Robotic software tipped for next investment wave

Following an active year of fundraising and software deals, one of the more niche sectors believed to be at forefront of the next wave of investment is that of robotic processing automation (RPA) which is currently growing at 63% per year, according to data from research and advisory firm Gartner. 

Talking to Lucía Camblor of TMT Finance, Sebastian Lawrence, head of TMT at investment bank Investec, discusses the niche sector of RPA and the investment opportunities in that space.

One of the most notable deals in the sector this year has been the acquisition of automation platform Thoughtonomy by UK-based software developer Blue Prism for £80m.

RPA a bustling ecosystem

Blue Prism, which Lawrence described as a pioneer in the RPA market, went public in March 2016, with a market cap of £49m. Earlier this year, the firm raised £100m by issuing new stock, in a deal advised by Investec, and has a current market cap of £756m with Lawrence stating the business’ growth demonstrates the potential of the RPA market.

The relevance of the RPA market, which began over 5 years ago, stands in the need to outsource processes due to continued automation. “Business’ digital transformation and shift to the cloud have been a big driver of robotic process automation”, said Lawrence.

According to Investec, the RPA market is currently flush with cash, with valuations at a high range, with revenue multiples of 10 to 30 times. As new players are entering, the space is thriving for consolidation. The three main incumbents own an estimated combined market share of around 35% which include US based UiPath, which raised US$586m from COATUE, Dragoneer, Wellington Management and Sands Capital; US Automation Anywhere, which bagged US$300m from SoftBank at a US$2.6bn valuation in 2018; and UK-based Blue Prism.

Although major software vendors have not struck in the space yet, it is a trend that is expected soon, according to Gartner. Lawrence added “The market expects to see one of the major software vendors entering and whether they enter that market organically or they go through M&A, we'll wait to see. I think it probably needs to mature more before the large software vendors come in,” he said.

As for the financial sponsors, venture capital firms are predicted to continue backing businesses in this space. Whereas for PE buyers, it may take more time for the investment potential to be realised in this space.

Big picture investment trends

General trends in other technology subsectors reflect the same appetite for fast growth. “At the moment scaling up will be the focus, both for businesses and customers, and investing in sales as well as research and development to make sure the company’s product is still a step ahead of the rest,” said Lawrence.

The drive to stay ahead of the market is also being reflected in the shift in business models, with companies changing focus from acquisitive growth to organic growth, he added. “This is changing how the big consolidators are thinking. Everyone thinks Google or Amazon is going to buy their business and this is not always the reality. Some businesses are standalone, some businesses get swallowed up by other larger organizations, and the tech entrepreneurs will need to start thinking in slightly different ways so that they start building their businesses to appeal to a broader spectrum of buyers.”

In terms of wider investment trends, while it started quieter in the beginning of the year, the second half is looking highly active. “Many of the trade players are very active in M&A. We’ve been doing quite a lot of fundraising for trade buyers. We raised money for GB Group who acquired a business out in the US and we've recently done the same for IMImobile, I think that is going to continue,” he said.

 “In a broader picture, rather than on a country basis, tech businesses emerge in a specific region. So, for example, Frankfurt is a great hot bed for FinTech, but equally Munich, has more digital agencies cropping up,” Lawrence concluded.


TMT Finance Deal Data

Europe's Top 20 TMT Dealmakers 2019

USA's Top 30 Comms M&A Dealmakers

Asia's Top 50 TMT Dealmakers