UK tech sector growth slows as Brexit uncertainty bites, says new study

BY Fraser Tennant

Growth across the UK tech sector in Q4 2018 expanded at its weakest pace for three years, as the impact of Brexit and accompanying uncertainty began to bite, according to a new report by KPMG.

According to KPMG’s UK Tech Monitor Index, the sector experienced a difficult end to 2018, as business activity growth eased and new work remained subdued, with global trade, in addition to Brexit-related uncertainty, contributing to a loss of momentum in the final quarter of 2018.

Furthermore, although the Index, which measures the strength of business activity across the sector, remained above the crucial 50.0 no-change value at 52.4 in Q4 2018, this was down from 54.0 in Q3 2018 to the slowest rate of tech sector business expansion since Q4 2015.

“Our report reveals that political uncertainty has dented client confidence contributing to a slowdown in growth at the end of last year,” said Bernard Brown, vice chair at KPMG UK. “But, buoyant staff hiring and capital expenditure plans are still in place for 2019.”

Indeed, despite the subdued end to 2018, the KPMG Index reports positive signs, with tech firms indicating that they remain “highly upbeat” about their capital expenditure plans, although projections for demand growth have “softened”.

The tech sector’s more upbeat attitude to business growth is in marked contrast to the rest of the UK economy, with many companies stockpiling and holding off on investment decisions.

In terms of the tech sector, KPMG notes that strong R&D spending continues to drive confidence regarding new product launches, with a weak pound providing a competitive boost that will help achieve new export sales.

“This confidence is reflected in the statistic that almost 50 percent of UK tech firms intend to add jobs over the next year, whilst many traditional manufacturers are considering moving jobs offshore,” added Mr Brown. “This demonstrates the strength and resilience of the UK tech sector in the new digital economy.”

News: Tech Sector Growth Weakest for Three Years as Uncertainty Begins to Bite

Global energy sector “undergoing rapid change”, says new report

BY Fraser Tennant

The global energy sector is undergoing rapid change following years of cost cutting, with many oil and gas companies expanding into new projects and territories, according to a new report by the Institute of Risk Management (IRM).

In 'Fuelling the Debate: Trends, Survey Report and Findings for the Energy Industry 2019', the IRM provides insight and thought leadership for risk managers operating in the sector, including oil and gas, energy and renewables, and offers advice on how they can improve their performance and relevance across a range of topics – from safety and sustainability to improving risk maturity and building effective risk cultures. 

According to the report, which is based on a survey of around 50 energy sector specialists, cost control and safety are key areas of focus, with businesses planning to invest in new projects because they are confident of achieving profits despite a long period of low oil prices.

Furthermore, strategic risks, the global economy and a skills gap are considered top risks by survey respondents, although only 27 percent said that green energy was likely to be an area of concern over the next five years.

“Excellence in risk management requires a strong understanding of general concepts and techniques but also an appreciation of the detailed risk landscape in particular sectors,” said Socrates Coudounaris, chairman of the IRM. “Among the report’s conclusions is that there is great scope for raising levels of risk maturity in the energy sector. This will require attention to various aspects of risk management and particularly to competence, training and education, raising them to world class standards.”

Risk managers also expressed concern over a lack of resources and a failure of the board to provide the right tone at the top. For example, just 40 percent of respondents said they had access to specialist ERM software.

In a bid to improve the global energy sector’s risk management outlook, the IRM has announced a series of initiatives, such as publishing individual expert insights and articles, as well as continuing to work towards establishing a regular maturity benchmarking assessment of the sector with fixed criteria.

Mr Coudounaris concluded: “We intend to build further on these initiatives and conduct more specialist academic research. We also intend to develop an ongoing special interest group for the energy sector that will support risk professionals in the field.”

Report: Fuelling the Debate Report: Trends, Survey Report and Findings for the Energy Industry 2019

Emerging Europe sees deal values soar

BY Richard Summerfield

2018 was another banner year for dealmaking in emerging Europe, according to CMS’ Emerging Europe M&A report.

Last year, deal value in the region grew 12.5 percent reaching a total of €80.5bn. It was the second highest level in the past five years, thanks to a number of mega deals, including Vodafone’s €6.07bn purchase of Liberty Global’s CEE operations.

Deal volume, however, remained flat: 0.9 percent own on 2017 with 2093 transactions. The region has demonstrated remarkable stability in recent years, despite the ongoing uncertainty permeating the global economy and ongoing political instability in key markets, such as Poland, which was the second-most active country in the region, attracting 323 deals in 2018.

Russia, which is included in the report, was the most targeted with 605 deals. Poland’s real estate and construction sectors were the most targeted, accounting for nearly a quarter of all deals in the country. Poland also saw seven of the 20 biggest property deals in the region, including the acquisition of the Wars Sawa Junior shopping centre, bought by Atrium European Real Estate of Austria for €301.5m.

Romania also saw a 73 percent jump in deal value last year due to a notable increase in telecoms sector activity. Deal volume fell, however.

Across the region, real estate was the most active sector, with 432 deals recorded, up 10.8 percent on 2017. Telecoms and IT recorded the highest total deal value, at €18.18bn. The UK was the top foreign investor in emerging Europe, by value, investing €9.77bn. The US was the top foreign investor by volume, with 89 deals.

 “M&A activity has been surprisingly buoyant,” said Helen Rodwell, a partner at CMS. “Markets have reached a size and level of sophistication that makes them more aligned to western European expectations and standards and that is reflected in interest from international investors including private equity funds and corporates.”

“There is a lot of potential for growth and development in the Balkans which is why it is attracting interest from international investors.” said Radivoje Petrikić, a partner at CMS. “The challenge for them is the availability of the right targets.”

Whether the current levels of activity can be maintained in 2019 remains to be seen, particularly in light of current economic uncertainty. Regardless, 2018 was an impressive year for the region.

Report: Emerging Europe M&A Report 2018/19

2018 sees VC investment record set

BY Richard Summerfield

Venture capital (VC) funding has continued to pour into jurisdictions the world over, with 2018 seeing a record high of $255bn invested globally, according to KPMG’s Enterprise Venture Pulse Report. The fourth quarter of 2018 alone saw almost $64bn.

Activity was not limited to just one jurisdiction. The US, the wider Americas, Asia and Europe all recorded a record high level of annual VC investment during 2018.

“The record levels of funding we are seeing around the world highlight the intense focus VC investors are placing on late-stage deals. One billion+ mega-deals alone in Q4 2018 accounted for $22 billion in investment – approximately a third of the total funding raised this quarter,” said Brian Hughes, national co-lead partner at KPMG Venture Capital Practice, and a partner with KPMG in the US.

He continued: “While the extended decline in the number of deals, particularly at the earliest deal stages, is somewhat concerning, the highest quality companies are still attracting investment and we expect to see a strong IPO market in 2019.”

Across the Americas, VC investment rose to $41.8bn in Q4 2018, up from $32.5bn in Q3. For the third year running, Europe set new records for VC investment (despite ongoing uncertainty around Brexit) with a total of $24.4bn for 2018, although deal volume fell markedly year-on-year.

In Asia, VC investment reached an annual high of $93.5bn during 2018 – a significant increase on the $65.2bn recorded in 2017.

Looking forward, activity seems likely to drop this year, however there should still be significant investment, particularly in the tech space where autonomous vehicles, alternative energy vehicles and ride hailing continue to garner interest.

Despite the increase in investment value, the total number of VC deals globally declined to a six year low of 15,299 deals during 2018, compared to 17,314 in 2017 and a peak high of 20,172 in 2015. The drop in quarterly deal volume was also notable, with the 3048 deals seen in Q4 2018 the lowest number since Q3 2012.

Report: Venture Pulse Q4 2018

Californian wildfires liabilities push PG&E toward Chapter 11

BY Fraser Tennant

The devastation wrought by wildfires in California is pushing energy company Pacific Gas and Electric (PG&E) Corporation to file for Chapter 11 bankruptcy as it faces liabilities estimated at $30bn.

In 2017 and 2018, fires destroyed vast areas of Northern California and claimed the lives of 44 and 86 people respectively.

During the Chapter 11 process, PG&E expects to resolve its liabilities resulting from the 2017 and 2018 wildfires and will assure access to the capital and resources needed to continue to provide a safe service to its customers.

Furthermore, the company has stated that it does not expect any impact to its customers’ electric or natural gas service and remains committed to assisting the communities affected by the wildfires.

Earlier this week, Geisha Williams, PG&E's chief executive since March 2017, resigned.  

"The people affected by the devastating wildfires are our customers, our neighbours and our friends, and we understand the profound impact the fires have had on our communities and the need for PG&E to continue enhancing our wildfire mitigation efforts,” said John R. Simon, interim chief executive at PG&E Corporation. “We remain committed to helping them through the recovery and rebuilding process. We believe a court-supervised process under Chapter 11 will best enable PG&E to resolve its potential liabilities in an orderly, fair and expeditious fashion.”  

PG&E has engaged in discussions with potential lenders with respect to debtor-in-possession (DIP) financing and expects to have approximately $5.5bn of committed DIP financing by the time it files for relief under Chapter 11 on or about 29 January 2019. The DIP financing will provide PG&E with sufficient liquidity to fund its ongoing operations, including its ability to provide a safe service to its customers.

Richard C. Kelly, chair of the board of directors of PG&E Corporation, concluded: “Our goal will be to work collaboratively to fairly balance the interests of our many constituents – including wildfire victims, customers, employees, creditors, shareholders, the financial community and business partners – while creating a sustainable foundation for the delivery of safe service to our customers in the years ahead.”

News: PG&E talking to banks on multibillion dollar bankruptcy financing