Two-Thirds of US Private Companies Have Had Good Access to Capital, Though Some Lacked Sufficient Resources to Fund Major Initiatives Over Past Two Years
PwC's Private Company Trendsetter Barometer tracks the business issues and standard industry practices of leading privately held US businesses. It incorporates the views of 245 CEOs/CFOs: 141 from companies in the product sector and 104 in the service sector, averaging $247.2 million in enterprise revenue/sales, and including large, $300 million-plus private companies.
NEW YORK, Dec. 9, 2010 /PRNewswire/ -- Two-thirds of private-company CEOs surveyed for PwC US's latest Private Company Trendsetter Barometer report said that despite the economic downturn, their companies have had good (41%) or excellent (25%) access to capital over the past two years. Only 9% of executives rated their access to capital as below average or poor. Strongest access to capital was evident among three types of private companies surveyed: large companies (revenue over $100 million), international businesses, and product firms.
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Overall, 85% of Trendsetter CEOs claim their companies were able to raise all of the capital they sought through banks and other sources to meet their most pressing operating needs. However, 14% of companies were unable to raise all of the capital they sought.
"It's encouraging that the majority of businesses surveyed, especially those in capital-intensive industries like product companies, haven't found that access to capital is a barrier to their operating plans," says Ken Esch, a partner in PwC's Private Company Services practice. "With our clients, we've seen that the lingering question is how best to put that capital to use in an environment of continued uncertainty."
Key Initiatives Lacked Funding
While private companies largely had the capital to meet their most pressing operating expenses over the past two years, spending in other areas was limited for many of the businesses surveyed - a sign that they may have been in survival mode for much of that period. A net 37% of businesses lacked sufficient capital to fund major initiatives, such as expanding into new markets, pursing M&A activities, and upgrading sales/marketing operations. Indeed, for some Trendsetter companies, investing in development, expansion, and growth wasn't even on the table these past two years. Fifty-four percent of Trendsetter executives said this of M&A activities, and 58% said this regarding the development and expansion of international operations.
"What we've seen is that over the past two years, many Trendsetter CEOs have focused primarily on meeting their companies' basic needs - such as maintaining their workforce - and tabled discretionary spending," says Esch. "As a result, a good number of private companies have built up cash reserves, which they can now spend on their business wants. Such businesses are moving beyond survival mode and repositioning themselves for sustained growth."
Table 1: Access to Capital for Key Initiatives |
|||||
Not Applicable |
Not reported |
||||
Sufficient Capital To: |
Yes |
No |
|||
Maintain workforce |
92% |
5% |
1% |
2% |
|
Meet all basic operating needs. |
90% |
8% |
1% |
1% |
|
Support critical projects |
81% |
9% |
9% |
1% |
|
Upgrade IT/computer systems |
79% |
12% |
7% |
2% |
|
Upgrade sales and marketing operations |
67% |
16% |
16% |
1% |
|
Further develop or expand into new markets |
65% |
18% |
16% |
1% |
|
Develop new products or services |
61% |
.7% |
31% |
1% |
|
Fund key R&D initiatives |
38% |
8% |
52% |
2% |
|
Upgrade supply chain |
37% |
9% |
52% |
2% |
|
Further develop or expand international operations |
28% |
13% |
58% |
1% |
|
Update manufacturing operations |
27% |
6% |
65% |
2% |
|
Pursue M&A opportunities |
27% |
17% |
54% |
2% |
|
Projected Access to Capital
Looking ahead at the next two years, private companies are optimistic about their ability to access capital, with 30% voicing the belief that obtaining capital will be easier and 56% anticipating that it will be about the same. Only 12% of businesses believe it will be more difficult to access capital. Larger companies are more optimistic about improved access to capital (36%), compared with smaller companies (26%).
"For stable companies, cash is pretty free-flowing, especially for those that are accessing existing credit lines," says Esch. "A number of private-company CEOs also have additional strategies for accessing capital in their game plans, and we'll begin to see them executing those strategies more frequently over the next two years."
Strategies for Accessing Capital
While 73% of Trendsetter CEOs plan to access existing lines of credit from banks or financial institutions over the next two years - 51% to a major extent and 22% to a minor extent - nearly the same percentage (70%) plan to access other sources of capital. Those sources include new lines of credit from banks or financial institutions (37%) and new bank loans (27%), and to a lesser extent, other primary sources (net 29%), such as new equity partners, venture or equity capital, and angel investors.
Table 2: The Degree to Which Companies Plan to Access Various Sources of Capital |
||||
Any Plans |
Major Extent |
Minor Extent |
||
Existing lines of credit from banks or financial institutions |
73% |
51% |
22% |
|
All other plans (Net) |
70% |
42% |
28% |
|
New loans/credit (Net) |
45% |
18% |
27% |
|
New lines of credit from banks or financial institutions |
37% |
15% |
22% |
|
New bank loans |
27% |
11% |
16% |
|
Other sourcing (Net) |
29% |
13% |
16% |
|
New equity partners |
17% |
7% |
10% |
|
Venture or equity capital |
11% |
4% |
7% |
|
"Angel" investors |
9% |
3% |
6% |
|
Private placement of senior debt |
6% |
X |
6% |
|
Subordinated/mezzanine debt |
6% |
1% |
5% |
|
Securitization of assets |
5% |
1% |
4% |
|
IPO |
5% |
3% |
2% |
|
High-yield public debt |
2% |
--- |
2% |
|
Indirect sourcing (Net) |
51% |
25% |
26% |
|
Strategic alliances (sharing costs) |
38% |
17% |
21% |
|
Joint ventures (sharing costs) |
34% |
16% |
18% |
|
New credit lines from suppliers |
25% |
6% |
19% |
|
Notably, about half of respondents (51%) plan to access capital through indirect sources: cost-sharing arrangements via strategic alliances and joint ventures, and through new credit lines from suppliers.
"We're starting to see private companies become more creative in their strategies for accessing capital," says Esch. "They're beginning to contemplate a wider variety of sources, as well as leverage their networks to cut costs and extend payments. In the downturn, relationships with suppliers and partners have served as a buffer in terms of cash flow. We've seen this with our clients and expect the trend will continue as private-company CEOs grow more aware of - and then tap - the full range of capital sources available to them."
Moving beyond tomorrow's uncertainty and growing your business matters to you, and to us. Experience what it is like to work with professionals dedicated to serving private companies and their owners. Working with you on both day-to-day and more-complex issues such as compliance, controls, cash flow, expansion, succession, and personal financial matters - this is PwC's Private Company Services.
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(1) 2009 Forbes America's Largest Private Companies List
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SOURCE PwC
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