London is well past the time for regarding the loss of any individual technology company as a misfortune. To lose as many as it has in recent years is surely the most extraordinary act of carelessness that a stock market, and perhaps the state too, could visit upon its constituents.
Cyber security specialist Darktrace is the latest in a long line of rising UK tech contenders to find itself being presented with a takeover offer, more precisely a £4.25bn bid by private equity group Thoma Bravo. It’s also in a long line of firms that have not had an easy time of it on the London market, never getting close to recapturing the share price highs of its first year as a listed entity. It was, in addition, put through the mill over short-seller allegations that its accounts contained inaccuracies. An external review found little fault.
Thoma Bravo, a tech specialist for whom London is a favourite hunting ground (it previously bought out Sophos), however, has made its mind up that there is value within Darktrace. Thoma Bravo is a very credible buyer, says Liberum, and it thinks the deal will succeed, with the offer pitched at a 44 per cent premium to the average price of the shares in the prior three months. At some point in the future, Thoma Bravo’s purchases will either be relisted – but almost certainly not in London – or sold on to a bigger technology company.
It’s tough being a tech company in London. Investors are highly attuned to even the gentlest of headwinds and quick to sell. US tech companies by contrast flourish in much richer, more patient soil. Amazon, a listed company for a little over a quarter of a century and expected to rake in $640bn this year, has an enormously profitable cloud service business (AWS), but started life as an online bookstore, albeit with an ambitious owner. But even outside the exalted tech giants, US markets are well stocked with less well known tech firms such as memory chip equipment manufacturer Lam Research and semiconductor inspection equipment company Camtek, recently highlighted by our NY-based reporter Arthur Sants, or JPMorgan US Smaller Companies favourite Macom Technology Solutions.
The UK is also very good at producing disruptive innovators, but the stock market is haunted by tech ghosts – Aveva (taken over by Schneider Electric in 2022), Arm Holdings (sigh), Imagination Technologies (flying high until Apple pulled the rug on its contract), Wolfson Microelectronics (which, like Imagination some years later, was irrecoverably damaged by its reliance on a phone maker, in its case BlackBerry) among them. But there are not enough living and not many that are allowed to graduate to a stock market listing. Data from business data specialist Beauhurst shows that between 2013 and 2023 only 3.7 per cent of 5,899 young high-growth company exits were an IPO.
But investors still have an array of British choices. Alphawave IP, a designer of semiconductors used for rapid data transfer at a time when AI is driving up demand for its product, is going through a bumpy phase right now, but we are optimistic about its long-term prospects (‘Alphawave IP: ‘Europe’s best AI play’?’, IC, 23 April, 2024). Big Technologies specialises in surveillance software. FD Technologies is a small cap with a secret weapon: software business KX whose database product can analyse vast quantities of data at speed. It has partnerships in place with AI world leader Microsoft, AWS and US cloud company Snowflake.
Bytes Technology is a provider of IT systems and solutions to small- and medium-sized businesses, including cyber security, a value-added reseller of Microsoft’s products and AWS partner. Softcat is another IT provider to businesses and AI should prove to be a tailwind for both it and Bytes. Kainos is another IT services firm.
Older companies in the sector include Sage, Computacenter – a peer to Bytes and Softcat – and high-tech communications specialist Filtronic, which has caught Michael Taylor’s attention following its deal with SpaceX (see page 58).
US tech is unbeatable, but it doesn’t mean tech can’t flourish in London, if we allow it to. Yet we seem to keep repeating the same blunder, neatly described by Bearbull in his Equals comment last week: that of handing over our growth companies’ best years of returns to another party.
