During the heyday of the technology bubble, IPOs created millionaires overnight. In fact, few start-ups even contemplated remaining private as tech IPOs broke all kinds of records in the late 1990s. In 1999, reports the New York Times, there were 308 technology IPOs. In 2010, there were just 20.
The subsequent dotcom bust changed all that and the tech industry has been cautiously eyeing the IPO market ever since. Tech IPO activity is heating up, according to a recent a recent report by BDO USA, LLP, and will continue to accelerate during 2014.
Ninety-three percent of CFOs surveyed anticipate IPO activity will remain the same or increase in 2014, according to BDO, up from 86 percent of CFOs who expressed the same sentiments last year. This comes on top of last year's robust offerings environment, which saw a total of 45 tech companies--including Twitter--go public, according to Renaissance Capital. This trend is consistent with the latest findings published in the annual BDO IPO Outlook Survey, in which 73 percent of capital market executives at leading investment banks predicted an increase in offerings from the technology industry.
"While some industry analysts are concerned that the IPO market has already hit its peak, our study indicates that technology companies anticipate that there is more to come in 2014 as business growth prospects remain strong and investor demand increases,” says Aftab Jamil, partner and leader of the Technology and Life Sciences Practice at BDO USA, LLP, in a press release. “This could be a reflection of the equity market, which remains generally strong, and the overall improvement of the economic environment. Excitement generated by the robust equity market and the broader IPO market has also seeped into the market for private tech companies."
“The IPO market was exceptionally strong in 2013, and the tech industry is feeling the positive impact of the JOBS Act”
The JOBS Act is increasingly being viewed as a catalyst for emerging businesses to pursue offerings, as companies can now benefit from a streamlined IPO process with reduced regulatory burden, BDO reports. Twenty-five percent of survey respondents expect the JOBS Act to expand the number of technology companies that initiate the IPO process in 2014, more than double the number of CFOs who felt similarly last year.
U.S. Economic Rebound to Drive Technology Industry Growth
Regarding future growth drivers for the technology sector, 43 percent of survey respondents point to the United States’ economic rebound as the most important factor motivating growth this year, up from 16 percent last year. One-third of CFOs expect consumers’ continuing heavy appetite for the latest personal technology products to drive growth in 2014, followed by increased corporate information technology (IT) budgets (16 percent).
The ongoing popularity of mobile devices and the increased traction of cloud computing solutions unfortunately continue to create new avenues for cybercriminals to access sensitive customer and user data. This concern, combined with recent high profile security breaches, have compelled 64 percent of technology CFOs to increase spend on IT security and surveillance. At the same time, technology businesses that provide products and services to address security and privacy concerns stand to benefit from the increased demand of their offerings.
While international markets remain critically important to technology companies, CFOs are not looking to them as a growth catalyst in the near term. Only eight percent of CFOs identify it as a primary growth factor this year, down from 23 percent last year.
Healthcare Reform and Fierce Competition Cited as Major Challenges in 2014
Now required to supply a higher minimum standard of health insurance coverage to their employees, 39 percent of tech CFOs indicate that healthcare reform will be the biggest macroeconomic challenge facing their organization in the coming year, followed by a lack of qualified workers (28 percent), and policy and tax changes (26 percent). Only seven percent of survey respondents believe the global debt crisis will be the biggest challenge to their organization, down from 26 percent last year, suggesting an improved outlook on the stability of the global financial market.
When it comes to microeconomic challenges faced by technology companies, fierce competition tops the list with more than half (54 percent) of tech CFOs citing it as a leading concern in 2014, up 20 percent from last year. The tech industry's ongoing efforts to keep pace with evolving consumer and business sector needs by offering innovative products and services makes investing in talent a critical component of a company's success. Twenty percent of CFOs report that they are most concerned with recruiting or retaining workforce talent, consistent with last year’s projections.
Other major findings from the 2014 BDO Technology Outlook Survey include:
More CFOs plan to raise capital in 2014. Thirty-four percent of CFOs surveyed say that they plan to seek additional capital in 2014, more than double the number indicating that they would do so in 2013. For those companies, the majority are counting on the private debt market (43 percent), followed by turning to a strategic partner (19 percent), public debt (17 percent), private equity (12 percent) and public equity (10 percent). The public debt market is seeing the largest increase, up from one percent in 2013 and private equity is seeing the biggest decrease, down from 42 percent in 2013. Notably, according to BDO's Fifth Annual PErspective Private Equity Study, when private equity fund managers were asked about which industries will provide the greatest opportunity for investment in 2014, 17 percent cited technology, only second to manufacturing and therefore the technology sector, with its robust growth prospects, remains an attractive investment option for private equity funds seeking sound investment opportunities.
CFOs cite foreign intellectual property (IP) infringements as the biggest threat to their company's IP protection. When asked about threats to their company's IP protection, a plurality (47 percent) of CFOs indicate an increase in IP infringements in foreign countries--where the protection of U.S. IP may not necessarily be enforced--as a top threat, followed by patent trolls and frivolous law suits (36 percent) and changes in patent law (17 percent).