Sectors to watch in 2025
This year we asked the team which sectors were getting them excited for 2025…
Legal Services – Rupert Cookson
The Legal Services market is technical, specialist and highly fragmented with a growing number of PE backed roll-ups. As with the accountancy market a few years ago, the challenge is where to find that growth – increase national presence or expand offering with the hopes of cross-selling to existing clients? Organic growth can be difficult; acquisition is often easier.
Deals in 2025
In 2025 we expect to see more traditional law firm platform deals, both with and without buy and build strategies. While London remains an activity hub, there is a significant pool of opportunity up and down the country.
LLP organisations can make deal structuring more difficult, but transitioning to corporate structures, more traditional to PE, is possible. This makes backing the right team even more important.
Value creation
Technology adoption varies by firm, some will be further along the adoption curve than others. There are efficiency gains to be had from technology adoption (centralising back-end support functions, finance, communications), but we have not seen wholesale changes to ways of working from tech/ AI, and don’t see this happening overnight.
Technical areas like IP continue to grow and there are success stories, but talent pools can be small and specialist – for most firms, M&A is the most effective way to grow.
Need to know
Flexible working models: increasingly lawyers are looking for better work life balance and flexibility in their ways of work. This has and will likely continue to support growth in alternative models. However, the growing number of firms in this market means that competition for talent is fierce and can turn to other factors like fee splits, impacting margins.
Culture is a real factor in the legal sector: owner/ managers take pride in the businesses they have cultivated, and therefore growth strategy (organic or M&A) will need to reflect this. Acquiring simply for scale can lead to poor integration and problems down the line.
Some segments are stickier and more re-occurring than others: getting a clear understanding of where a business sits is crucial in determining its growth strategy. Conveyancing and personal injury are typically one-off engagements with less client stickiness, but shifting into more strategic sectors like corporate or commercial law can help to develop deeper, re-occurring relationships.
IT Consulting – Ifan Dafydd and Archie Smither
On the whole, 2024 was a difficult year for project-based IT consulting businesses. Extended sales cycles and non-essential projects being deferred were been driven by both the macroeconomic environment and uncertainty around the UK election and subsequent budget. There are now emerging signs of improvement in trading for many of these businesses and we expect to see a backlog of IT consulting deals to come to market in H1 2025.
Deals in 2025
From a subsector perspective, we expect a broad mix of consultancies to come up. These include data consultancies (and as a follow on, those pushing into advanced analytics & AI), software implementation partners (across e.g. CRM, ERP, EPM amongst others) and consultancies doing custom software development and application modernisation.
Value creation
In many professional services businesses, the type of engagement has changed. Large “rip and replace” digital transformation programmes, where return on investment (ROI) may not be easily calculated or realised for a few years, have been replaced by smaller projects with quick, tangible ROI. Whilst painful in the short term due to the loss of large, lumpy big wins, these will improve businesses in the medium to long term thanks to lower customer concentration and improved quality of earnings through more re-occurring and recurring revenues around optimisation and enhancement work.
We’ve seen this happen in areas such as martech and digital experience platforms (DXPs), where post covid spending on best of breed marketing point solutions and implementation of new core platforms has now given way to rationalising existing stacks, user experience optimisation and delivering work with clear, quantifiable ROI that delivers growth or cuts cost.
Need to know
The fundamentals: they haven’t changed, confidence has. Know-how, track record and industry knowledge are critical.
Interrogate customer concentration, acquisition and retention: founder owned consultancies often come with high levels of customer concentration. This is natural as they first set up and have a couple of flagship clients, but it is important to properly diligence the maturity of the business’ sales & marketing function. Has it crossed the chasm from the founder’s network of relationships to developing a scalable new logo engine to continue its growth journey? What is the pipeline visibility and gap to go for existing customers, particularly those large flagship ones?
Expect constraints: this may be headcount growth, specialism, track record/expertise, geographic coverage that need to be understood fully. Entering new geographies, industry verticals or service lines to avoid constraints may require new skills and capabilities outside of the business. M&A is common in this space and can be an attractive and fast way to acquire new skills and capability. Bolt on commercial due diligence should be conducted to ensure that the targets are a good strategic fit.
Built Environment Services and Tech – Matt McNally & Brandon Matthews
Built environment is a sector in transition; it wants to be safer, comply with regulation, reduce costs and become more sustainable. Technology is a big part of how they will get there. Yet whilst tech adoption across the sector continues to grow, budgetary and talent hurdles continue to halt the speed of adoption.
Deals in 2025
Fire safety remains attractive. There are numerous different types of fire business and many factors that need to be considered by investors. However, overall, the sector remains resilient and continues to grow as regulations, building standards and public scrutiny require companies to meet higher standards of fire safety.
Resource management, compliance and reporting are no longer ‘nice to have’. Buildings are expected to be more sustainable, this is driving the usage of digital twin and geospatial data, smart building and better monitoring through TICC. Along with regulators and government bodies, stakeholders now require robust reporting on environmental impacts.
High cost and sustainability are driving interest in the circular economy. This includes everything from new manufacturing processes to reduce embodied carbon, to detailed tracking of how products and materials have been used, to reuse and recycling. There are opportunities for mid-market private equity in the numerous services required across the value chain.
Need to know
Understand the sector: the relatively low penetration of geospatial services means a small increase in demand quickly translates to growth. Additionally, we’re seeing usage expand beyond construction and industrial projects into service led property management and environmental services.
Implementation can be tricky: BIM and Digital twin are recognised as the future way of working but ensuring a clean building ‘databook’ and translating BIM applications to site remain challenges over the mid-term.
Do your diligence: collaboration between sustainability and digital remains critical to achieving net zero targets. Carrying out a digital & sustainability audit will be needed to understand where businesses are on their journey, where they need to go, and how they can get there.
