Trends and emerging growth areas in the market

As the UK begins to unlock after the restrictions imposed in response to the Covid-19 pandemic, our review of the 2020/2021 investment and acquisition market has identified some interesting current trends and emerging sectors for growth.

European venture capital investments increased both in number of deals and deal value in 2020 and targeted a large amount of capital towards pandemic-proof and pandemic-induced opportunities. As such, some sectors saw great opportunities during 2020, particularly technology and healthcare, while software investments stayed strong. European private equity and M&A deal numbers decreased in 2020, but overall deal values increased.

It is not surprising to see that technology-related investments have been strong and will continue to stay at the top. However, it is interesting to note that, for venture capital firms, healthcare investments have grown, and for private equity groups industrial-related deals have grown.

Breaking new frontiers in manufacturing

In their Spring Journal the BVCA touched on the post-pandemic rise of the “fourth industrial revolution” in the UK. The Head of Data-Driven Solutions at KPMG stated in an interview with BVCA that the beginning of the pandemic saw a fast adoption of disruptive technologies that has continued ever since. This “Industry 4.0” represents the convergence of digital technologies with industrial productive systems, focusing on automation, robotics, machine learning, real-time data, and cloud computing.

SME manufacturers often have some trouble adopting digital technologies for smart manufacturing processes, sometimes due to lack of skill or technical knowledge, or lack of finances to invest in developing those technologies.

Help is at hand, however; there is a push from the government to boost UK manufacturing with £300m of funding available to increase manufacturing productivity by 30% through the “Manufacturing Made Smarter” programme. The first £50m was allocated to 14 manufacturing projects involving 30 SMEs, 29 large enterprises and nine universities. The remaining funds will be distributed over the next five years. The main technologies used in these projects are AI, robotics, and AR (augmented reality).

We have been involved in tech-based deals ourselves, including corporate deals with robotics and imaging software companies by our Cambridge office, and a number of new tech-based platforms backed by private equity clients completed by our London team. A completely digital future is in the making.

Improving and protecting our health in a Covid-19 world

The healthcare industry already contains industry verticals that incorporate technology, either on the software side; monitoring tools, analytics, administrative tools and remote services for patients – or in medical technology (MedTech); medical devices, therapeutic technologies, or diagnostic technologies detecting and/or treating medical conditions. In addition to public spending, private equity investments in healthcare are essential. Healthcare-related businesses that offered Covid-19 solutions, as well as more general health-related businesses, received increased interest from investors in 2020.

Our healthcare specialists have seen considerable movement in the healthcare sector; in the last year, the highest exits were biotech and pharma, consumer goods and recreation. This could be perceived as an early sign that biotech and pharma will be in the lead as Covid-19 lingers.

However, one key area of focus is cybersecurity. In 2020 in the UK the National Cyber Security Centre handled 723 hacking incidents involving healthcare related data, of which approximately 200 were related to coronavirus. Moreover, they also registered a large increase in ransomware attacks involving patient data and threats to make that data public. This is particularly risky for MedTech manufacturers who hold large amounts of sensitive information on their patients.

The prediction for healthcare for 2021 and beyond is that MedTech will become even more important. Investment opportunities will continue to arise, especially through the incorporation of new technologies in this sector such as AI, robotics and nanotechnology. Software solutions will grow as well. Even though compared to other European countries the NHS has been slower in adopting new software, the demand for digitized health services is clearly high and will remain so, regardless of pandemics.

It is very clear the landscape is changing rapidly and tech-based businesses, particularly in the healthcare and manufacturing sectors, will be the focus of much attention in the coming years.