2014 was an exceptional year for the technology industry. Companies saw a strong deal environment as well as an increase in investment activity, fueling optimism among U.S. technology finance chiefs for a robust year ahead.
According to BDO USA, LLP’s 2015 Technology Outlook Survey, which polls 100 technology CFOs, 70 percent anticipate increased sales revenue in 2015. Overall, tech CFOs project a revenue increase of over 12 percent. CFOs’ bullish outlook follows forecasts of an 11 percent revenue increase in 2014 and an 8.7 percent increase in 2013, pointing to continued optimism in the industry.
Along with a positive outlook on revenue, companies expect deal pace to remain robust. CB Insights, for example, reports that in 2014, global technology transactions increased 58 percent over 2013 levels—the most in over five years. Following this positive trend, CFOs anticipate that merger and acquisition (M&A) activity will continue its strong track throughout 2015. The vast majority (96 percent) believe M&A activity will increase or stay the same this year, and 66 percent of CFOs cite that acquisitions will be primarily offensive. One-third of tech CFOs believe increased revenue and profitability will be the primary impetus for M&A activity in 2015, followed by improved market share (25 percent) and gaining engineering and research capabilities (14 percent).
“Although the tech industry is cautious of overvaluation, finance chiefs are confident that deal activity will continue its momentum well into 2015,” said Aftab Jamil, partner and leader of the Technology and Life Sciences Practice at BDO USA, LLP. “As consumers continue to demand innovative products and investments keep pouring into the sector, technology companies may be better positioned for business growth through strategic partnerships to expand their capabilities and offerings as well as to compete effectively and gain market share.”
Additional findings from the 2015 BDO Technology Outlook Survey include:
Software sector dominates deal flow. Sixty-one percent of CFOs surveyed continue to believe the software sector, including cloud computing, will drive the most M&A activity in 2015, on par with last year’s outlook (60 percent). In fact, IDG reports that cloud computing initiatives will lead in 2015 with 42 percent of enterprises planning to increase their cloud computing spending this year. As social media companies remain key players in the industry, 22 percent of CFOs say the social media sector will trigger the most deal activity this year, followed by biotechnology (10 percent).
“The software industry is quickly shifting from the traditional licensing model to cloud-based offerings, such as software-as-a-service to meet the overwhelming need for real-time responses and easy integration,” said Hank Galligan, leader of the Software Practice at BDO. “As the business environment evolves, companies are acknowledging the pressure to upgrade or introduce cloud computing services either through acquisitions or on their own.”
Despite the uncertainty of another tech bubble on the horizon, CFOs have a bright outlook for the future of deal pace with 62 percent predicting that business valuations will increase this year, a 35 percent increase from 2014.
Another blockbuster year for tech IPOs. The technology market experienced robust IPO activity in 2014, with 55 IPOs and Alibaba setting the record as the largest IPO in terms of proceeds raised, according to Renaissance Capital. On the heels of last year’s record activity, an overwhelming majority of respondents (86 percent) say IPO activity will remain the same or increase in 2015. This sentiment is also reflected in the January 2015 BDO IPO Outlook Survey, with 73 percent of capital market executives at leading investment banks predicting an increase in technology offerings.
As venture capital-backed investments soared in 2014, 39 percent of CFOs expect venture capital-backed companies will give rise to the most tech IPOs this year, followed by private equity (36 percent) and owner/manager or privately held businesses (25 percent; up from 18 percent in 2014).
When looking at factors driving IPO activity, more than one-third of CFOs surveyed (34 percent) say the performance of recent tech IPOs will have the greatest impact on the U.S. IPO market, followed by U.S. market volatility (25 percent), global political and economic issues (23 percent) and appeal of IPOs in foreign markets (11 percent). Notably, only five percent of CFOs say concerns about a tech bubble will have the most impact on IPO activity.
More companies plan to seek capital in 2015. Thirty-eight percent of surveyed CFOs say they anticipate seeking additional capital this year, up from 34 percent in 2014. Of the respondents planning to access capital, more than half (51 percent) will turn to a strategic partner—a significant increase from last year’s number of respondents (19 percent)—while only three percent will rely on the private debt market, down from 43 percent in 2014. In addition to strategic partners and private debt, 22 percent of CFOs plan to seek additional capital through public equity, followed by private equity (16 percent) and public debt (five percent).
These findings are from the eighth annual 2015 BDO Technology Outlook Survey, a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to 100 chief financial officers at leading technology companies throughout the United States. The survey was conducted from December 2014 to January 2015. Additional findings from the study will be released in the coming weeks.
About the Technology & Life Sciences Practice at BDO USA, LLP
BDO has been a valued business advisor to technology and life sciences companies for over 100 years. The firm 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
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