paglia am&aa launchpad keynote final 6.09.2011
Post on 21-Oct-2014
943 Views
Preview:
DESCRIPTION
TRANSCRIPT
The State of the Private Capital Markets
Private Capital Markets LaunchPadJune 10, 2011John K. Paglia, Ph.D., CFA, CPA
Associate Professor of FinanceSenior Researcher, Pepperdine Private Capital
Markets Project
• What is cost of capital for privately-held businesses?
• The project launched in 2007; first report in July 2009
• We now survey 12 segments semi-annually
• Survey asks about firm profile, behavior, returns, view of next 12 months
• Certificate in Private Capital Markets offered again in Malibu November 14-16
Pepperdine Private Capital Markets Project
What is the Status of Privately-Held Businesses
as of Spring 2011?
Prob. of failure finally declines
Net income expectations
positive
Confidence rebounds sharply
Optimistic about growth
What are Owners Focusing on Today?
Finally ended layoffs and CAPEX reductions
Still increasing collection
times
Pricing power or inflationary
response?
More competitive than ever
Business Owner Access to Capital
(Net Increases)
Finally reversed deteriorating capital access
• Nearly 95% of business owners report having the enthusiasm to execute growth strategies
• Yet just 53% report having the necessary financial resources to successfully execute growth strategies
What is the State of Financing?
• How much senior leverage is available for transactions?
• How much junior leverage is available and what are the total debt thresholds?
• How much equity is available for growth capital and transactions?
Capital Access Drives Valuations and Deal Flow in the Middle Markets
What’s Happening with Capital Providers?
• 37% of activity from refinancing; 17% acquisitions; 12% growth financing
• 60% of applications declined, 36% lack high-quality earnings/cash flow
• Demand for loans up, due diligence efforts increased significantly
• Leverage increased slightly
What’s Happening in Banks?
• Personal guarantees mandatory under $15 million EBITDA
• Regulatory pressure to avoid risky loans increased, 76% report feeling increased pressure
• 60% indicate that increased pressure led to declining loans that otherwise would have been made
What’s Happening in Banks? (Cont’d)
• 26% of investments next year in business services, 25% manufacturing, 14% wholesale and distribution
• Demand for investment up considerably along with leverage and deal multiples
• Confidence and conditions improving
• Warrant coverage and expected returns down slightly
What’s Happening in Mezz?
Tightness of Financial Covenants, Warrant Coverage and PIK Features
Warrant coverage declines
Covenants less restrictive
• 25% of investments in next 12 months in manufacturing, 14% in business services, 14% healthcare
• Demand for investment up considerably along with leverage and deal multiples
• Confidence and conditions improving
What’s Happening in PE?
• Power of LPs increasing! 30% say beneficial; 38% say detrimental
• 56% now looking at larger/smaller investments to deploy capital
• Making more minority investments; 60% indicate no change in expected returns
What’s Happening in PE? (cont’d)
What are Investment Bankers Experiencing?
• Deal flow has increased slightly
• Leverage multiples have improved slightly, as have deal multiples, particularly for later-stage companies
• Due diligence efforts by banks and buyers have increased
Compared to Six Months Ago
40% of Business Sale Engagements Expired Without a Transaction
Valuation Gaps for Non-Transacted Engagements
Difficulty Securing Senior Debt?
Balance of Capital with Businesses Worthy of Financing: Surplus or Shortage?
Top Issues Facing Privately Held Businesses (Today versus Emerging)
Today
Emerging
John K. Paglia, Ph.D., CFA, CPA
Associate Professor of Finance
Senior Researcher, Pepperdine Private Capital Markets Project
bschool.pepperdine.edu/privatecapital
john.paglia@pepperdine.edu
Thank You!
top related