Tech CFOs expect cloud deals to boost M&A in 2013


By Jack Hagel

Technology CFOs are forecasting increased M&A activity, driven in large part by cloud computing. They’re also expecting more revenue this year.

Sixty per cent of tech CFOs predict that mergers and acquisitions will increase in 2013, while 25% expect M&A activity to match 2012 levels, according to the BDO Technology Outlook Survey, which examined the opinions of 100 CFOs at US technology companies.

Access to technology assets and intellectual property is expected to be the primary driver for M&A (33%) – the first time in the survey’s seven-year history that CFOs cited it as the top reason. It was followed by revenue and profitability (29%) and market share (20%), according to BDO, which conducted the survey from December to January.

“We are at the beginning of a new ecosystem in the tech industry,” Aftab Jamil, director of BDO USA’s Technology and Life Sciences practice, said in a news release. “The ‘acquire or retire’ mentality is growing among technology companies who see acquisitions as a way to enhance their (intellectual property) and gain access to talent that will advance their brand and product portfolio.”

Sixty-three per cent of respondents expect the software/cloud-computing sector to drive the most deal activity, up from 39% in 2012. Hardware (13%) is expected to be the second most active sector, followed by social media (10%), biotechnology and life sciences (7%), and clean tech (6%), according to BDO.

Lots of deals, fewer big ones

Globally, the volume of tech deals held steady in 2012, as companies engaged in smaller transactions driven in part by cloud computing, social networking and big data analytics, according to Ernst & Young’s Global Technology M&A Update. The aggregate value of technology mergers and acquisitions in 2012 was $114.1 billion worldwide, down 35% from a busy 2011 that featured multibillion-dollar deals involving tech heavyweights.

The largest deal of 2012 would have placed fifth in 2011 and only two 2012 deals would have made it onto the 2011 top ten list, according to E&Y, which noted that companies were hesitant to engage in big deals due to macroeconomic uncertainty, which increased the risk of incorrect valuations.

“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,” Lee Duran, leader of BDO’s Private Equity practice, said in a news release.

More revenue

The BDO survey also forecasted better revenue in 2013 for tech companies. Fifty-eight per cent of respondents anticipate revenue to increase in 2013.

Respondents foresee overall revenue increases of 8.7%, up from 2.6% in 2012. Of those CFOs who expect revenue growth, 20% expect their bottom lines to grow by 5% to 9%. About 10% of CFOs surveyed expect revenue to decrease.

Jack Hagel (jhagel@aicpa.org) is the editorial director of CGMA Magazine.

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