What’s going to happen in the UK tech sector in 2021?

This article is by Roland Emmans, Head of Tech Sector for Commercial Banking at HSBC UK

The pandemic has driven change on a scale the tech sector has not seen before. Sectors that have been talking about digital transformation for many years have been faced with the reality of having to pivot quickly and effectively to meet new delivery channels and customer needs.

Although the global pandemic has been an incredibly painful experience for many, some positives have emerged. The speed with which businesses responded to the environmental changes of the pandemic and the lockdowns instituted to control it, was impressive, as was the priority placed on ensuring the safety and wellbeing of staff within those businesses – and tech proved vital to this response.

As we head into 2021 we expect to see a continuation of the sense of community brought about by the pandemic, which saw companies supporting customers and suppliers to get through the difficult months ahead.

Even more change is expected through 2021 as new ways of working are carried forward and the tech sector reaches a turning point led by greater connectivity and innovation.

Roland and six other tech sector leaders are taking part in our Future of Tech debate on January 27 from 10am. To register go here

Hybrid working for the future

With the population now experiencing its third national lockdown many employees have become acclimatised to working from home, with technology playing an essential role as an enabler. In our future looking conversations with customers it is clear that these changes are here to stay.

It’s reasonable to expect flexible working, either from home or more local hubs, to become more common in the future as businesses re-define what it means to be ‘at work’. Hybrid working could be the next big step with employees spending their time mixed between delivering projects at home and collaborating with teams at their place of work, but it will be a tricky balance to strike.

Ensuring team building, workplace culture, productivity and communication is not harmed by these new styles of working will be paramount for business leaders who will need to ensure their employees remain motivated without being accused of monitoring them too closely.

Innovation will soar

Technology will be at the forefront of enabling businesses to deliver these changes it is quite possible that we will look back on 2021 as an inflection point for the tech sector.

We’ve already seen huge amounts of creativity and innovation from tech firms since the pandemic began and our own research found that more than 80% of UK tech businesses were looking to spend more on innovation than before COVID-19.

In the year ahead we’ll see advances in connectivity through 5G as well as increased computing power and further evolution of the internet of things, internet of behaviours and cloud processing.

Our customers have pinpointed the increasing importance of effective and efficient data analysis and strategies to better interpret the data they gather from customers and employees.

This could lead to huge advances in products that can take advantage of multiple data points from different sources to solve very specific problems. The amazing speed of the Covid-19 vaccine development is a great example. AI has been so embedded in the process that people are not even talking about its role, which is core to understanding the nature of the pathogen and the likely effective tools to combat it.

Demand for the right type of business will remain high

With that in mind, we expect to see continued high demand for tech firms from buyers and increased valuations through 2021.

While there may be an expectation that those tech firms that were most successful because of the pandemic last year would be most attractive, there remain concerns about long-term strategy and profitably that may make buyers nervous.

It’s more likely that businesses that have been most resilient through the pandemic and able to continue as close to usual as possible will be of most interest to investors. The activity we’ve seen has been led by smaller auctions rather than wider processes that happened in the past with high demand for the few firms that do come to market.

We would expect to see a flurry of activity through the first quarter followed by more companies looking to sell throughout the year or raise equity to clear debt from their balance sheet ahead of any possible tax hikes in the future.

Positive outlook in the face of uncertainty

There have been overwhelming positives shown by UK businesses through the last 12 months and the tech sector’s role in facilitating and, in some cases, driving change has been nothing short of colossal.

Responsibility, ownership and community are themes that we all hope are here to
stay. Tech firms have shown incredible resilience, responsiveness and creativity, with investment in innovation, faster speed of adoption and a remarkable ability to pivot.

There have, of course, been challenges, not least managing a fully remote workforce and focusing on wellbeing. Through it all, M&A activity seems to have held up with those businesses that have shown resilience being particularly attractive.

As we enter 2021, the sector looks set to build on these positives. Enhanced connectivity, the utilisation of existing technology and solutions more rigorously, greater analysis and use of data and a shift to more hybrid working look set to be the future.

Where technology and human beings collide and how psychologically we deal with that will be an underlying theme that will play out across 2021. The year looks set to be an inflection point for the tech sector, as key technological advances collide with appetite and demand to create a tidal wave of change and significant opportunity.