[February 21, 2013]

Tech CFOs Anticipate Revenue Rebound in 2013, According to BDO USA Survey

Despite concerns about a global economic slowdown, 58 percent of technology CFOs anticipate revenue to increase in 2013, according to data released today by BDO USA, LLP. CFOs foresee overall revenue increases of 8.7 percent - an increase of 6.1 percentage points from 2.6 percent in 2012. Of those CFOs who anticipated revenue growth, 20 percent expect their business' bottom line to increase by 5 to 9 percent; only about one-in-ten CFOs surveyed expect revenue to decrease.

Merger and acquisition (M&A) activity is expected to remain strong in 2013, according to the CFOs surveyed. Nearly all CFOs expect M&A activity will increase (60 percent) or remain the same (25 percent) as 2012 levels. CFOs predict that M&A activity will be primarily offensive (72 percent), with 33 percent of financial officers identifying access to technology assets and intellectual property as the primary driver for M&A, followed by revenue and profitability (29 percent) and market share (20 percent). While access to technology assets and intellectual property (IP) has always been a factor for technology companies' acquisition strategy, this is the first time in survey history that CFOs cited it as the primary reason for M&A activity.

"We are at the beginning of a new ecosystem in the tech industry. The 'acquire or retire' mentality is growing among technology companies who see acquisitions as a way to enhance their IP and gain access to talent that will advance their brand and product portfolio," said Aftab Jamil, partner and director of the Technology and Life Sciences practice at BDO USA, LLP. "Acquisitions by Facebook and Google (News - Alert) are excellent examples of recent M&A trends that focus on the acquisition of talent and IP as the primary strategic drivers."

These findings are from the seventh-annual BDO Technology Outlook Survey, which examined the opinions of 100 chief financial officers at leading technology companies throughout the United States. The survey was conducted from December 2012 to January 2013.

Other major findings from the 2013 BDO Technology Outlook Survey include:

• Software sector driving M&A activity. Of CFOs surveyed, 63 percent expect the competitive software/cloud computing sector to drive the most deal activity, a 62 percent increase from 2012. Hardware (13 percent) and social media (10 percent) are also expected to be key drivers.

• IPO attitudes impacted after a challenging 2012. Two-thirds of CFOs believe that the problems characterizing IPOs in 2012 will impact IPO activity this year. While 48 percent anticipate IPO activity will increase, this is down from 63 percent who forecasted an increase in 2012. This trend mirrors recent findings published in the annual BDO IPO Outlook Survey that predicted slower growth in the IPO activity in 2013. While the JOBS Act attempts to reduce the regulatory burden for emerging growth companies seeking to launch IPOs and was enacted to open additional streams of capital for private technology companies, 79 percent of technology CFOs feel that it will have no impact on IPO activity in 2013.

• CFOs turning to private debt and private equity to raise capital. For companies who are seeking capital, 52 percent of CFOs say they will look to private debt in 2013. However, private equity gained additional footing in 2013 with 42 percent noting that it serves as their primary strategy, up 13 percent from 2012 (35 percent). Fewer CFOs say they will look to public equity (4 percent) or public debt (1 percent).
  
  "2012 was a strong year for private equity investment in the technology sector," Lee Duran, Partner and Private Equity practice Leader at BDO. "Software, especially cloud computing and SaaS (News - Alert)-based technologies, along with IT services, drove deal flow. As we look forward to 2013, we can anticipate larger conversations around valuations as the industry works to establish more realistic figures based on achievement and rooted in potential for future growth."

Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm's individual needs

About BDO Technology and Life Sciences Practice

BDO is a national professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. Guided by core values, including competence, honesty and integrity, professionalism, dedication, responsibility and accountability for 100 years, we have provided quality service and leadership through the active involvement of our most experienced and committed professionals.

BDO works with a wide variety of technology clients, ranging from multinational Fortune 500 corporations to more entrepreneurial businesses, on myriad accounting, tax and other financial issues.

About BDO USA

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 45 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,204 offices in 138 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.

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