UK tech sector is positioned for a global challenge

BY THE end of this year, the US technology company Apple could see its cash reserves outstrip those of the US government. While the UK hasn’t yet produced an equivalent, there are signs that technology might be the key sector in Britain’s future.

Last year, the sector outperformed the broader equity markets, with investors being attracted by strong balance sheets and higher growth rates. This increased confidence translated into a healthy increase in tech mergers and acquisitions, with the number of global technology deals rising by an impressive 11 per cent: similar to the number of deals completed in the bull market of 2005-2008.

Given the acquisition strategies of tech giants, and the government’s pledge of support, is the optimism justified? Is there scope for the UK becoming the worldwide hub for technology?

Yes, in our view, providing we get the fundamentals in place – and some serial entrepreneurs are also bullish about the potential. LoveFilm founder William Reeve has said that his objective is to build a UK business to the point that it buys its nearest US rival, not the other way around. We are going through a period of rapid acceleration fuelled by the convergence of information technology (IT), media, telecoms, wireless and mobile. Online, business groups and social groups are merging and the cloud is going to take off in the next few years. Saas (software as a service), miniaturisation, mobilisation and digitisation are all accelerating and that’s creating a period of rapid change.

Tech businesses still need a lot of cash to grow, but some digital businesses are proving that they don’t require huge capital expenditure to create whole new subsectors of the market. Twitter created a whole new industry within three years and built considerable scale and followers before its large funding round.

One of the reasons why the high street is in such trouble is the strength of internet brands. People are not just buying groceries online, they also buying luxury goods, and watching rich film and media on mobile screens. There’s no single killer app that suddenly changed things. What’s creating this massive shift is a culmination of smarter working, smarter applications and the ease of access to smarter technology everywhere.

Two areas where the government could invest to support the sector, and deliver resulting benefits to the economy, are broadband and education. Delivering high-speed broadband throughout the UK could have a hugely positive impact on the economy, while the quality of IT education isn’t up to scratch. Schools in the UK are teaching how to open a spreadsheet and a word document, whereas kids in other countries are being taught how to build computer programmes, develop apps and design software.

If the foundations are built the UK is poised to benefit from our geography – the UK bridges east and west, making it an ideal centre to do business. We’ve got the potential in our universities. As long the investment continues we will achieve the global success of US technology giants such as Apple and Google.

Alan Bristow is chief executive of Icon Corporate Finance. Nigel Miller is a partner at Fox Williams and head of the ebusiness and technology group.