The Pepperdine Private Capital Markets Projects today released its digital 2013 Capital Markets Report.
This annual report by Professor John Paglia benchmarks both the current climate and projected outlook across multiple market segments for lending, investing and acquiring capital among privately-held businesses and in lower middle market sectors.
To download, click here.
In last year’s Capital Markets Report, Dr. Paglia found lenders split on whether they thought access to capital or domestic economic uncertainty was the biggest issue facing private businesses.
Flash-forward one year and a large share of private capital lenders, investors and business owners report that domestic economic uncertainty is the biggest issue facing private businesses. While access to capital remains a concern, uncertainty about the future is the primary small business issue – to the point that it may be stifling our economic recovery.
A critical factor is the approaching “fiscal cliff,” a reduction in the U.S. budget deficit that will trigger in early 2013 when several tax cuts expire and new taxes kick in. In the 2013 Capital Markets Report, nearly half of the 1,613 lenders, investors and business owners surveyed said that they are “very” or “extremely” concerned about the upcoming fiscal cliff. This uncertainty could have a devastating impact on the nation’s nascent economic recovery.
Other key findings include:
- 19% of private equity companies plan to invest in the manufacturing sector over next 12 months. Overall, private equity investors said that they expect further increases in demand for private equity, deal multiples, value of portfolio companies and slightly improving business conditions.
- Investment bankers indicated a general imbalance between companies worthy of financing and capital available for the same. There is a reported shortage of capital for those companies with less than $10 million in EBITDA, but a general surplus for companies with $10 million in EBITDA or more.
- The types of businesses that venture capitalists plan to invest in the next 12 months are very diverse with over 33% targeting information technology and another 23% planning to invest in health care or biotech. Approximately 44% of respondents plan to make new investments outside of the U.S.
- Angel investors indicated a sharp increase in demand for angel capital, increases in size of angel industry, follow-on investments and time to exit deals. They also reported decreased opportunities to exit, worsened general business conditions, and appetite for risk.
- The top three reasons that brokers said that deals do not close are lack of capital to finance (23.5%), valuation gap in pricing (23.2%), and economic uncertainty (18.9%).
- Banks who responded to the survey say they expect flat lending capacity of banks, slight increases in underwriting standards, credit quality of borrowers, senior and decreased total leverage multiples, increasing due diligence efforts, and further pricing compression.
- A third of the respondents in the limited partner survey reported buyout private equity as being the best risk/return trade-off investment class, followed by distressed private equity at 19%. When asked about which industry currently offers the best risk/return trade-off, 36% of respondents reported information technology, followed by 29% reporting business services.
- Small businesses say skills in sales and marketing are in greatest demand (54%) followed by skilled labor (44%) and service/customer service (34%). Furthermore, 85% of companies planning to hire indicate they would need to train the workers that they hire.
Please download 2013 Capital Market Report for key findings specific to investment bankers, private equity, bank and asset-based lenders, mezzanine respondents, limited partners, venture capital, angel investors, business appraisers, brokers and privately-held business owners.
Pepperdine Private Capital Market Project currently engages in multiple survey research initiatives. In addition to the annual Capital Markets Report, the Project publishes an annual economic forecast, the PCA Index Quarterly Report in partnership with Dun & Bradstreet Credibility Corp. and Market Pulse Quarterly Report in cooperation with the International Business Brokers Association and M&A Source. Visit the website at http://bschool.pepperdine.edu/privatecapital