BDOTechnology Survey 2012

Technology SecToR gRoWTh SURVey & inSighTS 2012

Technology Sector Growth Survey 2012

conTenTS

– Research methodology This page

– Foreword 1

1 Growth 2

2 Emerging markets 6

3 Funding 12

4 Risk 16

5 Exit strategies 18

ReSeARch MeThoDology During the first quarter of 2012, 100 interviews were carried out with companies in the Technology, Media and Telecoms (TMT) sector in Ireland. The majority of respondents were at MD/CEO or Financial Controller level (57 per cent). All others were members of their organisation's finance team.

Companies were selected across a range of sub-sectors within the TMT sector including mobile communications, telecommunications equipment, publishing and printing, broadcasting, e-commerce retailers and software developers/providers.

Annual worldwide revenue 2012 (when given):

Up to €11 million 60%

€11-€50 million 6%

€51-€100 million 7%

Above €100 million 27%

Representatives of companies from both the Republic of Ireland and Northern Ireland were interviewed.

Both BDO clients and non clients were approached to take part in the research. The survey was managed by BDO with the fieldwork for non-BDO clients conducted by UCD Michael Smurfit Graduate Business School.

Technology Sector Growth Survey & Insights 2012 1

FoReWoRDiT iS oUR gReAT pleASURe To ShARe The ReSUlTS oF BDo’S 2012 Technology gRoWTh SURVey, Which pAinTS A cleAR picTURe oF ThiS SecToR’S DeTeRMinATion AnD AMBiTion To gRoW, in SpiTe oF ongoing UnceRTAinTy in The econoMic enViRonMenT.

BDO’s annual survey of Technology, Media and Telecoms (TMT) companies draws on the responses of 100 companies based in Ireland, and the 2012 findings reflects current thinking in an industry that has largely weathered the domestic challenges of the last four years and which is among the most internationally-oriented of our business sectors.

Not surprisingly, however, the survey shows that the broader macro-economic issues playing out over the last 12 months have impacted on confidence. The fact that 46% of respondents are forecasting revenue growth of 5% or more, in the year ahead, can be seen as a positive but it is down by almost 50% on the 2011 figures, when 82% of respondents had these expectations.

The BDO survey is not just about headline figures but the thinking behind them and, in this case, a retrenchment in spending by potential customers would seem to be central to the downward revision. Whereas, in the 2011 survey, only 9% of companies indicated that recession was a key macro trend impacting on them, that figure has leaped to 62% in 2012.

With clients in traditional markets proving more tentative on spending, there has been continued emphasis on the opportunity in new markets. However, an increased sense of caution is also in evidence. In all, 43% of companies planning entry into new markets have moved from the planning to the implementation stage, as compared to 63% in 2011.

Perhaps the most emblematic findings of the 2012 survey relate to funding. Just 28% of companies say they are seeking to obtain capital in 2012, a figure that would appear to be significantly

at odds with the marked appetite for expansion in evidence in the sector. However, this low figure is likely to be the result of a combination of factors – some companies will feel they have the resources to fund their own growth while others believe that the funding opportunities are simply not there.

Historically, banks have not been a key source of capital for the TMT sector so such misgivings are understandable. However, to ignore the range of funding options that are currently available would be to do a major disservice to the industry. There is clear evidence that the banks are more willing to engage with TMT businesses than previously was the case, while private investors, venture capitalists and seed funders are, arguably, offering more viable access to capital now than at any time in the last four years.

Also worth highlighting, as businesses plan their funding strategies, is the value of an exit strategy. Investors need to see a clear path in terms of how they will realise a return on investment but our survey indicates only a small percentage of companies operate with visible exit strategies as part of their planning process.

The overall impression from the 2012 findings is one of determination grounded in realism. Undoubtedly, the protracted nature of the recession is providing challenges. However, it is also clear that growth is being planned around it rather than impeded by it. The focus on both product and service innovation and on competing in new markets is the strongest evidence of a sector actively managing, and in control of, its future.

BDO remains convinced that Ireland is primed for significant growth in the TMT sector in the years ahead and looks forward to playing its role as the adviser of choice to its dynamic range of companies.

My sincere thanks to everyone who participated in this survey. We welcome your feedback and invite your participation in future surveys.

Teresa Morahan Partner and Head of TMT Sector [email protected] + 353 1 470 0191

All figures are from this year’s survey unless otherwise stated.

Technology Sector Growth Survey & Insights 20122

gRoWTh

gRoWTh expecTATionSconFiDenT? ThoSe conFiDenT oUTnUM-BeReD ThoSe noT conFiDenT By 3 To 1.

We ASkeD How confident are you about the prospect for strong growth in your sector in the coming year? (Base:100)

Not confident 25%

Quite confident 57%

Very confident 19%

Not confident 29%

Quite confident 56%

Very confident 15%2011 survey results

Expectations for revenue growth are more modest than was the case in 2011.


82% oF ThoSe coMpAnieS SURVeyeD Feel ThAT They Will hAVe poSiTiVe gRoWTh in ReVenUeS in 2012.

We ASkeD What is your company’s approximate annual revenue growth target, as a percentage for 2012, 2013 and 2014?(Base: 90)

Negative

This year Responses from our2011 TMT survey

Forecast for 2013 Forecast for 2014

0-4%

5% & up

38%

16%

46% 82%

13%

5%

52%

32%

16%

56%

30%

14%

Despite a slight increase in confidence that growth will be a feature of the sector over the coming year, our survey indicates that expectations for revenue growth are more modest than was the case in 2011. Only 46% of respondents forecast an increase in revenue of 5% or more, as compared to 82% in 2011.

Revenue expectations for 2013 and 2014 are broadly in line with 2012, with 56% of respondents expecting revenue growth of 5% or more in 2014.


gRoWTh STRATegieS

neW MARkeT STRATegieS AnD pRoDUcT/SeRVice innoVATion ARe key To gRoWTh.

We ASkeD What are the top strategies for growth for technology companies? (Base: 90 multi-response (MR))

None

Other

Investment in Marketing

Extension of Product Lines

New Talent

Strategic Partnership/Alliances

Organic Growth

Innovation

Product/Service Innovation

New Market Segments

4%

28%

4%

9%

13%

13%

17%

18%

48%

50% Half of all respondents highlighted new market segments and product/service innovation as key to their growth, underlining the importance of identifying new market segments and championing emerging technologies.

In essence, technology companies recognise that ‘standing still’ is not an option if they wish to build on or even maintain current market position. Innovation is seen as integral to this, not only by companies themselves but, increasingly, by Government, through initiatives such as the R&D Tax Credit Scheme and grant assistance from various development authorities.

gRoWTh

‘Standing still’ is not an option.


Top ThRee gRoWTh STRATegieS.

We ASkeD What are your companies top three strategies for growth in the next three years? (Base: 90 MR)

Innovation 18%

Product/service innovation 48%

New market segments 50%

How important will new market segments be to your company’s growth in the year ahead? Version 1 has over 200 customers across the utilities, public, financial, pharmaceutical, retail, education and health sectors, so our client base is very broad. We have seen strong growth in Ireland since our inception. We had 40% growth last year, with 25% anticipated this year. However, it would be difficult to keep up that level of growth without expanding into new markets. We have started to look at expansion in the UK, through both organic growth and strategic acquisitions. In terms of our offering, we provide a full range of IT services, from consult-ing through to implementation to support. What has been interesting recently is the growing demand for our business intelligence services. This is the biggest growing segment at the moment. Clients need to understand the trends in their sec-tor and we would put a lot of time into analysing data for them and presenting it in a digestible form.

Do you see any particular chal-lenges with regard to funding innovation? Most of the R&D we would do is in conjunction with client needs and requirements, so it would be led by the customer’s need for problem solving in a particular area. We are a profitable company so we are in the happy position of being able to fund that work. Sometimes there are interesting outcomes that have broader value to our company and so that feeds into our overall capacity to deliver more innovative offerings.

Has the R&D tax credit been important to your strategic growth? It hasn’t been a significant con-

tributor to how we fund ourselves. A few years ago we did focus in on the tax credit but it was not a very positive experience. We found that not enough of a percentage of what we did qualified to make it worthwhile. There have been some changes to its operation recently, but our impression remains that not enough of what we do would qualify to make an application worthwhile.

What do you see as the single biggest drag on growth for the year ahead? Recruiting the right staff has been our biggest challenge over the years and that continues to be the case. There are simply not enough people qualified in IT. It isn’t just an Irish problem, it is a world-wide issue. However, we have had some success in bringing in people from Eastern Europe and further afield. We are very clear that we want to create and keep jobs in Ireland – we don’t want to offshore to other locations – so we compete through higher productiv-ity and through better processes.

What has most changed in how you plan for growth over the last year? Our planned expansion into the UK is a relatively new development and we are currently in the proc-ess of evaluating the market and actively looking for targets.

Justin KeatingeVersion 1


geogRAphicAl locATionS

No plans to enter 33%

Plan to enter 67%

gRoWTh in cURRenT MARkeTS iS noT enoUgh To DeliVeR on gRoWTh oBjecTiVeS.

We ASkeD Is growth into new or emerging markets important to your companies strategy?

eMeRging MARkeTS

Entry into new and emerging markets has been identified as an important component of corporate strategy for two thirds of respondents, indicating broad recognition that growth in current markets is not enough to deliver on their overall growth objectives.


geogRAphicAl locATionS

Not entering 57%

Entering 43%

Not entering 37%

Entering 63%2011 survey results

coMpAnieS execUTing The MoVe inTo neW MARkeTS hAS FAllen Since 2011.

We ASkeD Is your company entering into new geographic areas?

However, less than half of respondents in this category (43%) indicated the move from the planning stage to actual entry into the new market has taken place. This is notably lower than the 63% of respondents who were at the entry stage into new markets in 2011.

Growth in current markets is not enough

to deliver on overall growth objectives.


eMeRging MARkeTS

We ASkeD Reasons these markets offer good opportunities for growth? (Base: 41 responded with reason. Based on top nine answers and frequency of answer chosen)

English speaking customers

Ireland is too Traditional

Gap in the Market

Want to increase profit

Higher demand in this market

Bigger markets abroad

Market is Growing

Want to expand the business

Business does well in current markets 45%

22%

22%

22%

11%

11%

11%

11%

11%

geogRAphicAl ReASonS

The survey, however, found a welcome pragmatism at the heart of this expansion – companies are entering new geographic territories because they need to grow their business and increase profitability, rather than because competitors and peers are in these markets too.

Close to Ireland

Nothing happening in Ireland

It's within our budget

Suits the Product

Good contacts abroad

English Speaking

Asia is the place to be

To increase profit

To Grow the business 44%

22%

6%

6%

6%

6%

3

3

3

44% oF coMpAnieS ciTeD ThAT WAnTing To gRoW The BUSineSS WAS TheiR MAin ReASon FoR gRoWTh AnD geogRAphic expAnSion.

We ASkeD Reasons for growth and expanding geographically? (Base: 32 respondents who provided a reason for planning to grow geographically)

Where a company’s product or services are proven in local or established markets, the potential size of and opportunity within new markets was a clear driver of export strategy.


Other 20%

Home Market 39%

Everywhere 53%

0

10

20

30

40

50

We ASkeD What market(s) does your company plan on applying this product/service innovation strategy to? (Base: 51 MR)

pRoDUcT innoVATion

MoST coMpAnieS FAVoUR MoDiFicATion oF pRoVen exiSTing pRoDUcTS AnD SeRViceS.

We ASkeD Does your company plan to develop new products? 53 respondents confirmed that they were, of which:

35% would develop new product/service line based on similar product in the market

65% would enhance/modify existing products/services

In this vein, it is worth noting that approximately two thirds of companies believe that NPD will involve the enhancement and modification of existing products and services already proven in the marketplace, rather than the development of entirely new offerings.

Also worth noting was the overall finding of a clear dichotomy between companies who are focused on developing their product/service innovation on the home market and those looking to the global marketplace. This divide is not surprising, given just under 50% of those surveyed indicated definite plans to enter new geographic markets.


MAcRo-TRenDS

gloBAl econoMic DoWnTURn iS noW Seen By ReSponDenTS AS The MoST SigniFicAnT MAcRo-econoMic TRenD iMpAcTing on TheiR SecToR. We ASkeD What are the three most important macro-trends facing your company? (Base: 90 MR)

+53%

+17%

+10%

0%

0%

-6%

-1%

+3%

+3%

-11%

-3%

-2%

-12%

Other

Changing work practices

Green/environmental issues

Sector consolidation

Globalisation threats

Globalisation/expand abroad

Regulatory pressure

Competitor consolidation

Increased use of technology

Technological growth

Competitive pressure

Pricing pressures

Recession

Changeon 2011

62%

52%

51%

24%

24%

19%

16%

16%

14%

8%

8%

7%

6%

9%

7%

9%

57%

5%

4%

17%

20%

19%

16%

17%

20112012

The protracted global economic downturn is now seen by respondents as the biggest macro-economic trend impacting on their sector, with companies that cited recession as the key macro trend jumping from 9% in 2011 to a sizable 62% in 2012.

Pricing and competitive pressures remain prominent this year, with over 50% of companies pointing to these as significantly impacting on their business.

Ongoing attention to cost cutting and the delivery of maximum return from spend look set to continue on the back of this.

eMeRging MARkeTS


Maurice MortellTelecityGroup

TelecityGroup has experienced high-profit growth in recent years by opening and selling data centre capacity in key internet economy cities across Europe. One notable expansion for TelecityGroup was in August 2011, when TelecityGroup invested €100 million in the acquisition of Irish-owned data centre operator, Data Electronics. Undoubtedly, Ireland’s emerging reputation as the data centre hub of Europe was a key influencer in the decision.

There are many aspects that make Ireland attractive specifically as a data centre hub. Ireland is home to many of the world’s leading telecom providers, many of which provide direct telecom links to Europe and the US. Ireland also has a robust power grid, which

ensures reliable electricity supply to the IT equipment that resides in Irish data centres. The more power IT equipment consumes, the more heat it generates, which raises the importance of data centre cooling. Ireland’s low ambient air temperature is perfect for data centre cooling, as it enables outside air to cool the data centre, as opposed to artificially cooled air, reducing costs.

A critical mass of technology giants continues to be attracted to Ireland. One of the key decisions when expanding to a new market is the availability of reliable and well-connected data centres and Ireland continues to succeed and prosper in this area.

Ongoing attention to cost cutting and the delivery of maximum return from spend look set to continue on the back of this.


FUnDing

FUnDing FoR expAnSion28% oF coMpAnieS plAn on RAiSing cApiTAl in The nexT ThRee yeARS.

We ASkeD Does your company plan to raise capital in the next three years? (Base: 100)

No plans to raise capital 72%

Plan to raise capital 28%

With the majority of respondents highlighting the development of new markets and products/services innovation as key drivers for growth, it may be somewhat surprising that only 28% of respondents have indicated plans to raise capital. This would indicate either sufficient funding within companies to fund growth plans or a strong belief that capital is not available to them.

Have you seen any noteworthy changes in how companies are approaching VCs over the last year or two? The biggest change is that a greater number of companies are trying to raise capital from venture capitalists at start-up or at a very early stage in their development. They are trying to achieve accelerated growth and bootstrapping a company through the first year of operations is not an option for them. They compete in a global world and first mover advantages are important. If the company is showing signs of early success, the founders try to raise expan-sion capital sooner than they would have five or six years ago. In terms of founding teams, we are seeing younger promoters who have gained some experience but the corporate ladder is not

Maurice RocheDelta Partners


There is either sufficient funding within companies to

fund growth plans or a strong belief that capital is not

available to them.

cApiTAl SoURceS

The peRceiVeD UnWillingneSS oF BAnkS To lenD iS iDenTiFieD AS A MAjoR oBSTAcle.

We ASkeD How does your company plan on raising capital over the next three years? (Base: 29 MR)

Other

Existing shareholders

Private Equity

From the business itself

Bank Loan

35%

13%

21%

21%

55%

Over half (55%) of respondents cited banks as potential sources of funding. However, the perceived unwillingness of banks to lend was identified as a major obstacle by the vast majority. One fifth of respondents also indicated a belief that there was a lack of funds available generally.

This raises questions on whether companies are fully aware of all the funding options available in the marketplace and on the quality of information circulating within the industry around funding access.

for them. The quality of the founding teams is very good and their ambition level is high.

Do you see funding challenges as undermin-ing the potential for growth of otherwise viable companies? No. There is a good level of funding available for the right companies. The creation of the seed funds (four funds with approximately €120m under management) has made more capital available for start ups and companies in the early stages of their development. The other domestic venture capital funds are also actively investing. At a macro level, it is assumed that, because the banks have no money, the availability of capital for technology companies has been affected. This is not true as banks did not lend to this sector.

Venture capital annual investment in Ireland has increased by 42% between 2007 and 2011. Over 600 companies raised €1.3 billion in this period.

Have funders/potential funders changed how they go about understanding a business? Is the knowledge model keeping pace with the reality on the ground? New sectors have emerged in the last five years, from social media, gaming, collaborative con-sumption and I believe we have only seen the tip of the iceberg in relation to e-commerce within Europe. Understanding and evaluating these opportunities requires different metrics, they are largely business to consumer opportunities rather than business to business. Funders have needed to adapt and they have. In addition venture capi-

tal infrastructure and supports (state agencies, legal and accounting firm) has also gone through a much-needed learning curve and Ireland is now ranked number two in the EU for the range and quality of supports available to technology companies.

Any closing thoughts? Funding of technology companies has come a long way over the last 15 years. There is a far better understanding amongst all parties in the ecosystem. There are experienced entrepreneurs and venture capitalist in Ireland all of whom have a part to play in building on the innovation culture that exists in Ireland and hopefully contributing to growing the number of successful indigenous technology companies that operate from Ireland.


DiFFicUlTy SecURing cApiTAloBTAining cApiTAl iS DiFFicUlT FoR 43%, WiTh BAnkS Being UnWilling To lenD ciTeD AS The MoST pReVAlenT oBSTAcle.

We ASkeD How difficult is it for your business to obtain capital? (Base: 100)

Very difficult 23%

Neither easy or difficult 36%

Not difficult 14%

Difficult 20%

Not at all difficult 7%

We ASkeD What are the main obstacles for your business obtaining capital? (Base: 38 MR)

Economic climate

Fear from investors

No money available

Banks not willing to lend

11%

11%

21%

82%

FUnDing

Are companies fully aware of all the funding options available in the

marketplace?


Tell us a little about your company?Magnet Networks was established in 2004 and provides advanced phone and broadband and entertainment services to both residential and business custom-ers in Ireland. We own and run our own network and, to date, have invested over €120 million in creating the most advanced telecoms network in the coun-try and developing new cutting-edge services for the Irish market.

How has gaining the R&D credit im-pacted on the company? There is no doubt that the R&D credit incentivises businesses to carry out projects that they might not otherwise

consider. As such, it’s had a significant impact. As a service provider to both consumer and business markets, we are constantly looking at ways to provide new and innovative offerings. The credit received by Magnet Networks was sig-nificant. This, together with our clearer understanding of what qualifies for R&D, means we can continue our investment in innovative, leading edge technology that will allow us to improve and expand our customer offerings in the Irish market.

What are your thoughts on the R&D tax credit generally? Most companies assume R&D is a very narrow field and that what they do

won’t qualify. However, you may very well be surprised at what activities are considered R&D related. Based on experi-ence, my advice to any company doing development work is to assume you will qualify for a credit and take it from there. In our case, BDO’s engineering expertise facilitated engineer to engineer discus-sions and this process was key to the identification of the opportunity but, more broadly, the Government really needs to develop awareness further.

Conor O’ReillyFinancial ControllerMagnet Networks

What is the R&D tax credit? Revenue first introduced tax relief on re-search and development (R&D) expendi-ture in 2004 and, subsequently, amended conditions relating to it over the years. Section 766 TCA 1997 provides for a tax credit of 25% of incremental expenditure by a company, or group of companies, incurred wholly and exclusively on R&D. The most recent change was in Finance Act 2012.

How can the R&D tax credit benefit technology companies? The main benefit is that companies are entitled to a credit of 25% of their in-cremental R&D expenditure. This credit is in addition to the normal corporation tax deduction for the expenditure. This means that a company can achieve an effective tax deduction of up to 37.5% on most R&D expenditure. The credit can be offset against a company’s cor-poration tax liability of the period. If the company does not have a corporation tax liability it can claim a cash payment of the value of the unused credit in that period from the tax authorities, subject to certain restrictions. This means the credit can represent a viable, and signifi-cant, source of funding for businesses with cashflow difficulties.

Are there any particular challenges to claiming the relief? The biggest issue that emerges among companies is lack of knowledge in terms of what activities qualify for R&D. Misconceptions on the types of activities that qualify mean that many companies routinely miss out on this valuable relief.

Can the necessary expertise be brought in? At BDO we have established a multi-dis-ciplinary team approach that targets that issue. Through the BDO International R&D Centre of Excellence, our Irish tax experts collaborate with a team of highly experienced R&D engineers/scientists to provide a full R&D tax solution for clients. We routinely assist in all aspects of the claim, for a wide variety of clients, including technology companies. The service covers everything from technical report preparation, financial calculation and support, to documentation support and interaction with Revenue in the case of a review. Our clients have found the BDO approach to be both very effective and efficient. Our goal is to take away, as much as possible, the stress of making the claim for the company, so its in-house staff is freed up to focus on their day-to-day work.

How have companies used cashflow from the R&D tax credit? There are obvious financial rewards from qualifying for the R&D tax credit regime and they have, in some cases, thrown a lifeline to companies. Typically, we would see the tax credit used to fund more R&D projects within the industry. This would include, where it was deemed necessary, the hiring of suitably qualified scientific/engineering staff to support the future R&D efforts of the company. In that sense, it can certainly be seen to be a highly successful initiative by Revenue, as it reinforces the R&D efforts of companies, and provides an essential support as they scale up their businesses and deliver growth to the economy.

Derek HenryHead of R&D Tax Services


MAin RiSkSThe econoMic DoWnTURn iS The gReATeST RiSk iMpAcTing on coMpAnieS noW AnD MAking iT DiFFicUlT FoR TheM To Do BUSineSS.

RiSkS

With recession viewed as the most significant trend impacting on the sector it is also, not surprisingly, perceived as by far the greatest risk by companies. The ability to survive the economic downturn is now seen as crucial for many businesses and, closely linked to this, is the ability to grow revenues and profitability.

One noteworthy shift from 2011 is that the cost of capital, which had been viewed as the biggest risk, is now seen as a mid-table issue in 2012. This is less to do with any changes in availability of funding but rather, as noted in the previous section, with the low percentage of respondents who state they are actively seeking funding (28%).

The ability to survive the economic downturn

is now seen as crucial for many businesses.


Other

None

Lack of funds in R&D

Lack of funds in sales and marketing

Austerity regulation

Employee discontent

Customers extending credit terms

Suppliers raising prices

Recruitment issues

Cost of capital

Foreign exchange risk

Lack of funding

Competitors consolidating

Price competition

Falling consumer demand

Economic downturn

31%

6%

4%

5%

5%

5%

6%

8%

9%

12%

13%

15%

16%

24%28%

39%

14%

25%

69%

-4%

-27%

-8%

Changeon 2011

Top three risks in 20112012

We ASkeD What are the main risks/challenges facing business in the next three years? (Base: 90 MR)

Justin KeatingeVersion 1

and risks. They have come to expect a very high level of security protection from their IT service providers.

Are there any issues impacting on your business you feel would be easy to resolve if the right steps were taken? If there was any change that could be made easily that would have significant impact it would be a fast-track visa process for highly-skilled people in the IT industry. That would be most welcome. The Government took some steps in the last Budget to make it easier for international business executives to locate here. They might look at similar

What do you consider to be the biggest risks impacting on your business’s growth right now? Recruiting the right talent, as mentioned before, is an ongoing issue for us. With the increasing number of multinational IT companies locating here, that challenge is only going to get bigger.

While not a risk to our business per se, managing the security concerns of our clients is an area where we have seen significant new interest recently. IT security has become a headline issue across the business world and companies are more and more aware of the issues

initiatives in areas where there are serious skills shortages. One very good initiative by the Government is the retraining of professionals from other industries into the IT area. As we start to see a throughput of graduates from these programmes, I would expect that to have a positive impact.


exiT STRATegieS

leSS ThAn one in FiVe coMpAnieS hAVe plAnS To inTRoDUce An exiT STRATegy eleMenT inTo TheiR BUSineSS STRATegy.

We ASkeD Does your company plan to introduce an exit strategy into their business strategy? (Base: 100)

Don't know 6%

Exit strategy 16% (-2)

No exit strategy 78% (-4)

Exit strategy 18%

No exit strategy 82%2011 survey results

The majority of respondents indicated they did not have an exit strategy; a position many may do well to revisit in the coming year. How capital is realised is an important factor for investors when considering an investment and, without a clear exit strategy, companies may represent a less attractive funding proposition for them.

When considered as an investment, companies without a clear exit strategy may be viewed

as a less attractive proposition.


We ASkeD Of the 16% of companies who planned to introduce an exit strategy: In what time frame would they do so?

Greater than 5 years 8% (-3)

Three to five years 17% (-41)

One to two years 75% (+44)

Greater than five years 11%

Three to five years 58%

One to two years 31%2011 survey results

We ASkeD Of the 16% of companies who planned to introduce an exit strategy: How do they plan to execute it?

Sell to private equity 25%

Sell to competition 31%

Management buy-out 6%

Trade sell 38%

What factors ultimately drove your exit strategy? When CarTrawler was started in 2004, it was the first of its kind in the world, but was set up with over 20-years industry experience behind it. It had a very clear goal of providing a next-generation car rental distribution system and was able to deliver on that. However, it was started with an exit strategy in mind, and the company was always run with this as its main objective.

What was the time frame of the strategy? When I set up CarTrawler, I didn’t have a specific time frame with regard to my exit, but I did have an exit price in mind and achieving that was always key to reaching my targeted goal.

Was the selection of a particular time frame important in the end? I would say it was. We had received a lot of unsolicited interest and approaches over the years. Our revenues and growth levels where very strong and our future forecasting was also very positive. Perhaps most important of all was the fact that there were very few technology companies with the growth and global footprint that we had at that time, so we really could look for a premium in our selling price.

Was the strategy in any way reversible? We only had one strategy and that was for an exit at the right time at the right price through a majority sale. If the proc-ess had not been successful, we could have easily continued, but might not

have been able to go back to the market for a couple of years.

What is your feeling having come through the process? My reflections would be that it was a very wise strategy to plan for an exit from the very start, as this sped up the due diligence and legal work and reduced our costs. My advice to others with the same strategy in mind would be to pre-agree your adviser, legal and accountancy fees in advance, as best as you can. It is also imperative that you have the very best corporate advisers working with you throughout the process. The best bring great value to the business and alleviate a lot of pressure, so you can focus on run-ning and growing the company.

Greg TurleyRoundtown Investments Ltd


A DeDicATeD TMT SecToR TeAMBDo’S Technology, MeDiA AnD TelecoMS (TMT) TeAM WoRkS AcRoSS All ADViSoRy SeRViceS To help yoUR BUSineSS SUSTAin gRoWTh AnD plAn FoR The FUTURe.

We adopt a partner-led approach and work with our clients to develop strong collaborative relationships while providing commercial insights and practical advice.

BDO understands the challenges TMT companies face in every phase of their growth. We work with many leading brands and companies ranging in size from pre-profit start-ups to listed companies. With detailed sector knowledge, considerable market expertise, innovative services and international reach, our TMT team is dedicated to ensuring your strategic objectives are given the same attention as daily operational demands.

We advise companies on:

Audit

Internal Audit

Corporate Finance

Corporate Recovery

Mergers and Acquisitions

Commercial Due Diligence

Compliance and Risk

Revenue Recognition Issues

Research & Development Costs and Tax Credits

Initial Public Offerings

Expatriate Tax, Incentives and Rewards

Corporate Structuring

Cross Border Transactions

For more information please contact: Teresa Morahan, Partner, on 01 470 0191, or [email protected]

AcknoWleDgeMenTSBDo WiSheS To exTenD ThAnkS FoR The SUppoRT AnD TiMe giVen FRoM The conTRiBUToRS AnD gUeST SpeAkeRS:

Maurice Mortell, TelecityGroup

Maurice Roche, Delta Partners

Greg Turley, Roundtown Investments Ltd

Justin Keatinge, Version1

Conor O’Reilly, Magnet Networks

Special thanks also to all the companies who participated in the survey, without their participation this report would not be possible.

Finally thanks to UCD Michael Smurfit Graduate Business School – Marketing Development Programme who conducted the fieldwork for the non-BDO client survey.


BDo

There is something different about BDO. They are more than just my accountants, it’s like they are an integral part of my management team.BDO client from the technology sector

BDO have been advising Irish businesses for 30 years. The BDO approach is unlike other accounting organisations. We're different because we have the flexible personal characteristics of a local firm, together with the specific expertise, world wide network and strength of the large scale global players.

BDO is a member firm of the BDO global network with over 110 member firms.Our membership of the BDO global network affords us global reach and a consistency of service delivery to the highest standard on cross-border assignments.

Our areas of expertiseAt BDO we believe that the best advice comes from experts with knowledge in areas relevant to our clients. We have partner-led specialist teams advising in:

Audit –

Internal Audit –

Tax –

Advisory –

Risk –

Corporate Finance & Recovery –

Consulting Services –

EII Scheme –

Shareholder Advisory Services –

Outsourcing –

Corporate Secretarial –

– Payroll Services.

We also have expert sectoral teams with audit, tax and advisory experts offering unique knowledge and credentials in:

Technology, Media & Telecoms (Tmt) –

Agri-Food –

Retail –

Professional Services –

Healthcare –

Hotel, Leisure, Tourism –

Financial Services –

Green Energy –

Business Owner Services –

Sports Advisory. –

We will continue to tailor our services to the needs of Irish business. To this end we have established a comprehensive client listening programme, using face to face interviews to gather real feedback on our service levels and our understanding. That is why we can say with confidence that what matters to our clients shapes our service to them.

A Unique FocusOur expertise and understanding of the Irish market and growth-oriented businesses differentiates us from our competitors. We use our knowledge to bring a fresh approach and insight to all our client assignments.

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This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO to discuss these matters in the context of your particular circumstances. BDO, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

BDO is authorised by the Institute of Chartered Accountants in Ireland to carry on investment business.

BDO, a partnership established under Irish Law, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent members firms.

BDO is the brand name for the BDO International network and for each of the BDO Member Firms.

Contents and Data included in this document should not be replicated without prior written consent from BDO. All rights reserved.

© BDO 2012

www.bdo.ie

BDo DUBlin Beaux Lane HouseMercer Street LowerDublin 2

t: +353 1 470 0000

BDo liMeRick Four Michael Street The Red ChurchLimerick Henry Street Limerick

t: +353 61 414 455 t: +353 61 310 311

BDo BelFAST Lindsay House10 Callender StreetBelfastBT1 5BN

t: +44 28 9043 9009

[email protected]

Documents

BDOTechnology Survey 2012