Every UK business is governed (some might say “shackled”) by an extraordinary array of compulsory financial, industry, employment and data protection regulations.

Failure to meet these stringent obligations has hefty financial and legal ramifications, not to mention often severe reputational damage. It’s of no surprise that the FCA alone imposed £176m worth of fines in 2024, up 230% year-on-year from £53.4m in 2023.

The past decade has seen an explosion in demand from UK SMEs seeking help in meeting the burgeoning and evermore complex range of compliance standards, including specific solutions for specialist areas such as anti-money laundering, data privacy and risk management. RegTech (regulatory technology) has stepped into the fray to provide SMEs with digital compliance software and apps that help ease the regulatory burden through efficient reporting and better management of all those compliance requirements.

According to the IMARC Group, the UK RegTech market reached $522m in 2024, growing at CAGR of 18.5%, and is expected to grow to $2,400m by 2033, fuelled by the UK's strong position as a global financial and tech hub. Key trends in the sector include increasing adoption of AI, data analytics, and blockchain that will enhance efficiency, but, as highlighted in my previous article on the cybersecurity market, rising incidents of data thefts, cyber-attacks, and ransomware remain of significant concern within the RegTech market, which itself needs to up its game when it comes to issues of real-time monitoring, fraud detection and identification management.

Major global deals in the sector have included Vista Equity’s acquisition of Model N, a compliance software provider, for over $1bn. In the UK, meanwhile, Marlowe plc, a leading software company for managing business risk and regulatory standards, was acquired by Inflexion Private Equity for £430m at an EBITDA multiple of 13.7x.

It’s not surprising that RegTech businesses have become prime investment targets. For example, international companies, particularly from the US, are targeting UK-based RegTech firms to expand their presence in the European market. Not only are they leveraging the UK's status as a financial hub, they also benefitted from a weaker pound, with larger corporations acquiring smaller outfits and startups to gain access to cutting-edge technologies and to fill gaps in their product offerings.

From our experience in transacting in the software space, however, we find that, although there is a healthy amount of activity, buyers can still be quite cautious in approach and will carefully consider any integration complexities as combining different technology platforms can be challenging, especially in a fast-evolving sectors.

Another factor can be national security concerns in certain situations with increased oversight from competition authorities or government bodies. The UK's regulatory framework, including the National Security and Investment Act (NS&I), has introduced additional layers of scrutiny. Although this has not deterred deal activity, it can be a cause of delay if not identified and acted upon early enough in the process.

Nevertheless, if you are an owner-manager with a business in this space, this remains the ideal to time to buy, sell or fund the growth of your company.

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Rob Starr is a Partner - M&A at Shaw & Co.

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If you'd like to discuss how Shaw & Co can help you sell, buy or fund the growth of a business, please book a meeting here

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