The Strategy for Growth of a Technology Business
Technology businesses typically tend to develop very rapidly (providing they 
have the access to the funding to enable them to do so!). This development will come under a number of different heads:
- Development of the core technology and associated technologies
- Number of corporate entities
- Geographic spread
- Revenue generation
- Valuation (which tends to be the result of a combination of the above factors)
What is fundamental however is that the Board of Directors needs to be focussed on their strategy for this development and direct it rather than passively allow development to “just happen” in an unplanned and un-thought through way.
For the majority of technology businesses their marketplace is global and because of this they are likely to consider establishment of overseas entities. Key factors to consider are:
- Where and what to locate. Some clients, for example, have established research facilities in areas of the US where they can more readily attract grant/state funding, whilst still being able to control the entity from the UK. Others having key customers in the Far East have established subsidiaries over there.
- The size of the operation overseas – can the company achieve its objectives by just having a nameplate in the overseas jurisdiction or does it require a full manufacturing facility?
- The way in which the overseas operation is to be staffed and controlled – will locals be used or will it be a question of existing employees going overseas for defined periods?
- How the operation is to be funded i.e. are there to be inter-company loans or equity investments l
- The legal status of the overseas entity; an subsidiary company is not always the right answer.
- Tax considerations for the relevant jurisdiction - this does not just relate to year end taxes but also to sales and employment related taxes
It is also easy to forget that not all the world is in recession. For a number of economies, including China and India, growth may have been slowed but it is continuing. Expansion into such territories needs care and expert advice, but providing you have the right team with you, it is clearly less risky to .set up in an expanding economy than in an economy in recession.
Sharon Bedford, Tax Partner and Head of James Cowper International Services team has helped many technology companies with their international expansion, both into and out of the UK. “The key to implementing a successful international strategy is planning, with co-ordinated , achievable and budgeted objectives. Take advice from experts giving you time to concentrate on the growth of the business rather than getting lost in administration and regulation. We are a member of Kreston International , an international network of accountants that typically operate in the owner managed sector. As a result, we have a substantial body of experience of putting our clients in touch with accountants and business advisers in territories around the world in order to help them develop internationally. This allows us to deliver a co-ordinated and joined-up service”.
Many technology businesses will seek to grow through acquisition – they may be acting as a consolidator for a range of technologies centred upon a common theme as, for example, a biotech company carrying out anti-microbial drug development may seek to purchase similar complementary businesses or they may spot an opportunity in a totally different area that seems to offer the prospect of a good return.
Today’s environment could provide opportunities for such businesses seeking acquisition opportunities. There are a number of relatively early stage technology companies that have been unable to raise equity in order to continue with their business plans and that therefore may be available for purchase.
Currently valuations for businesses have generally become more realistic as sellers have now adapted to changed market conditions. Also, a number of basically sound businesses or parts of a business can end up in administration for a number of reasons, such as poor management, undue reliance on a few customers and so on. These can often be acquired for a relatively modest cost and enable the acquirer to achieve their desired goals more quickly and cheaply.
Nick Rogers, Head of James Cowper Corporate Finance, commented “after a period of nursing their wounds we are seeing technology investors re entering the market. Nevertheless demand exceeds supply so entrepreneurs and businesses need to ensure their plans are fully thought through and well presented or they will not be successful in securing funds. As well as introduction to financiers and negotiation of terms our role is to ensure the plans are indeed well presented”.
At James Cowper our commitment to the technology industry extends beyond our service to our clients to seeking to support the sector by lobbying for relevant changes in public policy. To facilitate this we will be conducting a survey of technology businesses in the Thames Valley to ascertain what is important to them in the current market. Results will be published in the Thames Valley Business Magazine. Click here to download the survey.
Sue Staunton, Partner, James Cowper LLP, Tel: 01865 200500 or email: sstaunton@jamescowper.co.uk
01.12.2009