This year, according to the annual survey by BDO, one of the nation’s leading accounting and consulting organizations, over two thirds (69%) of chief financial officers (CFOs) at leading U.S. technology businesses, including Michigan, anticipate increased sales revenue in 2010. Last year, less than a third (30%) of CFOs forecasted increased sales revenue for 2009. Overall, the average anticipated sales gain in 2010 is 8.7 percent, up from 1.6 percent in 2009. Sixty-eight percent of CFOs say that an economic rebound in the United States is the most important factor for driving technology sector growth in 2010, which is up from 55 percent in 2009.
In a dramatic increase from previous years, the vast majority (81%) of technology CFOs expect merger and acquisition activity in the technology sector to increase in 2010. Last year, only 43 percent predicted increased M&A activity for 2009, compared to 41 percent in 2008. Fifty-one percent of CFOs say the primary driver for acquisitions in today’s technology market is to increase revenue and profitability, which is up from 34 percent in 2009 and 37 percent in 2008.
According to BDO, technology CFOs are cautiously optimistic about the economy and growth in the sector this year, but they are still planning on conservative, managed growth for 2010. For the most part, the technology industry will continue to focus on streamlined operations, cost-cutting and innovation wherever possible. Companies that are strong and looking to grow, however, can afford to be opportunistic in this market. As the economy continues to stabilize, there will likely be some creative deal-making throughout 2010.
The survey included data from Michigan CFOs. Vin Nguyen, Partner in the Technology Practice in the Detroit office of BDO, says technology will play a critical role in reshaping Michigan’s economy. “We’ve seen a number of new alternative energy start-ups and recent acquisitions of technology companies in Southeastern Michigan, which are both seen as positive for diversifying the local economy,” says Nguyen. “Having a great platform, good management, and continued investment from venture capital funds will be keys to creating more successful technology companies for the region.”
These findings are from the BDO Seidman 2010 Technology Outlook Survey, which examined the opinions of 100 chief financial officers at leading technology companies located throughout the U.S. The survey was conducted in January of 2010.
Other major findings of the 2010 Technology Outlook Survey:
- Leading Risks to Technology Sector Growth. Technology CFOs are still concerned about an uncertain future. Thirty-eight percent cite managing risk as their greatest challenge in 2010, followed by access to capital (23%), recruiting or retaining workforce talent (19%), foreign competition (15%) and financial reporting and corporate governance (4%). In 2009, 39 percent of CFOs said risk management was the biggest challenge, followed by 33 percent who felt access to capital was the leading problem, a big jump from 15 percent in 2008.
- Pre-Recessionary Risks Very Different from Today’s Reality. In 2008, before the recession, the leading risk to technology sector growth was recruitment and retention (38%). Financial reporting and governance was also a greater challenge for companies – 14 percent cited it as a leading risk. Not surprisingly, managing risk and access to capital are much bigger concerns this year than in 2008, when only 23 percent and 15 percent, respectively, felt they were the biggest risks.
- M&A Drivers for 2010. Most (81%) CFOs expect M&A activity to increase this year, while 19 percent say activity will stay about the same or decrease. Half (51%) cite profitability and increased revenue as the primary driver for M&A activity, followed by increased market share (24%), obtaining more technology assets (13%), distribution channels (8%) and greater geographical coverage (4%). Last year, the primary drivers behind M&A in the technology market were expanding market share (40%), increasing revenue and profitability (34%), acquiring technology assets (12%), increasing distribution channels (10%) and geographic coverage (4%).
- Capital Seekers Not Keeping Pace with Lenders. Only one-third (32%) of CFOs anticipate seeking additional capital in 2010, which is slightly fewer than in 2009 (34%) and slightly more than in 2008 (27%). While the availability of capital creeps back to pre-recession levels, some technology CFOs are still reluctant to assume more debt in an uncertain economy, while others may need less capital as a result of cost-saving strategies implemented in 2009.
Of those who anticipate raising capital this year, 47 percent will focus primarily on private equity, down from 56 percent in 2009, but up from 33 percent in 2008. More than one third (37%) will use debt, and the remaining 16 percent will focus on public equity. Companies without international operations are much more likely to use debt (53%), while international firms will focus more on private equity (64%) than their domestic-only counterparts.
- Technology Companies Need an Economic Turnaround, Too. Not surprisingly, the majority (68%) of CFOs say that an economic rebound in the United States is the most important factor for driving technology sector growth in 2010, followed by consumer demand for innovative personal technology (12%), international growth (9%), demand for green technologies (8%) and web 2.0 (2%). Last year, only 55 percent of CFOs cited an economic turnaround as being the most important to growth, followed by increased IT budgets (13%), demand for green technologies and solutions (12%), international growth (10%), consumer demand for innovative personal technology (8%) and the web 2.0 boom (2%).
- Year-Over-Year Growth Predictions. Most (69%) CFOs expect sales revenue to increase this year, while 21 percent say revenue will stay the same and 10 percent think sales will decrease. Last year, only 30 percent of CFOs expected to see a sales increase, while 33 percent said sales would be flat and 37 percent expected sales to decrease. In 2008, prior to the recession, nearly three-quarters (73%) of CFOs were optimistic about sales revenue. Overall, CFOs expect the technology industry to grow by 8.7 percent in 2010, which is up from 1.6 percent in 2009.