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IT Leads the Way in IPOs

The information technology sector led the way in venture-backed initial public offerings and mergers. IPO activity grew in the fourth quarter, with 11 companies going public, up 120 percent from the third quarter 2011 but down 67 percent from the fourth quarter of last year, according to the Exit Poll report by Thomson Reuters and the National Venture Capital Association (NVCA).

By dollars, the quarter marked an increase of nearly five times the third quarter and a 34 percent decrease from the fourth quarter last year. For the full year, 52 venture-backed companies went public representing a value of $9.9 billion, a 31 percent decline in volume but a 41 percent increase in dollar value from 2010.

For the fourth quarter, 92 venture-backed M&A deals were reported, 26 of which had an
aggregate deal value of $3.9 billion, down 34 percent from the fourth quarter of 2010. For
all of 2011, 429 transactions were reported, down just two percent from a record year in
2010. Annual M&A aggregate value, driven by the first nine months of 2011 reached $23.0
billion, a 23 percent increase from 2010 and the highest levels seen since 2007.

Seven of the quater's 11 IPOs were in the IT sector, including three Internet companies, two semiconductor firms, and two compamies in the computer software and services sector. Sixty-one of the quarter's 92 venture-backed mergers involved companies in the IT sector.

CFOs Foresee Mergers, Revenue Increases, IPOs

More than three-quarters of CFOs at top US technology companies expect revenue to increase this year, according to a study by the accounting and consulting organization BDO USA. Overall, they forecast a 10.4 percent revenue increase, up from 2010 (8.7%) and a dramatic increase from 2009 (1.6%).

Merger and acquisition activity is also expected to rise, with 78 percent of CFOs forecasting an increase, including 23 percent who expect it to increase significantly over 2010. Contending with heavy competition, 78 percent of CFOs say the motivation for M&A will be primarily offensive and geared toward strategic growth. Amid rumors of major media and Internet companies considering initial public offerings and an improved stock market, the vast majority of CFOs (68%) also expect an increase in IPO activity in 2011.

"With liquidity improving and revenue on the rise, technology companies are poised for a strong 2011," said Aftab Jamil, partner and national leader of the Technology and Life Sciences Practice. "After scaling back on R&D and operational expenses during the recession, many technology companies are flush with cash and well-positioned to spend. M&A will be a primary tool for companies looking to boost profitability through strategic growth and increased market share."

With technology giants increasingly buying niche software specialists to expand their offerings, nearly one-third (32%) of CFOs expect the traditional software sector to see the most M&A activity in 2011. Another 30 percent point to the media and telecom sector, followed by biotechnology and life sciences (15%), cleantech (13%) and hardware (10%).

The majority of CFOs (52%) say continued economic rebound in the U.S. will be the most important factor driving growth in 2011. On the heels of skyrocketing mobile device sales, 19 percent of CFOs say consumer demand for innovative personal technology will be the most important driver of growth, up from 12 percent in 2010. International growth (11%), increased corporate IT budgets (8%), and demand for green technologies and solutions (8%) are also cited.

With China threatening to outpace the US in patent applications, 40 percent of CFOs point to competition as the greatest challenge they will face in 2011. This marks a notable jump from 2010 when just 15 percent of CFOs cited competition as the primary challenge. Managing risk moves to the second most cited challenge (20%), a significant decline from 2010 (38%). Recruiting and retaining workforce talent (19%) and access to capital (15%) also remain challenges.

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