The UK tech sector has retained its position as the biggest in Europe and the third biggest globally with a combined value of more than US$1 trillion. However, there are growing concerns that this jewel in the British industrial crown could get sucked into the maelstrom of staffing, energy and administrative crises enveloping other industries.
The size of the UK IT sector grew a healthy 6% in the latest year and is now twice the size of its German equivalent. However, both the German and French tech sectors are catching up with higher growth of 9%, and a whopping 30% respectively. Can the UK retain its competitive advantage over the next decade?
In one of the most “stable” parts of the UK tech ecosystem, the rush to embrace new technology is leading to consistent double-digit growth and profit margins. Everything from 5G to the ‘Internet of Things’ to Artificial Intelligence is a growth opportunity for the UK’s cyber security market.
However, the latest Plimsoll Analysis on the market is flashing early warning signs that profit margins are starting to stutter. The following is a breakdown of sales & profit performance in the past two years:
The above chart shows that demand for the UK’s cyber security offering remains robust up from 8% in 2021 to 9% in 2022. However, profitability in the market has halved. What is causing this decline in margins?
According to a recent survey of tech entrepreneurs, the answer is simply Brexit. Hiring has become more expensive as the available talent pool shrinks. Regulatory alignment has diverged, making cross-selling more expensive. UK-based SMEs were one of the main recipients of EU research grants which have now disappeared.
Does that belief bare up to scrutiny? Plimsoll has produced twin analyses on the Cyber Security sector in the UK and across the continent. The simple comparison analysis shows how the UK compares to its French equivalent:
|
|
UK |
France |
| Sales Growth |
10% |
13% |
| Profitability |
4% |
9% |
With so many of the UK’s cyber companies operating with one eye on international markets, the decision to leave the EU has hampered plans and delayed much of the progress the industry has made in the past decade. This, and the historic low value of the sterling, is leading to a new phenomenon across the UK tech sector and the cyber security market.
The UK sector is a hotbed of innovation. Government ministers espouse a dream of turning the UK into a new Silicon Valley on news channels. With world-leading universities and a healthy venture capitalist apparatus, the UK has both elements needed for success. However, the UK tech sector is becoming an IP incubator that overseas money fights over. The list of UK-developed IP that is now overseas owned grows ever longer and includes:
Plimsoll’s latest analysis of the cyber security market has named 91 UK-based providers as being highly attractive. These companies have the most financial potential as most are undervalued and new owners could acquire them for less than their true value.
Of course, not all acquisitions are purely financial. Therefore we have named 227 other cyber security companies as being “Worth Considering”. Their financial health is such that many of these would command a premium.
Each company within the Plimsoll Analysis is individually assessed, valued and rated on their takeover potential.
To learn more about the Plimsoll Analysis on the UK Cyber Security market, please click here.
In summary, the cyber security market remains a jewel in the UK tech crown and its fortunes are following a pattern across the sector. Costs are rising, doing business is being complicated by political issues and opportunities are being lost. Plimsoll allows you to take a clinical view of the opportunities and threats in the sector, in one concise study.