CHICAGO – February 1, 2012 – According to data released today by BDO USA, LLP, 73 percent of chief financial officers at U.S. technology companies expect revenue to increase in 2012. Although the outlook is positive, CFOs foresee overall revenue increases of just 2.6 percent – significantly lower than the forecasted growth in last year’s survey (10.4 percent) and the first time since 2009 that revenue projections have not exceeded the previous years.
Despite lower revenue expectations, the vast majority of technology CFOs (75 percent) expect M&A activity in the sector to rise in 2012, down just slightly from 2011 (78 percent) and 2010 (81 percent). CFOs predict acquisitions will remain primarily offensive (77 percent), and with high-levels of competition among cloud and SaaS providers, the software industry is expected to see the most M&A activity by 39 percent of CFOs, followed closely by media/telecom (33 percent).
“Based on recent economic and marketplace volatility, technology executives are cautious in their revenue projections,” said Aftab Jamil, partner and director of the Technology and Life Sciences practice at BDO USA, LLP. “That being said, M&A remains an attractive opportunity. The fiercely competitive environment is pushing companies to aggressively target the best and brightest technologies. Among middle-market tech companies, there’s an ‘acquire or be acquired’ mentality.”
These findings are from the fifth-annual BDO Technology Outlook Survey, which examined the opinions of 100 chief financial officers at leading technology companies throughout the U.S. The survey was conducted from December 2011 to January 2012.
Other major findings from the 2012 BDO Technology Outlook Survey include:
M&A Activity to Remain High Across Tech Sectors in 2012. In addition to heavy M&A activity in the software and media/telecom sectors, CFOs also point to the biotech and life sciences (12 percent), hardware (11 percent) and cleantech (6 percent) sub-industries as top areas for deal flow. Revenue and profitability remains the most commonly cited primary driver for mergers and acquisitions in the technology industry, as cited by 38 percent of CFOs. Market share (29 percent), technology assets and intellectual property (13 percent), and distribution channels (11 percent) were also noted as influencers of M&A.
Confidence in Access to Capital Remains High. While 76 percent of CFOs say they feel better about the ability to access capital in 2012, the findings showed a 9 percent drop from 2011 levels (83 percent). Despite a high level of confidence in access to capital, the survey reported only 38 percent of CFOs plan to seek additional capital, compared to 43 percent last year. “Most technology companies have been very strategic in preserving cash and liquidity to sustain their business activities through cash generated from operations. This is leading fewer CFOs to look for capital externally,” said Jamil.
Debt to be Primary Source of Funding in 2012. In a change from 2011, among CFOs who are planning to seek additional capital this year, 55 percent will focus on debt to do so, a significant increase over 2011(31 percent). Of those CFOs, the vast majority (91 percent) will focus on private debt, with the remaining 9 percent looking to public debt. Fewer CFOs (35 percent versus 43 percent in 2011) say private equity will be their main tool to raising capital. Interest in public equity also dropped, with 9 percent of CFOs citing it as their primary source of funding, down from 19 percent in 2011.
CFOs Forecast Uptick in IPO Activity. With some recently completed IPOs, as well a number of greatly anticipated, future stock market launches pending for 2012, 63 percent of technology CFOs forecast an increase in IPO activity this year. This expectation is consistent with BDO’s recent IPO Outlook Survey, which found that 73 percent of capital markets executives expect an increase in IPO activity in the technology sector.
Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.
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