Shaw & Co, the specialist corporate finance advisory firm, has launched the fourth in a series of 12 in-depth sector reports that offer an industry’s SME business leaders a powerful benchmarking tool to aid their decision making.

The fourth report covers the Technology, Media and Telecommunications Sector (TMT) marketplace and segments 2,175 businesses with earnings in excess of £1m by size and subsector to track their performance, profitability, debt levels and M&A activity.

The report’s key findings include:

• Covid-19: The TMT sector has been one of the most resilient to during the Covid pandemic largely due to increasing demand for online services, products and entertainment.
• Mergers & Acquisitions: Very buoyant M&A market with double the volume of transactions compared to the prior year. Strong international buyer demand for quality UK businesses regardless of size or location. Appeal to potential investors, lenders, or indeed buyers, tends to be driven far more by product potential, sales growth / scalability and profit margins.
• Funding Capacity: The sector is generally attractive to both high street and alternative lenders.  Borrowing between 3x and 4x earnings is commonplace even at the lower end of the SME scale.
• The Information Technology & Software sub-sector comprises a vast number of companies that are quickly snapped up often before their turnover grows significantly.
• The sizeable Telcom Services and Equipment sub-sector is unsurprising, while ‘Books, Magazines and Newspapers’ remains strong as it has adapted to new markets by developing its digital offerings. Over the next decade it will be interesting to see what impact social media channels such as Facebook have on traditional newspaper outlets – regardless of their digital offering – as consumers broaden their range of news sources.
• Publishing and Printing not only faces the changes in consumer behaviour but also the rapidly soaring costs of raw materials. Nevertheless, it is worth noting that niche publishers, such as the educational giant Pearson, continue to perform strongly.
• TV/Movies/Music continue to play a significant role in consumers’ lives, reaching an apex during Covid lockdown, while in Radio the relatively small number of independent commercial stations reflects the UK dominance of the BBC.

Daisy Mackay, Manager – M&A, at Shaw & Co and editor of the report said: “In comparison to other sectors, TMT remains a very high performer in terms of profitability which provides the perfect platform to reinvest retained profits (or borrow if preferable), scale through acquisition, and be the 'best-in-class', delivering product excellence across all relevant sub-sectors.

“With regards to funding, some of the sub-sectors can be very attractive to private equity as they are able to offer substantial returns on investments via equity rather than debt.  However, given the funding appetite from the alternative lending market, business owners should carefully consider all options, as an affordable debt package will not seek to dilute ownership.  Now, more than ever, private equity houses need to bring substantially more to the table than just a cheque book.”

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A full copy of the report is available for free download here.

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