Market View - September 2016
The changing world for technology companies in the traffic and public transport market

This market perspective takes reflects upon the changing dynamics for technology companies operating within the sector and some of the drivers for those seeking to exit or acquire.

Congestion, congestion, congestion. These seem to be the words applied most frequently to the UK’s urban traffic and transport debate. There is no doubt that the transport trends for the next twenty years indicate more journeys on the road networks, many more people using the railways, more freight traffic and more people seeking to move effectively from place to place across multiple modes of transport.

Whilst we have significant infrastructure schemes in development – HS2, Crossrail, Northern Hub, London airport expansion and many more -  these long term fixes do not help the short to medium term pressure pot. So what is the solution? There is much activity and much of it centres around “sweating” our existing assets combined with the innovative use of technology: bringing together smart solutions to deliver benefits to all stakeholders in the traffic and transport community.  

For those in the local government and Integrated Transport Authority arena it is all about the planning, control and monitoring of the infrastructure and in particular what happens when unplanned events occur such as accidents, incidents and delays, and how to better manage our networks in the prevailing conditions. 

For those in the public transport space it Is all about trying to maintain and improve service and punctuality and having the right services available at the right time and then managing customers’ expectations.  

For the general public it is all about information and being informed.  Having knowledge in real time about traffic conditions, public transport and putting this into perspective through a connected journey plan is becoming part of the everyday demands of the commuter. It is all about managing expectations and enabling decisions to be made when there are problems on the networks and delays likely.

The market, however, is changing significantly. There is an on-going squeeze on public sector finances and general political uncertainty, but there is also the very significant shift towards devolved power to the regions, which is driving a new way of engagement for business.  For those innovative companies operating within the sector, with all this change, comes opportunity.

What is apparent is the developing agenda within the urban regions to create a smart city approach. Linking up information and intelligence about the current and planned status of the network can help to begin to address the congestion issue. A key aspect is clearly encouraging the use of public transport and enabling modal shift from the car. Delivering this effectively and comprehensively, which also assumes all modes of transport, requires a range of joined up solutions encompassing connected journey planning, smart ticketing and of course timely information for the travelling public.

Our cities are going through a mini revolution with the progression and development of car clubs, cycle schemes & cycle highways, Uber, autonomous vehicles trials, WiFi enablement to name but a few. On-going innovation is clearly here to stay and technology based businesses operating within this arena are well placed to capitalise on these developments.

The changing political environment will undoubtedly have an impact on how investment funds are made available. It is very clear that the Government’s agenda is not only seeking to devolve power to the regions, such as the creation of combined authorities, city region elected mayors and Local Enterprise Partnerships (LEPs), but with this to provide significant funding and encourage major investment schemes in infrastructure. New government legislation such as the Bus Services Bill and the on-going rail franchise schedule will all have an impact on public transport service provision and design.

So what does this mean for technology companies wishing to fully exploit the opportunity? First it is changing the way businesses engage with the public sector. Decisions are not necessarily remaining within the local domains of officers of local authorities any more. They could typically involve multiple authorities with a more commercial focus through the LEP structure and indeed could be linked to major infrastructure schemes and government funded initiatives. That means larger, more complex solutions being sought to deliver benefits to stakeholders region-wide.

For those organisations currently delivering technology solutions, it is often about a consortium or partnership approach involving a number of different suppliers each delivering a niche element of the scheme. Larger systems integrators will obviously see the opportunity to become the “de-facto” integrator for region-wide systems.

It also means that those smaller and innovative solutions providers need to increasingly develop multiple sales and marketing processes including through strong channel partnerships.

There is therefore an opportunity for technology solutions suppliers to exploit a changing market.  For those with tangible products, revenues and market position, it may be easier develop their business at a faster rate.  There is certainly a desire for continuing innovation in the market and the traditional public sector barriers may just be opening up to more flexible procurement processes and innovative thinking.

These are certainly interesting times for the sector and as such it raises the question as to the strategic moves made by businesses to exploit the market going forward.

For those technology-led companies, particularly within the small to mid market space, with solid revenues, products and hence IP, there is always the question about the timing of a potential exit.

With smaller enterprises there is sometimes the perceived risk of owner managers being critical to the on-going growth and stability of the business and their motivation, whether exiting completely or being part of a larger organisation going forward for a period, typically one to two years.

For those larger organisations operating within the sector and particularly seeking to play a more significant part in the delivery of wider and more far reaching solutions, having a greater portfolio of products under their control through targeted acquisitions could provide significant competitive advantage. 

So at face value, there should be a good fit for those businesses seeking to make decisions on their strategic plan. Certainly some of the recent activity points this way.

The writer, having also run a technology business in this sector and been through the ups and downs of building, selling and exiting businesses, believes now is a very interesting time for organisations assessing their ways forward in a changing and potentially opportunistic market.

So, the net impact is that the M&A space in this sector could be one to watch with companies vying for increasing their market presence, delivering innovation and capitalising on available funding initiatives