Industry Update: Software Development
UK software development sector set to reach £32.2 billion in revenue this year.
Software development has dramatically changed over the past ten years as technology has become an integral part of consumers’ and businesses’ everyday lives. Despite the uncertainty of Brexit, which could impact the supply of skilled workers, the sector is thriving: revenue increased at a compound annual growth rate of 7.2 % from 2015 to 2020 and is set to reach £32.2 billion in this financial year.
Gerald Edelman’s latest report provides an in-depth insight into software development, focusing on M&A activity, subsectors such as SaaS and FinTech, threats to the sector and the outlook for the future.
Key takeaways from the report are:
- The sector is rapidly growing: there has been a 4.3% increase in the number of software development businesses in the last five years, workers have seen a 30% wage increase and global market revenue reached £380 billion in 2019.
- Software development is a fragmented subsector with the market leader holding just 3.4% of market share. Hence, there has been over 330 UK software M&A deals over the last 12 months, with a combined total of £48 billion.
- 88% of business intend to invest in new Software as a service (SaaS) applications within the next three years. It’s predicted that 73% of UK companies will be using SaaS apps by 2021.
- Although FinTech has been declining globally, M&A activity in the UK has doubled in the last year with over £2.15 billion invested.
- The high number of new entrants is driving competition, pushing companies to offer the best service at the lowest price, which is set to impact profit margins by 12.5% in 2020.
Nick Wallis, partner at Gerald Edelman Deal Advisory, said, “Software Development is one of the fastest growing sectors within the UK and offers a wealth of lucrative opportunities for investors. The disruptive technologies that have emerged from the market are already revolutionizing the way we operate; that applies to both businesses and individuals.
If you look at FinTech, for example, the advances in managing your personal and business bank accounts has caused traditional banks to lose swathes of customers to newer, more innovative companies.”