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The Technology Sector - All Change
This piece began as a post-referendum review as we approach 120 days. However, the biggest political event in Britain’s post-war history has been eclipsed by what many consider the political shock of the century. The Donald has simply a stunned half his country and seemingly the majority of the rest of the world.
What is the view of technology clients in these turbulent times and the outlook for the future of interim in particular?
The State of the Technology Nation
Senior executives in the sector remain positive since the referendum. Even though less than a quarter wanted to leave, ‘BritTech’ has got on with the business of value creation. Despite the fluctuations in the financial markets since the US election, it’s perhaps too early to call what the real impact of a Trump presidency might be. If the last 120 days are a good yardstick, that attitude will see us through.
Investment is high
International inward investment into the UK has remained high. Softbank's bold early swoop on ARM to drive into the Internet of Things, was followed by American venture capitalists as the Pound’s steep fall effectively created a 15% discount on acquisitions. According to London and Partners, the private-public partnership promoting investment in the capital, over $200million flowed in June/July to bring the total to $1.3bn in the first half of the year . Rumours of private equity firms such as Vista Equity Partners creating war chests to invest even more have not yet translated into fact.
It hasn’t just been inward. Micro Focus has led the charge with it's triple-down, $9billion acquisition of HP Software.
Private Equity (PE) investors commented they’ve seen very limited impact from the vote as their portfolios are pan-European. A rise in one currency has been offset by another’s fall. If anything, they’ve also benefited from the Pound’s fall having funded overseas expansion particularly into the USA.
Whilst there’s a greater focus on true ROI from PE, finance is available whilst the appetite for deals remains strong. Partners observed that the competition for deals with real value has intensified.
M&A activity is very likely to remain high as CEOs of portfolio companies are typically tasked with driving acquisitions to achieve the 3-5 times return on equity by their PE masters. Astute CEOs are using the uncertainty to obtain keener purchase prices.
Activity remains high
The view of more established US technology companies is either a neutral hold (especially those bedding in mergers) or build for growth. As the BBC reported, for Google UK, Brexit is a "local" challenge that shouldn't distract Britain and to back that up is planning to add 3,000 heads in London in 2017. In addition, Amazon Web Services, Microsoft and Salesforce can’t seem to acquire talent fast enough. Whilst predominantly permanent, it is a statement of confidence in the UK.
Meanwhile, the Pound’s fall has also led to a boost for UK technology companies businesses with US Dollar revenue, whether listed on stock exchanges or privately owned. What we’ve seen in the last months is that the primary engine for hiring in UK Tech has been a range of AIM listed, angel funded, venture capital or private equity backed SMEs. This potentially reflects the scale and somewhat fragmented nature of the UK technology sector.
After the Brexit vote, decisions on some large scale strategic programmes were pushed back. These time lines may be pushed even further back after Trump’s victory. That said, we have seen smaller, tactical change programmes being initiated.
Cost reduction remains a priority across the sector, especially for companies of scale. A significant number of businesses have completed or are conducting rationalisation programmes to consolidate enterprise systems after years of M&A resulting in disparate tools. We’ve also noted several migrations to shared service centres.
The impact on interim
One of the other surprises the last few months has been client’s express desire to discuss our interim offering, over search. This is not just as a ‘stop gap’ whilst making a permanent hire. Multiple clients have commented that interims can be very cost effective. They recognise that interims are a variable cost offering extreme flexibility. Moreover, without the need for long term commitment, interim managers can continue to deliver in uncertain times.
Whether the predicted levels of activity materialise or the currency boost continues once Trump is inaugurated remains to be seen in Q1 next year. However, the top skills our technology clients have highlighted are:
1) Growth executives:
Where interim C-suite executives and commercial directors are being sought it’s to make an impact and drive top line growth. Operational executives are in less demand, but still on the radar.
The number one skill nominated by clients in finance is for carve-out CFOs with M&A or fund raising expertise. This closely followed by those who have been through a cloud transition and can create the appropriate pricing models and articulate the impact on revenue.
In all cases effective business partnering and stake holder engagement is paramount.
2) Cloud/SaaS experts: Spoiler alert – this is a three in one!
I’ve been surprised by the number of technology companies still on a journey to ‘fully’ SaaS in the cloud. Our clients tell us they need:
- Architects to design the solution set
- Product managers who “get engineering” to create cohesive roadmaps (often merging acquired products)
- CTOs to manage the complex build whilst co-hosting multi-tenanted and on-premise environments
3) M&A integration:
This skillset was highlighted both buy and sell side. Firms are working through how to create a model where a mix of in-house and external resources are deployed to bring cost effective and controlled execution of M&A activity.
4) Change Managers:
Areas of particular demand are likely to be transformation of enterprise systems, cloud migration and digital as the sector moves to mobile first products.
Government funding to counter cyber terrorism represents a Brexit opportunity. President-elect Trump has also backed investment in cyber. Repeated breaches appearing in the headlines, including during the US election, mean IT security remains front and centre for boards.
This is good for IT security vendors who will need consultants who can articulate what cyber means in business terms to executives. Those able and willing to roll up their sleeves to design and deliver solutions are likely to be most sought after.
That said, defining what Brexit actually means and executing it will be tough. At this time, despite some gloomy predictions from TechCrunch, there appears to be mostly speculation about the impact Trump’s presidency will have on the technology sector.
Until we have more clarity, we can be sure that uncertainty will become twinned with change as a constant [ See the piece from Odgers Interim MD Grant Speed on "volatility is the new normal" ] Those with ability to grasp these two nettles will succeed. If we’ve learned only one thing since the Brexit vote it’s: “Let’s get on with it”!
Paul Wright, Consultant
Categories: Technology, Entertainment & Communications