Times are a-changin'

City briefing

City briefing

Ian Mitchell

Last week's minor setback for technology shares can't disguise the fact that this is a golden period for software and services companies in the UK. The launch of the FTSE techmark index has ignited a desire for anything IT-related among the UK's investment community.

While a lot of investors have done very well out of the share price rises, in the longer term the real beneficiary will be the UK's IT industry as a whole. Companies which use IT have a great opportunity now to invest in the companies and technology of the future. Let me explain how. For as long as I can remember, the complaint in the UK has been that we don't have the entrepreneurs to take on the US and that companies with good ideas can't get access to capital to develop them. Neither of these excuses currently stand up.

It may be anecdotal, but in recent weeks I have met a number of technology companies which are looking for private equity and/or an initial public offering. They all have credible business plans, good products, strong management and are looking for backing to develop further. And there is little doubt that UK investors, be they fund managers or private individuals, are now more willing than ever to back technology companies with hard cash.

So what does this mean for IT user companies? Well, think of the key IT suppliers you use and how this relationship might change if you had a sizeable financial investment in the company. I'm not talking here about IBM and Microsoft, but smaller, often privately held, UK companies with good products and services that you need. An investment in such companies has many advantages. It gives you some sort of influence over the company's strategic development, it provides greater understanding of the pricing and technology behind the goods or services, and it may even allow you to put a director on the board if the investment is large enough. It should also provide a sound return on investment, on the assumption that if you want the company's product, so will other users. There are successful parallels for this type of investment in other industries.

If you want to invest in private suppliers you'll have to make the running, for example telling brokers that you are interested in providing finance and the type of investment you're interested in. It may seem like an effort, but the potential rewards, both financial and in terms of relationships with key suppliers, can make it all worthwhile.

Ian Mitchell is an IT analyst with stockbroker Beeson Gregory. His opinions should not be construed as investment advice.

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