PCA Index Survey Responses First Three Quarters 2012, Trends

Transcription

1 PCA Index Survey Responses First Three Quarters 2012, Trends John K. Paglia, Ph.D., CFA, CPA Associate Professor of Finance Director, Pepperdine Private Capital Markets Project 2012 Pepperdine University. All rights reserved. Pepperdine Private Capital Access Index ( PCA Index ) is a trademark of Pepperdine University. PCA Index content is the intellectual property of Pepperdine University or its third party content providers. Any copying, republication or redistribution of PCA Index content, including but not limited to caching, framing or similar means, is expressly prohibited without the prior written consent of Pepperdine University. Pepperdine University shall not be liable for any errors, omissions or delays in PCA Index content, or for any actions taken in reliance thereon. 11

2 This research was made possible with the support of Dun & Bradstreet Credibility Corp., the leading provider of credit building and credibility solutions for businesses. DUN & BRADSTREET CREDIBILITY CORP. Jeffrey Stibel, Chair and Chief Executive Officer Judy Hackett, Chief Marketing Officer Aaron Stibel, Senior Vice President, Technology Erik Simon, Director, Marketing and Communications Brenda Gary, Senior Marketing Director Bernice Brennan, Manager, Creative Services & Marketing Communications Trenice Taylor, Marketing Manager 22

3 ACKNOWLEDGEMENTS I d also like to thank the following people at The Graziadio School of Business and Management for their contributions: Dean Linda Livingstone Associate Dean David M. Smith Mike Sims, Executive Officer, CER Douglass Gore, Director of Public Relations Mark Chun, Director, Center for Applied Research Bill Bleuel, Professor of Decision Sciences Irina Shaykhutdinova, Research Analyst Craig Everett, Assistant Professor of Finance and consultant, Simon James, Ph.D. 33

4 Outline I. About the Private Capital Access (PCA) Index II. Demand for external financing III. Accessibility/success rate of raising new capital IV. Satisfaction rates for various capital sources V. Expected demand for external financing VI. Expected capital access (success) rates...39 VII. Hiring/growth outlooks and financing failure impacts 45 44

5 I. About the Private Capital Access (PCA) Index The Pepperdine Private Capital Access Index (PCA) is a quarterly indicator produced by the Graziadio School of Business and Management at Pepperdine University, and with the support of Dun & Bradstreet Credibility Corp. The index is designed to measure the demand for, activity, and health of the private capital markets. The purpose of the PCA Index is to gauge the demand of small and medium-sized businesses for financing needs, the level of accessibility of private capital, and the transparency and efficiency of private financing markets. 55

6 About the Private Capital Access (PCA) Index Survey 25 questions Invite to participate distributed to sample from Dun & Bradstreet Credibility Corp. s business database 5,977 completed responses in Q1, ,686 completed responses in Q2, ,426 completed responses in Q3,

7 Private Capital Access (PCA) and Private Capital Demand (PCD) Index Results Whole Sample Total Market PCA Index PCD Index 2012 Q Q Q Change Pct. Change 1.1% 1.6% A value of less than fifty for an index represents a low level of access or demand. The Q3 PCD Index number for the entire sample is 35.1, reflecting weakness in demand for external loans and other financing. The PCA numbers reflect continued and increased difficulty securing loans and other business financing sources. 77

8 Private Capital Access (PCA) and Private Capital Demand (PCD) Index Results Whole Sample Q Q Q3 PCA Index PCD Index

9 Small Business PCA and PCD Index Results (< $5M in Revenues) <$ 5M Revs PCA Index PCD Index 2012 Q Q Q Change Pct. Change 1.2% 3.9% The Q3 PCD Index number for small businesses is 36.5, reflecting weakness in demand for external loans and other financing. The PCA numbers reflect continued and increased difficulty securing loans and other business financing sources. 99

10 Small Business PCA and PCD Index Results (< $5M in Revenues) Q Q Q3 PCA Index PCD Index

11 Lower Middle Market PCA and PCD Indices ($5M $100M in Revenues) $5M $100M PCA Index PCD Index 2012 Q Q Q Change Pct. Change 2.4% 4.8% The Q3 PCD Index number for lower middle market companies is 31.5, reflecting weakness in demand for external loans and other financing. When compared to the small business indicators, lower middle market companies demonstrate lower demand (31.5 vs. 36.5) and higher access (32.7 vs. 26.3)

12 Lower Middle Market PCA and PCD Index Results ($5M $100M in Revenues) Q Q Q3 PCA Index PCD Index

13 Annual Revenue Growth Expectations by Revenue Size: Q3 vs. Q % 7.1% 7.8% 5.8% 5.7% 6.7% Q2 Q3 Whole sample < $5 million $5 -$100 million 13 13

14 II. Demand for external financing 14 14

15 100. What is the Demand for Financing in 2012? (% with any need reported) Demand declining across all categories Planned growth or expansion, including acquisitions (not yet realized) Working capital fluctuations Growth due to increased demand (already realized) Finance worsening operating conditions Refinance existing loans or equity Withdraw wealth for owners Q1 66.1% 65.3% % 38.4% 27.5% Q2 63.4% 61.2% 52.8% 40.9% 37.2% 26.2% Q3 60.8% 57.4% 48.7% 38.8% 37.9% 24.7% 15 15

16 Strength of Demand for Financing (among those indicating demand) Scale 1-4: slight, moderate, high, extremely high need Planned growth or expansion, including acquisitions (not yet realized) Working capital fluctuations Growth due to increased demand (already realized) Finance worsening operating conditions Refinance existing loans or equity Withdraw wealth for owners Q Q Q

17 Respondents Indicating High and Extremely Planned growth or expansion, including acquisitions (not yet realized) High Demand for Financing (among those indicating demand) Working capital fluctuations Growth due to increased demand (already realized) Finance worsening operating conditions Refinance existing loans or equity Withdraw wealth for owners Q1 47.3% 36.8% 34.2% 35.2% 42.4% 25. Q2 47.9% 37.8% 35.5% 39.1% 46.5% 29.8% Q3 46.9% 36.8% 32.7% 36.7% 47.9% 28.7% 17 17

18 Percentage Indicating Yes to Is the current business financing environment restricting % 61% 61% 51% 52% 51% Growth opportunities for your business? Your ability to hire new employees? Q1 Q2 Q

19 A Stress on Cash Flow? Accounts Receivable Payment Period Trends % 38% 38% 56% 56% 54% 8% 6% 7% Accelerated (receiving payments from customers faster than three months ago) Slowed (receiving payments from customers slower than three months ago) Stayed the same Q1 Q2 Q

20 How Many Businesses Attempted to Raise Outside Financing in 2012 (by Quarter)? % 33% 32% Q1 Q2 Q

21 III. Accessibility/success rate 21 21

22 Is it Difficult or Easy to Raise New External Financing? Equity financing Debt financing Difficult Neither Easy difficult nor easy Q1 74% 14% 12% Q2 75% 14% 11% Q3 72% 13% 15% Difficult Neither Easy difficult nor easy Q1 74% 12% 14% Q2 75% 11% 14% Q3 73% 12% 15% 22 22

23 10 Financing Success Rates by Type and Business Friends and family Grants (SBIR, STTR, etc.) Size for Prior Three Months Bank loans and personal credit cards have lower success rates Crowd funding Trade credit Credit card - pers. Loan - pers. Credit card - biz. Lease Bank loan - biz. CDFI/ Credit union Asset based lender Factor Success rates rising for the majority of other capital providers Q1 71% 24% 7% 64% 62% 48% 59% 59% 45% 14% 31% 8% 17% 9% 2% Q2 68% 21% 12% 59% 62% 47% 59% 54% 44% 13% 28% 32% 16% 9% 15% 9% 13% Q3 67% 28% 13% 63% 66% 51% 61% 59% 42% 21% 32% 39% 21% 12% 29% 14% 7% Angel capital Vent. capital Private equity group Mezz. lender Hedge fund 23 23

24 Main Purpose for Raising or Attempting to Raise Financing Growth or expansion (incl. acquis.) Working capital fluctuations Refinancing existing loans or equity Replacing equipment or facilities unrelated to growth or expansion Finance worsening operations conditions Withdraw wealth for owners Q1 42% 29% 12% 6% 6% 1% 5% Q2 42% 26% 12% 8% 6% 1% 6% Q3 23% 15% 9% 6% 2% 5% Other 24 24

25 Reasons for Businesses Not Attempting to Raise External Financing (Multiple Selections) Enough cash flow Sufficient financing in place Weak economy Business would be rejected Lack of expertise Not enough time Loss of control / flexibility Waiting for cheaper financing Cease operation / liquidate Q1 45% 25% 23% 22% 13% 12% 6% 8% 2% 7% Q2 45% 26% 23% 13% 1 6% 7% 1% 9% Q3 47% 25% 24% 19% 9% 9% 5% 7% 2% 8% Other 25 25

26 Percentage of Owners Who Transferred Personal Assets to Business Over Prior Three Months % 57% 58% 42% 42% 41% 1% 1% Yes No Unsure Q1 Q2 Q3 1% 26 26

27 Types of Personal Assets Transferred to Business Personal savings / investments During Prior Three Months (Multiple Selections) Personal credit card purchases Personal loan Cash from the sale of personal assets Home equity loan Q1 68% 39% 34% 17% 12% 4% Q2 73% 44% 18% 19% 11% 4% Q3 73% 43% 19% 1 4% Other 27 27

28 IV. Satisfaction rates 28 28

29 Pricing and Contract Terms Satisfaction Rates Friends and family (for those with a successful raise) Grants (SBIR, STTR, etc.) Crowd funding Trade credit Credit card - pers. Loan - pers. Credit card - biz. Lease Bank loan - biz. Q1 89% 89% 7 83% 45% 69% 61% 78% 82% 85% 71% % 64% 58% 67% Q2 89% 84% 8 78% 47% 69% 58% 89% 86% 8 72% 6 77% 64% 85% 58% 75% Q3 87% 97% 65% 88% 46% 67% 58% 85% 86% 8 73% 6 85% 6 79% 75% CDFI/ Credit union Asset based lender Factor Angel capital Vent. capital Private equity group Mezz. lender Hedge fund 29 29

30 General Financing Process Satisfaction Rates Friends and family (for those with a successful raise) Grants (SBIR, STTR, etc.) Crowd funding Trade credit Credit card - pers. Loan - pers. Credit card - biz. Lease Bank loan - biz. Q1 74% % 62% 73% 79% 71% 76% 67% 65% 65% 63% 74% 67% 5 Q2 7 78% 82% 79% 56% 57% 66% 79% 75% 68% 61% 65% 65% 54% 77% 38% 78% Q3 74% 79% 9 78% 55% 57% 73% 86% 76% 76% 63% 69% 68% 58% 75% 78% 10 CDFI/ Credit union Asset based lender Factor Angel capital Vent. capital Private equity group Mezz. lender Hedge fund 30 30

31 10 General Financing Process Satisfaction Rates Friends and family (for those with a unsuccessful raise) Grants (SBIR, STTR, etc.) Crowd funding Trade credit Credit card - pers. Loan - pers. Credit card - biz. Lease Q1 3 11% 7% 23% 13% 14% 17% 14% 8% 1 8% 9% 17% 15% 14% 11% 8% Q2 22% 7% 1 16% 18% 11% 12% 14% 9% 1 8% 9% 15% 13% 14% 5% 4% Bank loan - biz. Q3 26% 6% 12% 17% 22% 12% 15% 17% 1 6% 12% 16% 17% 14% 11% CDFI/ Credit union Asset based lender Factor Angel capital Vent. capital Private equity group Mezz. lender Hedge fund 31 31

32 Percentage of Those Satisfied with the Amount of Time Elapsed from Point of First Contact until Funds Were Received (for those successful Friends and family Grants (SBIR, STTR, etc.) Crowd funding Trade credit Credit card - pers. Loan - pers. Credit card - biz. raises) Lease Bank loan - biz. Q1 78% 58% 44% 79% 71% 65% 81% 82% 71% 7 61% 67% 59% 53% 55% 67% 67% Q2 78% 64% 64% 82% 68% 62% 72% 79% 7 66% 58% 7 61% 36% 56% 25% 67% Q3 84% 56% 78% 83% 71% 62% 8 82% 68% 67% 62% 68% 64% 58% 65% 6 10 CDFI/ Credit union Asset based lender Factor Angel capital Vent. capital Private equity group Mezz. lender Hedge fund 32 32

33 Percentage of Those Unsuccessful Who Feel the General Category of Financing is a Still a Good Friends and family Grants (SBIR, STTR, etc.) Crowd funding Trade credit Fit for Their Business Credit card - pers. Loan - pers. Credit card - biz. Lease Bank loan - biz. Q1 31% 57% 32% 58% 47% 49% 59% 64% 62% 57% 49% 35% 57% 55% 57% 44% 32% Q2 34% 55% 32% 56% 32% 48% 54% 51% 64% 58% 54% 33% 58% 49% 59% 39% 39% Q3 31% 57% 32% 58% 47% 49% 59% 64% 62% 57% 49% 35% 57% 55% 57% 44% 32% CDFI/ Credit union Asset based lender Factor Angel capital Vent. capital Private equity group Mezz. lender Hedge fund

34 V. Expected demand for external financing 34 34

35 Are Businesses Planning to Raise Financing in the Next Six Months? % 47% 49% 31% 32% 31% 22% Yes No Unsure Q1 Q2 Q

36 Percentage of Respondents Indicating Demand for New Financing in the Next Six Months Expected demand declining across all categories Planned future growth or expansion Expected working capital fluctuations Growth due to expected increased demand Expected worsening operating conditions Refinance existing loans or equity Withdraw wealth for owners Q1 63% 61% 59% 35% 36% 25% Q2 61% 57% 54% 35% 35% 24% Q3 59% 55% 51% 34% 36% 23% 36 36

37 Strength of Expected Demand for New External Financing in the Next Six Months (Scale 1-4: Slight, Moderate, High, Extremely High) Planned future growth or expansion Expected working capital fluctuations Growth due to expected increased demand Expected worsening operating conditions Refinance existing loans or equity Withdraw wealth for owners Q Q Q

38 Respondents Indicating High or Extremely High Expected Demand for New External Financing in Planned future growth or expansion the Next Six Months Expected working capital fluctuations Growth due to expected increased demand Expected worsening operating conditions Refinance existing loans or equity Withdraw wealth for owners Q1 45.9% 37.1% 38.6% 27.5% 43.6% 24.2% Q2 46.7% 37.2% 39.4% 33.6% 42.8% 29. Q3 46.1% 35.4% 38.9% 28.8% 45.4% 27.1% 38 38

39 VI. Expected access rates 39 39

40 Do You Expect It Would Be Easy or Difficult to Raise New Financing in the Next Six Months? Equity financing Debt financing Difficult Neither Easy difficult nor easy Q1 71% 12% 17% Q2 71% 13% 16% Q3 69% 12% 19% Difficult Neither Easy difficult nor easy Q1 69% 11% Q2 7 12% 18% Q3 67% 12% 21% 40 40

41 What are Expected Sources of Financing Friends and family Bank loans and credit cards most likely to be sought Grants (SBIR, STTR, etc.) Crowd funding Trade credit in Next Six Months? Credit card - pers. Loan - pers. Credit card - biz. Lease Bank loan - biz. CDFI/ Credit union Asset based lender Factor Angel capital Avg. 4.8 sources per business! Q1 32% 32% 35% 11% 23% 33% 41% 32% 65% 36% 35% 13% 27% 24% 28% 14% 8% Q2 32% 29% 35% 1 22% 32% 33% 68% 36% 35% 17% 3 26% 28% 14% 8% Q3 32% 31% 32% 11% 23% 32% 39% 31% 66% 35% 35% 13% 25% 22% 26% 16% 9% Vent. capital Private equity group Mezz. lender Hedge fund 41 41

42 Main Purpose for Raising Expected Financing Growth or expansion (incl. acquisition) Working capital fluctuations Refinancing existing loans or equity Replacing equipment or facilities unrelated to growth or expansion Finance worsening operations conditions Withdraw wealth for owners Q1 58% 21% 9% 5% 3% 1% 3% Q2 58% 18% 8% 7% 4% 1% 4% Q3 57% 17% 11% 6% 4% 2% 4% Other 42 42

43 Level of Confidence for Successful Financing (Scale 0-4: none; some; moderately; very; completely) Confidence is getting lower for senior lenders Friends and family Grants (SBIR, STTR, etc.) Crowd funding Trade credit Credit card - pers. Loan - pers. Credit card - biz. Lease Q Q Q Bank loan - biz. CDFI/ Credit union Asset based lender Factor Angel capital Vent. capital Private equity group Mezz. lender Hedge fund 43 43

44 Reasons for Not Planning on Raising Financing Enough cash flow Sufficient financing in place Weak economy Business would be rejected Lack of expertise Not enough time Loss of control / flexibility Waiting for cheaper financing Cease operation / liquidate Q1 61% 37% 19% 13% 6% 6% 5% 4% 2% 5% Q2 59% 33% 22% 13% 5% 6% 5% 4% 2% 6% Q3 61% 32% 22% 12% 4% 5% 4% 4% 3% 5% Other 44 44

45 VII. Hiring / growth outlooks and financing failure impacts 45 45

46 Number of Employees Planned to Be Hired in the Next Six Months 35% 3 25% 15% 1 5% Q1 31% 34% 19% 8% 3% 2% 1% 1% 1% Q2 38% 32% 15% 7% 2% 1% 1% 1% 1% 1% Q3 38% 33% 15% 7% 2% 1% 1% 1% 1% 1% More than

47 What are the Impacts of an Unsuccessful Financing Event? Slower business growth Hire fewer new employees than planned Reduce number of employees (layoffs) Sell business assets or shut down No expected impacts on growth, business size, or hiring plans Whole sample 71% 54% 23% 22% 13% < $5 million 72% 55% 24% 22% 11% $5 million -$100 million 7 57% 25% 14% 18% 47 47

48 About Pepperdine Private Capital Markets Project The Pepperdine Private Capital Markets Project at the Graziadio School of Business and Management is the first simultaneous, comprehensive, and on-going investigation of the major private capital market segments. The research seeks to understand the true cost of private capital across market types and the investment expectations of privately-held business owners; providing lenders, investors and the businesses that depend on them with critical data to make optimal investment and financing decisions, and better determine where the opportunities to create lasting economic value may be realized. Download reports and find more information at About Pepperdine University s Graziadio School of Business and Management Founded on the core values of integrity, stewardship, courage, and compassion, Pepperdine University s Graziadio (GRAT-ZEE-ah-DEE-oh) School of Business and Management has been developing values-centered leaders and advancing responsible business practice since Student-focused, experience-driven, and globally-oriented, the Graziadio School offers fully accredited top-ranked MBA, Masters of Science, and bachelor s completion business programs. More information found at

49 THANK YOU! John K. Paglia, Ph.D., CFA, CPA Associate Professor of Finance Director, Pepperdine Private Capital Markets Project