Technology: opportunities for investors in 2025 

From a potential backlog of IT consulting deals coming to market to an increasing interest in AI across all businesses, there will be plenty of opportunities for tech investors in 2025. 

IT Consulting 

Overall, 2024 was a difficult year for project-based IT consulting businesses. Extended sales cycles and non-essential projects being deferred have been driven by both the macroeconomic environment and uncertainty around the UK 2024 election and subsequent budget. Providing these businesses show improvement in trading, we would expect to see a backlog of IT consulting deals coming to market at some point 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 CRM, ERP, EPM amongst others) and consultancies doing custom software development and application modernisation. 

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programmes, where return on investment (ROI) may not be easily calculated or realised for a few years, have been replaced by smaller projects with quick, tangible ROI.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 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 have 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. 

IT & Comms Managed Services Providers (MSPs) 

Due to the typically large recurring revenue element (managed support, Cloud consumption and vendor software resale revenue), MSPs have been far more resilient than IT consultancies over the last year. For many, cross-selling of the broad product/service portfolio into existing customer bases has been a key focus with net new wins more difficult in a tougher macroeconomic environment. From a bottom-line perspective, service desk automation is a key theme within these businesses, due to a clear ROI in automating lower value tasks such as password resets and onboarding/offboarding users. 

Buy & Build continues to be a strong theme for MSPs, either to broaden product/service capabilities (e.g. comms focused players pushing into IT), geographic expansion (due to the large number of subscale regional/local players in the space) or to acquire existing customer books (in a market where organic net new wins are harder). Microsoft is a clear leader to back in the space (though there are other attractive vendors to support). For those aligned with Microsoft, look out for partners that have gained Microsoft’s core Solutions Partner designations. Advanced specialisations are also a clear sign of a leading partner in specific segments of Microsoft’s Cloud stack. 

Managed Security Services Providers (MSSPs) are the exception to the low organic growth exhibited in many IT & Comms MSPs. Cyber security continues to benefit from a wide range of market tailwinds including complexity of attacks, insurance requirements and regulation. A lack of skilled professionals in the space also benefits outsourcing work to MSSPs. However, there are a limited number of UK IT MSSPs in the market and those assets that do come to market will trade at a premium. 

Software 

Within software, there is continued interest in vertical specific software, particularly in verticals that are behind the curve when it comes to digitisation. These point solutions often displace excel spreadsheets, custom built solutions no longer fit for purpose and in some cases pen and paper. Sectors include construction and built environment (read our article here), law enforcement, healthcare and financial services amongst others. In many cases, the serviceable addressable market for these businesses can be a limiting factor on growth. In those cases, strategic commercial questions for investors should include what additional modules / functionality could be added, what other sectors could we target, and should we look at expanding into new regions? These could be done either organically or via M&A. 

AI – what does this really mean? 

Almost every business we look at these days mentions AI as an enabler. Whilst its long-term impact will be transformative, and there are subsets of AI which are mature (yet underexploited), we maintain a healthy degree of scepticism on the real-world impact (especially of Generative AI) on PE portfolio companies in the short term. Whilst ‘AI enabled’ is everywhere, investors should be aware of AI washing. When analysing a business that claims to be AI enabled, ask yourself the following:  

  • What does the AI actually do in the context of the business? 
  • Is it fully operational and integrated or just proof of concept? 
  • Why is it being deployed here and how transformative is it? 
  • Does it have a clear ROI compared to the previous process / solution it is replacing? 
  • What are the customers awareness and perception of it? 
  • Is it defensible and does it warrant additional valuation to the business? 

We can help companies and investors cut through the hype, build an understanding of technologies and emerging use cases, and prepare to exploit/avoid the opportunities and risks coming down the track. Speak to a member of the tech team about opportunities in 2025.

Ifan Dafydd

[email protected]
+44 7792 158 738

Email Ifan

Archie Smither

[email protected]
+44 7527 543 706

Email Archie