What next for the UK tech sector?

To help answer this question, Business Leader spoke to Roland Emmans – Head of Technology at HSBC UK.

Business Leader first spoke to Roland in December 2018 and you can see his piece talking about the technology sector here: 

Unlike many sectors of the UK economy that have been hit hard by the impact of the coronavirus pandemic, the tech sector – whilst not completely immune – has been less impacted.

This has partly been because technology has been an antidote to fighting the impact of the crisis – as businesses moved to remote working and communication platforms like Zoom and Microsoft Teams flourished.

During the last four months, Roland has spoken to hundreds of technology leaders to talk candidly about their thoughts on the sector and its future.

He comments: “The technology sector has been under-impacted when you compare it to sectors such as leisure and hospitality and this is because technology is the answer to many of the hard questions that business leaders are currently being asked by COVID-19.

“Most businesses moved very easily to remote working and you cannot put the genie back in the bottle. This represents a profound change and data is showing us that many businesses are seeing productivity and efficiency rise because of working from home and in having this model, it is also making many re-evaluate their real estate obligations.

“This model won’t be for everybody and many can’t work from home, but change is happening and technology is driving this.”

Roland has also seen huge progress around digital transformation.

He explains: “It has been said that the NHS delivered 12 years’ worth of digital transformation in 12 weeks during lockdown and many businesses I have been speaking to have achieved similar feats. This is another profound change and we’re seeing many businesses adopt an approach to technology and software that is seeing them getting products out into the wild, testing them quickly and then making change – rather than spending months and years testing them internally.

“This is a methodology that typically mobile phone providers have always used, but many organisations have adopted this during the last four months.”

Funding the sector

Roland then went on to talk about funding levels in the sector and said that loans are not being asked for in high volumes by tech firms and that broadly firms have been able to access cash facilities to support their plans.

This has allowed velocity to remain in the sector, with Roland saying that due to high levels of funding available it has allowed businesses to pay suppliers and keep activity in the sector.

Regarding mergers and acquisition (M&A) activity, Roland comments: “I am hearing murmurings that from September we will begin to see an uplift in M&A activity but there are now different valuation methods in the tech sector. Businesses that have come through COVID-19 unscathed and have true recurring revenues and a sticky customer base will be valued on a high base or the same as pre-COVID-19.

“For businesses that have had a difficult time, they will be valued in a different way and you will have a repeat versus recurring revenue valuation model. I think you will also start to see different deal structures, where acquired businesses receive half the money today when the ink is dry on the agreement and the rest in eighteen months for example, when agreed targets have been met.”

Roland says that he also expects a flurry of M&A activity in the tech sector due to some very large corporates sitting on cash balances, of which they are looking to divest parts of to fund activity in the sector.

The rise of the robots

On which tech verticals are buoyant now, Roland says that digital transformation, data and CRM platforms and robotics all stand out.

MedTech too – which is unsurprising.

Roland elaborates: “MedTech is seeing huge growth and opportunity for disruption as it’s illogical to think that in the future we will wait in a GP surgery as we have historically done. This is allowing for a rise in telemedicine and what has been interesting is that the NHS has been given huge amounts of free software by companies looking to help during the pandemic and it will be interesting to see which ones they adopt going forward on a more commercial basis.

“The growth in this sector will be around proactive treatments instead of reactive. So how can you share your data with technology providers and apps so that when your wearable device flags up something that is irregular it can inform your doctor and you can prevent and take action on a potential medical issue, rather than waiting for the worst case scenario.”

Roland says that in the future, the contact free economy will also grow as haptics becomes used more readily in daily life, so people do not need to touch office doors for example.

The global impact of the virus has also seen many of Roland’s clients look again at localised supply chains and how they can have a blended structure that does not see them over reliant on one economy or supplier.

“The UK tech sector is playing a global role in finding the solutions we need to live in tomorrow’s world. I believe we’ll also see government now accelerate the 5G superfast broadband rollout as we look to prepare as best, we can for any potential second waves or future pandemics. The future looks bright though,” Roland concludes.