Pepperdine Private Capital Markets Project Releases 2014 Capital Market Survey Report
Research released today from Pepperdine University’s Graziadio School of Business and Management shows that 65 percent of the 951 privately-held businesses surveyed believe that growth opportunities will increase over the next twelve months. According to the 2014 Pepperdine Private Capital Markets Project (PPCMP) Survey Report, more than a third of businesses (35 percent) think that general business conditions will improve over the next year.
More than half of the businesses surveyed (53 percent) say they are planning to hire additional workers in the next twelve months. For businesses that plan to hire, sales and marketing skills are in greatest demand (57 percent) followed by skilled labor (45 percent) and service/customer service (36 percent).
Of the businesses that do not plan to hire, 51 percent of respondents cite economic uncertainty in the U.S. market as the number one reason. This concern is echoed by lenders as nearly every industry sector in the private capital markets reported that economic uncertainty is the biggest current or emerging issue facing privately-held businesses.
“The good news for businesses trying to expand is that interest rates continue to fall for commercial loans of nearly every size,” said Dr. Craig R. Everett, director of the Pepperdine Private Capital Markets Project and assistant professor of finance at Pepperdine University’s Graziadio School of Business and Management. “This low interest rate environment makes expansion very affordable for those firms that qualify for these loans. Unfortunately, getting access to these funds remains much more challenging for small businesses than it is for the middle market.”
The PPCMP revealed that privately-held businesses with revenues less than $5 million have almost the same desire to execute growth strategies (87 percent) as privately-held businesses with revenues greater than $5 million. However, privately-held businesses with smaller revenues report lower levels of necessary resources (people, money, etc.) to grow (46 percent) as compared to privately-held businesses with higher revenues (66 percent).
“The cost of economic uncertainity on the private capital markets and privately-held businesses is nearly incalculable,” continued Dr. Everett. “However, we know there is a strong negative correlation between economic instability and access to debt capital. On the other hand, there appears to be an abundance of private equity capital currently on the sidelines looking for quality deals. Valuations are very high right now, making it a seller’s market for owners of businesses with strong financials and healthy growth trends.”
Other key findings include:
- Privately-held businesses with annual revenues less than $5 million are much more concerned about access to capital than those with revenues greater than $5 million (18 percent vs. 14 percent respectively). Larger privately-held businesses are more concerned about government regulations and taxes (24 percent vs. 21 percent respectively). The number one emerging issue for businesses of all sizes is healthcare costs.
- The bank loan success rate for businesses is down over the past 12 months: 78 percent success rate reported in 2012 compared to 69 percent in 2013. Forty-five percent of banks who responded believe that general business conditions will improve over the next 12 months and 57 percent said demand for loans will increase.
- According to privately-held businesses the policies most likely to lead to job creation in 2014 are to repeal or modify Obamacare (31 percent), increased access to capital (24 percent), and regulatory reform (15 percent).
- According to the Investment Bankers surveyed the top three reasons for deals not closing were valuation gap (26 percent), unreasonable seller or buyer demand (21 percent), economic uncertainty (12 percent) and insufficient cash flow (12 percent).
- Forty-six percent of Venture Capitalists surveyed are targeting information technology and another 11 percent are planning to invest in basic materials and energy. This is a change from the 2013 PPCMP report in which 33 percent of Venture Capitalists said they were targeting information technology and 23 percent were planning to invest in health care or biotech.
- Approximately 41 percent of angel investors surveyed base valuations on gut feel when valuing privately-held businesses.
With over 99 percent of companies being privately-held our economy is dependent upon the success of these businesses. The Pepperdine Private Capital Markets Project is a critical step along the path of understanding and increasing the value of private companies and our economy. Professionals who work in the lending or investment arenas either for an institution or a specific fund are excellent bellwethers of what is ahead for other businesses and consumers. Through an annual survey and a quarterly index, lenders, investors and the businesses that depend on them will be able to make optimal investment and financing decisions, and better determine where the opportunities to create lasting economic value may be realized.
The 2014 PPCMP Capital Markets Report is available at: http://bschool.pepperdine.edu/privatecapital.