Member Article

A new report by Shoosmiths, in partnership with Beauhurst, shows that the number of venture capital ‘megadeals’ in the UK has increased tenfold over the last decade.

In 2011 a modest five ‘megadeals’ (where £50 million or more is invested into a company) occurred, compared with an astounding 51 megadeals in the first half of 2021. Transaction sizes have also risen with more than half of this year’s fundraisings being ‘gigadeals’ – that is equity deals of £100 million or more. As a result, 2021 looks set to be a landmark year for both the volume, and value, of megadeals.

Factors driving the unprecedented number and value of megadeals include the record economic stimulus that has been employed around the world to lessen the impact of the COVID-19 pandemic and the shifting of capital towards technology sectors that fared well during the pandemic such as software. Other factors include the increasingly large funds being raised by venture capital investors and the low returns available in public markets.

Where is the money going?

When it comes to location, while it is unsurprising that the majority of companies that have raised money by way of megadeals are located in London and the South East, it is important that VC investment in the UK is accessible across all regions. A small proliferation of megadeals in the North West may indicate this is starting to happen, but perhaps more action needs to be taken to raise awareness of the investment opportunities, and support available, for scaling companies outside of London. With the majority of fundraising deals occurring remotely in 2020, it will be interesting to see if the pandemic has challenged the notion that a presence in London is required in order to meet with – and present to – potential investors.

Which sectors are attracting investment?

The UK technology sector has seen record levels of growth over the last decade and so far as megadeal investments are concerned, it is predominantly tech companies that are benefitting. UK fintech businesses reign supreme, whether these are consumer-orientated fintechs or those focussing on business-to-business offerings. Some of the largest deals in the last 18 months have involved fintechs including Revolut, KI Insurance, Checkout.com and Go Cardless. This, together with the recent London Stock Exchange listing of Wise, reflects the strength of the UK fintech market and investor confidence in London as a global financial centre and gateway to the European market post-Brexit.

With ESG at the top of most organisations’ agendas, it is predictable that companies with a sustainability offering, in particular transport tech and energy tech, are also attracting significant investment. Healthtech is another sector attracting increasing investor interest, an inevitable consequence of the COVID-19 pandemic.

Outlook

With the number of megadeals showing no signs of slowing, the outlook for UK investment (and the underlying tech ecosystem) looks extremely positive.

Key findings of the report

• The number of megadeals in the UK has rocketed rapidly. At the end of the first half of 2021, the number of megadeals (51) already exceeded the total amount for 2020 (44) and surpassed the previous record set in 2019 (38)
• As well as the volume of megadeals increasing, there has also been a record amount invested via megadeals, with £6.5 billion invested in the first half of 2021 beating the previous highest annual value of £6.2 billion invested via 38 deals in 2019
• Where megadeal investments are concerned, it is predominantly technology companies that are benefitting. UK financial technology, software and life sciences businesses dominate the ranking of the company sectors by the number of megadeals
• The majority of companies that have raised money by way of megadeals are located in London and the South East, with a modest proliferation of megadeals across other parts of the UK, most notably in the north west
• With the number of megadeals overall showing no signs of slowing, the outlook for UK venture capital investment and the underlying tech ecosystem looks extremely positive
  
  

The report - ‘UK Megadeals: Past, Present and Future’- breaks down investment trends and delves into which sectors the money has gone to, and where it has come from.

You can access the full report here.