Daily News: May 17, 2012

Survey Shows PE Firms Focused on Spurring Growth, Creating Value

McGladrey has released its fourth annual survey of private equity (PE) executives, which shows that amid difficult economic conditions, firms have become increasingly focused on improving strategy and operations at their portfolio companies as a means of creating value. In fact, nearly two-thirds (65%) of firms reported that they have generally increased employment at their portfolio companies, contradicting recent, widespread sentiment that PE firms are ‘job killers.’

“Our survey findings and other supporting data not only contradict growing misperceptions about the private equity industry, they also indicate that firms are playing a key role in helping the middle market sustain itself and grow in an economic climate that remains challenging and uncertain,” said Don Lipari, national executive director – private equity services for McGladrey and office managing partner of the firm’s New York office. “

“Not only are these firms increasingly focused on growing their portfolio companies as a primary means of generating value, they are increasing headcounts on the ground level as part of that process,” added Milton Marcotte, national practice leader – transaction advisory services for McGladrey.

The 2012 survey, conducted in partnership with independent private equity and venture capital research firm PitchBook, represents responses from more than 100 PE firms across the country, and provides important insights on current trends in strategy, employment and other key areas. Additional findings from the 2012 survey include:

  • Firms are taking a more active role in portfolio company management. Respondents reported an increase in their focus on management, operations and strategy to drive value creation.

  • Onshoring is becoming more prevalent as Chinese labor and freight costs rise.

  • The impact of tax policy changes on investment and operational strategies is uncertain. While changes to the carried interest tax rate is more likely to be felt at the fund-level, nearly 40 percent of respondents are currently unsure of whether an increased rate will have a significant impact on investments and operations.

  • Management capabilities are critical to success. More than 96 percent of respondents identify management capabilities as the top factor driving successful investments.

  • IT deficiencies at portfolio companies continue to be an issue, as firms look to generate operating metrics on a more real-time basis to drive operational improvement and monitor progress.