Digital transformation drives opportunities in Irish tech

Lending activity in Irish tech, media and telecoms (TMT) is on the rise, driven by rising digital transformation trends, says Bank of Ireland’s head of TMT Sector Paul Swift.

There has been a noticeable increase in lending activity in the Irish tech, media and telecoms (TMT) market, particularly in the managed services provider space as digital adoption across every sector drove opportunities.

That’s according to the latest Insights/Outlook report on the Irish market by Bank of Ireland’s head of TMT Paul Swift.

“I think the indigenous Irish tech sector is proving to be robust. There have been some really great success stories over the last 12 months”

According to the report changing consumer behaviour and an increase in digital transformation provided service providers with unexpected opportunities that they were keen to capitalise on.

In the telecoms segment, internet service providers (ISPs) and infrastructure providers were jockeying for position to get a share of the growing 5G market and the National Broadband Plan roll-out.

But for all the strong business activity, security threats were on the rise as Covid-19 related phishing attacks proliferated to capitalise on people’s concerns.

Swift urged businesses to be alert to potential attacks and ensure robust security is in place.

M&A activity in the sector included Dublin chipmaker Decawave being acquired by Qorvo for $400m as well as Asavie, the Dublin internet of things player, being acquired by Akamai for an undisclosed sum.

ThinkBusiness spoke to Paul Swift about the TMT business landscape.

Despite the Brexit and Covid headwinds, how has tech faired overall?

From a Brexit point of view, it hasn’t featured to any great degree in discussions we had with customers. Data and how it will be managed remains a talking point in terms of what the eventual outcome will be; that said, most of our customers that have significant sales/customers in the UK had made provision prior to 31 December and are in a good state of preparedness.

The impact of Covid-19 on the other hand has differed across the various subsectors. Telcos and ISPs played a critical role in keeping ordinary citizens and businesses connected in the face of the pandemic. This led to increased demand for home broadband with a ComReg survey showing that usage had grown by 77pc.

Similarly, businesses also looked to their IT services providers to facilitate working from home, that drove growth in demand for devices initially, but then add-ons, such as device and endpoint security were also required, creating unanticipated revenue.

We also saw exponential growth for companies like Zoom, as the world began to meet and collaborate virtually online; similarly we saw a spike in growth for customers that deliver software project management and collaboration tools. But on the flipside, businesses providing solutions to the aviation, hospitality and travel space, continue to be hardest hit and hoping that vaccine passports and restrictions will help revive those sectors over the course of 2021. It may well be Q2 before we have a clearer picture as to the timescale for ‘return to normal’.

How is the indigenous tech sector doing and would you be concerned about the dearth of funding at the early and seed stage? Would you say that the start-up scene is no longer a priority?

I think the indigenous Irish tech sector is proving to be robust. There have been some really great success stories over the last 12 months, both from a fundraising perspective, such as Learnupon, Workhuman and Keelvar systems and exits too with Decawave, Amdocs and Asavie, all being acquired. These acquisitions were completed with investment from outside Ireland; that shows the quality of the sector.

“Digital transformation continues to drive activity for different IT managed services models”

In terms of funding at both seed and early stage, the Irish Venture Capital Association in its latest report says that venture capital investment into start-ups, fell by almost a third in 2020, in relation to deals under €5m. I can understand why this causing alarm, because this has been called out consistently over recent years by the IVCA and others in recent years.

We need to ensure there is a constant pipeline of companies being funded to create the Amdocs and Decawaves of the future. We meet lots of companies that unfortunately are too early for bank debt.

The bank has partnered with Enterprise Ireland in creating funds in the past to invest in start-up and early stage companies, which have tended to focus on high potential start-up companies and where appropriate we help to connect and introduce companies with our partners to these funds which in some cases has led to investment.

But no, I wouldn’t say the start-up scene is no longer a priority, I think if anything we are going to see lots of new businesses come on stream as those that have ‘grown up’ in the tech sector with various global companies around the country taking the leap to bring their ideas and solutions to the market. I think there is lots of capital in the market looking for viable investments and I think we will see new operators coming into the market over the medium term with new financial propositions to match the disruptive nature of the sector.   

William Fry has just published its M&A review for 2020, with some interesting insights. The TMT sector accounted for 25pc of total volume of deals during the year and 22pc of the value; which included three of the top ten deals of the year. The largest TMT deal of the year was CK Hutchison’s €600m proposed sale of mobile operator Three Ireland to telco infrastructure firm Cellnex.

You report significant growth in volumes lending in the tech sector – what has been driving this?

Digital transformation continues to drive activity for different IT managed services models, with everything from security monitoring specialists to cloud service providers all seeing a spike in demand, but the pandemic has accelerated the move to digital.

We have also seen growth among more traditional ‘break-fix’ providers, that would offer onsite IT services who were called upon during the pandemic to provide hardware and software tools (tablets and mobile devices) for companies to enable their staff to work from home.

New habits are also being formed and this is driving demand for contactless, digital solutions across every sector.

How do you think Ireland is doing in terms of broadband, is the National Broadband Plan going fast enough?

The ultimate aim of the plan is to deliver on the government’s commitment to ensure every citizen has access to the internet via high-speed broadband. The company responsible for delivering the project, National Broadband Ireland (NBI), in their latest update on the roll out of the Plan, have indicated that significant progress has been made during 2020.

The areas included in the new high-speed fibre network is being delivered, are essentially where commercial operators have not indicated that they will provide such services, which covers 544,000 premises and potentially benefiting over 1m of the country’s population. By the end of last month, NBI had planned to have passed almost 8,000 premises with the fibre network, who would then be able to order a service from the network off local and national retail providers. Looking ahead, the plan is that by the end of next year, nearly 40pc of the premises targeted in the plan will be passed by the network. As to whether the plan is moving fast enough, I think the fact it is being rolled out provides certainty and gives confidence of security connectivity.   

What are the key trends in cloud and do you think Salesforce’s acquisition of Slack will be a game-changer?

To put things in perspective, Gartner are projecting that worldwide end-user spending on public cloud services is forecast to grow 18.4pc in 2021 to total $304.9 billion, up from $257.5 billion in 2020.

As I have said before John, the pandemic validated cloud’s proposition. The accessibility, flexibility and agility of the technology and being able to use on-demand solutions that enabled businesses to continue operations saved many companies.

Cloud technology enables mobility, remote working and has boosted plans by companies to accelerate digital transformation. We are likely to see more investment in software as a service models as businesses seek to protect against future shocks. While there is still much discussion as to whether working from home remains indefinitely, businesses will nonetheless invest in securing the infrastructure to enable employees to seamlessly work from wherever they choose, underpinned by cloud applications.

In terms of Salesforce acquisition of Slack, I think if anything it looks like it is completing the jigsaw for Salesforce. Having started out as CRM, it added marketing, customer care, and various other additional features and given the world migrated to virtual communication last year, Slack provides them with a communication tool to augment all the other functionality, seamlessly.

By John Kennedy (john.kennedy3@boi.com)

Published: 24 February 2021