I was catching up on some reading and got a chance to re-visit the First Quarter 2012 Private Capital Access Index published by Dr. John Paglia who heads up the Pepperdine Private Capital Markets Project. For those interested in the Middle Market, I strongly suggest getting involved in the surveys that this project runs periodically. I have not found a better, more timely, view into the Middle Market.
The Index lends credence to the view that many of us see in our dealings in the marketplace: that there is resilience in the sector and an expectation that growth is on the horizon. Yet, headwinds (real or at least perceived) remain in the difficulty of raising capital. Moreover, as we’re seeing in the job reports, hiring is and is likely to remain anemic.
Some of the highlights of the PCA Index Survey for 1Q 2012 included:
- Majorities of respondents report high demand for financing for planned growth or expansion (including acquisitions).
- Less than 2 in 5 thought the demand driver for capital raise would be refinancing of existing capital (debt or equity), but where there was a need the strength of demand was understandably high.
- Majority feel current financing environment is restricting both growth and ability to hire new employees.
- Respondents believe there are still challenges to smaller firms (revenue <$5MM) in debt financing; however, the majority of mid-to-large sized companies also feel it remains a difficult capital raising environment. However, the vast majority of larger firms that tried were successful in typical debt raises (business loans, credit cards, leases, asset-based, etc.
- The most prevalent reasons for capital raises were for growth/expansion – nearly 2x the next category of working capital financing and almost 4x the frequency of existing debt refinancing.
- Nearly one third of respondents are planning to raise financing in next 6 months (2/3 of those are expecting growth/expansion and increased demand for their products and services)
- Majority still believe it will be difficult to raise capital in next six months – but 2/3 think that bank loans will be the most likely source
- For those not planning to raise capital – insufficient cash flow is noted as the major hurdle
- Hiring in this sample is expected to be low with nearly3/4 of respondents projecting less than 5 hires (in fact, nearly a third of the sample expect no hiring over the next six months).
Personally, I have found the Private Capital Markets Project work to be quite helpful. You’ve likely seen data and reports from PCMP in various financial portals. However, as a plugger who has been involved in running surveys like these, I wanted to pass along the information – and encourage participation in the project.