Sectors to watch in 2024

Our sector teams share their sectors to watch in 2024. These are intended to help trigger investment ideas and discussion. If you would like to discuss opportunities in them, please get in touch.   

Technology: Mike Callow & Ifan Dafydd 

We’re doing lots more work in software than usual. Much of this is vertical specific, helping customers in industries such as construction, travel, financial services and the NHS to ‘digitally transform’. These tend to be (relatively) lower growth, but profitable vendors – attractive to investors in the ‘new normal’ climate. 

There is an ongoing opportunity to displace manual and in-house workarounds, as well as legacy providers. These segments have specialised, complex needs. Much of the work is in understanding end market size and dynamics, is there enough to go for? Do we go deeper (adding functionality), or diversify (to another vertical), or go international? 

We’re seeing developing requirements around digital twin, risk, and compliance driving spend in ‘hard’ industries. We expect to see opportunities targeting specific buyer personas (especially the CFO) and in data-heavy areas such as digital forensics and investigations. 

Deal flow is still subdued in digital transformation and software engineering – only the best performing assets are trading. Across the market we’ve seen an IT budget squeeze and deferral of non-essential spend – when will it come back and how quickly? How long will the DX providers wait to come back to market? There is a continued bright spot around data, especially when it is taking customers on the journey to AI. 

Counterintuitively, squeezed budgets are also being reallocated to core enterprise software, catching up with years of underinvestment through COVID. The market is facing big changes in the major channel ecosystems (e.g. S/4 HANA replacement cycle and growth of OCI), furthermore we are seeing lots of opportunities with distinctive service offerings (e.g. buy-side advisory) or addressing high growth niche products. We also expect more deal flow in up-and-coming vendor ecosystems, especially at enterprise level. 

There is continued consolidation in MSP world. Overall market growth is relatively low, but it is a massive multi £bn opportunity that top quartile players continue to gain share of. Net-new growth has been hard to come by as there is less switching during a downturn, but well converged MSPs are in a good position to cross-sell. There are still more platform opportunities than you think… especially as underlying tech continues to evolve, and new specialisms emerge. 

Read Ifan’s recent article The future of ISV channel partnerships.

Human Capital: Simon Hemsley & Matt McNally 

Technology remains the hottest recruitment sector from a PE perspective, due to structural skills shortages, an expected rebound in demand, and the ability of tech recruiters to deeply specialise and carve out a niche in high-growth segments of the broader market.  

The HTD (hire, train, deploy) model is evolving further towards providing ‘blended squads’ to deliver specific projects (possibly alongside consultancy), rather than graduates carrying out BAU work. 

We see tech staffing solutions which augment, simplify or streamline the recruitment, onboarding or management processes continue to develop, but without significantly altering the fundamental nature of recruitment as a ‘people-first’ industry. 

Read Matt’s article Recruitment activity above expectations.

Professional Services: Simon Hemsley & Rupert Cookson 

Professional Services remains an attractive sector for many investors. We’ve seen continued interest in legal services, sustainability consultancies, and consultancies servicing the ‘Office of the CXO’. The key is having a clearly defined GTM strategy and value proposition. Understanding how businesses can hire the required talent to meet headcount growth will remain one of the key topics of diligence in 2024. 

Read Rupert’s article Office of the CSO space attracts mid-market investment.

Financial Services: Simon Hemsley & Solomon Ishack 

Financial services has been quieter in 2023 after a very busy period from 2020-2022, as the macro environment has slowed project activity and higher interest rates have dampened demand in wealth management. There continues to be interesting opportunities in specialist FS technology and consulting businesses, for example in regulatory compliance and monitoring. Investor demand for high-quality FS assets remains strong.

Business Services: Jack Hibbs & Peter Cookson

We expect many business services investment opportunities in 2024 with continued interest in sustainability, urban mobility, and language service providers. 

Sustainability covers a broad range of services, and an even larger number of subsectors, including opportunities across consulting and civils. The fragmented landscape is attractive for investors pursuing a buy-and-build strategy, and ever-increasing public awareness of environmental issues means markets are growing at pace. Many businesses differentiate through highly sought-after niche specialism that larger generalists cannot deliver. Whilst this gives a sustainable right to win, market headroom can be limited – therefore execution of TAM expansion/M&A is often critical for success. Read Jack’s article Attracting the attention of private equity.

Digitisation is transforming urban mobility. Investor interest is abundant across the parking operator, payment facilitator, and software segments of the market. Read Jack’s article Parking sector motors on.

Language services encompasses translation, interpreting, and other less well-known segments such as localisation and transcreation. Investor interest stems from continued market growth, a large and underutilised pool of linguists/interpreters, and a highly fragmented landscape. Whist AI is often seen as a threat from the outside, most providers are well protected and, if harnessed effectively, can benefit from technological advancement in the space. Read Jack’s article Investment opportunities in a highly fragmented market.

Industrials: Matt McNally 

There is continued interest in the broadly defined ‘compliance services’ sector – Infra services, FM, fire safety, TICC – where increasing regulatory stringency, greater focus from customers, and a large backlog of work in certain sectors is driving strong performance businesses and interest from PE. 

We are seeing more focus on product rather than service-led businesses due to the potential for product businesses to have or develop a genuine and compelling USP. PE appetite to invest in circular economy, renewables and ‘net zero’ businesses continues, as does the relative lack of compelling opportunities.  

We also see opportunities in Industrial technology and automation – sensors, predictive maintenance, asset monitoring and management – both to augment and differentiate industrial services businesses, and as solutions in their own right. 

Read Matt & Brandon’s article Industrials: a variety of opportunities.

Travel: Jack Hibbs 

Investment in the travel sector is expected to ramp up in 2024. Bookings are surprisingly strong despite difficult macroeconomic conditions; consumers appear to be prioritising spend on holidays and IATA forecasts air passenger volumes to return to pre-pandemic levels in 2024. Given the sustainability of demand, and the number of assets locked in because of Brexit and Covid, we anticipate a large number of mid-market transactions in the next twelve months. 

Read Jack’s article Travel tour operators attracting investor attention again.

Build Environment: Peter Cookson & Brandon Matthews 

We expect accelerated growth in the construction sector by the end of 2025 as the market enters an ‘expansion phase’. However, recovery will be uneven with the development of residential homeownership constrained by higher mortgage rates and availability of development land, especially outside of urban areas. Developers are instead eyeing up the build-to-rent sector with major build-to-rent developments in the early stages of the planning pipeline.    

Read Brandon’s recent article Opportunities for investors to help Britain build better homes.