'Private Equity and the TMT sector' by David Andrews, LDC London

Since 2010, LDC ranks as the second most active investor in the technology sector across Europe. David Andrews, Investment Director at LDC London, takes part in a Q&A on the technology sector.



Deal Count



Lloyds Development Capital


Ardian Private Equity


Summit Partners


The Carlyle Group


Kohlberg Kravis Roberts (KKR)


Omnes Capital


EQT Partners


Lyceum Capital


Oakley Capital Private Equity


Source: Pitchbook

Q: What makes the technology sector an attractive investment?

The technology sector is constantly evolving. What were once new ideas are now normal ways of doing business. Nowadays, technology is a mission-critical part of most business models, so it’s hard to over-estimate its importance to the economy and its long-term potential.

Technology has long been a major driver of private equity, and that trend has accelerated in recent years. The factors are varied, complex and interconnected, but the mega trends of the current decade – from big data to cloud and SaaS, to digital commerce, Internet of Things and consumerisation of IT – continue to disrupt markets and fuel activity levels.

It is the dynamic nature of the sector that makes it attractive, and as a UK-focused investor backing UK-domiciled businesses trading internationally, we see our biggest opportunity in the home market.

The UK’s economic, tax and regulatory landscape creates a stable and generally supportive environment for the sector, which has helped create a cluster of skills, a healthy export market and an ecosystem that has become self-propelling.

These favourable conditions are conducive to investment activity, combined with the number and quality of scalable mid-sized businesses, the opportunity to add value through our unique model, and our track record in the space.

Q: What do you see as the most active or interesting technology subsectors?

There are some super-hot segments being driven by accelerated changes in parts of the economy, such as fintech, where activity is exploding as a result of the expansion of digital applications in financial services, such as mobile payments.

Another area we are excited about here at LDC is where business services meet IT.

Previously, these were two distinct markets, but they are converging in interesting ways, to create new tech-enabled service providers that can offer systems design and integration, managed services and consulting.

There are a number of mid-sized companies at various stages on this journey with the opportunity to leverage their market presence, service ethos and customer loyalty to consolidate the market and build scale.

We also see a lot of opportunity in pure-play software. Again, there are some very established players out there operating in niche areas of tech that have either transformed, or are in the process of transforming, to a more SaaS-based model. They have the IP to become major players but require scale, through both organic growth and acquisition.

These are scenarios that LDC recognises and we have worked with a lot of management teams to help businesses full their potential.

Q: What are the challenges of investing in the technology sector?

Despite the breakneck pace of change in tech, the challenges are surprisingly familiar. Competition for quality assets is intense and valuations can sometimes defy normal models.

Whilst these factors can create bubbles, the difference in the mid-market space where we operate is that businesses have typically established. They’ve proven the product, found a market, scaled a business and are now looking for that next phase of transformation. This might be going global, moving sideways into new products and services or gaining scale through acquisition.

Q: What strategies do you think have been effective in generating returns within the technology sector?

The strategies that have generated the most value for the businesses LDC backs are typically those focused on driving EBITDA growth – building scale through acquisition and organic growth, internationalisation, margin enhancement through product development and differentiation. This is part of LDC’s DNA as a growth investor.

LDC has generated some of its best returns from strategic exits in the tech sector, including its sale of managed service provider Easynet to Interoute, in a deal that delivered a money multiple of 2.2x, and of mobile application software firm Kirona to Living Bridge in another deal that saw LDC double its money.

Q: What do you see as the best exit routes for the technology sector?

Exit routes remain varied. With the corporate buyer pool more active than it has been for many years, we have seen an increasing volume of cross-border M&A activity of late, not just at the top end of the deal range.

Equally, IPO activity has been buoyant of late, and the volume of private equity money available is creating a vibrant secondaries market.

For our part, the right exit route is determined by the management teams we back, on where they see the future of the business they have worked so hard to build.

Q: What is your forecast for the sector in the next twelve months?

Looking ahead, the generally low growth environment looks set to continue, with activity likely to continue at comparable levels.

This is down to a mix of factors – the sheer scale of innovation coming through in the sector, mega trends in tech gaining further momentum and continuing their disruption if industry sectors and the volume of private equity money looking for a home, competition from trade buyers looking to consolidate both in Europe and overseas, and the health of the public markets.

What we are seeing here is not a short-term uptick, it is the result of long-term and lasting change, accelerated by the availability of equity to fuel growth.

Q: What sets LDC apart from other private equity investors in this sector?

As part of Lloyds Banking Group, LDC’s source of capital is different to other fund-based investors, which means we can be more flexible with deal structures and follow-on funding, and more patient regarding holding periods.

It also means we can focus on investing and building relationships with management teams, rather than fundraising and spending time with institutional investors.

As a regional house, we can invest in businesses across the UK from within the same business community as our existing portfolio companies, and join the dots among them.

In the technology sector specifically, LDC ranks as the second most active investor across Europe, and has since 2010. Our experience spans pure-play software developers, managed service providers, data centre providers, internet service providers and a wide range of tech-enabled businesses.

We have made five significant TMT investments, including our largest ever tech investment with the £207m buyout of SSP, the global insurance technology specialist. Other deals have included global financial information business PEI Media Group, SAP services business Centiq Group, information group Capital Economics and online travel agency Iglu.

Finally, we have a portfolio of companies which provides significant cross-selling opportunities, both vertically into sectors and horizontally into adjacent services.