to London as the tech destination of choice is likely to subdue as they seek opportunities in more affordable areas. The way we use technology is changing the way we communicate with each other, opening up markets such as the East Midlands and enabling a more remote and flexible workforce. Relatively low-cost office space alongside initiatives, such as the Creative Quarter in Nottingham and the increase in co-working spaces, is promoting knowledge and opportunity sharing to ensure the region continues to prosper.
In terms of M&A in the technology space, we continue to see high levels of activity across the East Midlands, with strong appetite from private equity and large corporates for quality businesses. Even against the continuing backdrop of uncertainty that has existed since the referendum in 2016, activity in the tech market has remained strong. Here at Clearwater International, we have recently advised on a number of high profile private equity transactions in the region including; the sale of Littlefish to LDC, e-days to Palatine Private Equity, Jigsaw24 to Alcuin Capital Partners and Ensek to LDC.
We are seeing an increasing trend of investors assessing technology, and specifically software businesses, in an alternative way. Traditional valuations based on earnings may not be applicable for a high growth business that is making no profit, which is resulting in revenue multiples becoming much more common.
A more analytical approach is often being taken, with the use of various metrics being used to assess the quality of a software business. The use of theories such as the “Rule of 40” are becoming more common. This a benchmark based on the revenue growth rate plus profit margin exceeding 40%, which can be used to assess growth prospects rather than just current profitability, recognising that businesses need to reinvest earnings in order to grow.
