1. Navigating Your Portfolio Through Turbulent Waters
From Grant Thornton, ACG, and our parent company, Thomson Reuters
The study looks at the state of portfolio companies, probably because there aren’t any deals to examine. Interesting findings include stats on markdowns, time spent on portfolio companies, and favored strategies for success in the downturn. The white paper also takes a close look at pooled purchasing for health insurance for portfolio companies.
-Almost half of all survey respondants said their 1% to 25% of their portfolio companies are in covenant default. The survey concludes with a taste of the obvious: “Now more than ever, most private equity firms have both the knowledge and the time to create real value at the portfolio level.
-Tied at 42%, GPs said the best strategies for success in this environment are focusing on portfolio companies and platform acquisitions. Almost 70% of those surveyed said they are spending more time on portfolio companies than they did last year. (Sidenote: I would certainly hope so, what else would they be doing? Certainly not deals or fundraising…)
-On the upcoming wave of potentially painful debt maturities, the study quotes W.Y. Campbell Managing Director Cliff Roesler saying: “Initially, we believe most lenders will seek unachievable equity contributions and then opt for the safety of taking control. But we are hopeful consensual agreements will increase in frequency.”
Download: Navigating Your Portfolio Through Turbulent Waters
2. Ernst & Young LLP’s 2009 US PE report
From Ernst & Young
This survey looked at every aspect of PE under the sun and also asks what’s next for private equity. It concludes that buyout firms will need to learn to live with more scrutiny and regulation, replace many of their portfolio companies’ capital structures, focus on top and bottom lines, and address a broad spectrum of risk. The report states that private equity has the temperament and appetite to be an early mover and how it deploys capital will affect the industry’s impact on the US economy.
-Minority deals, which rose from 212 transactions in 2007 to 273 in 2008
-PIPEs, which increased more than fivefold in 2008, from $3.4 billion in 2007 to $19.1 billion, even though LPs have said overwhelmingly that they’re not happy with GPs doing PIPEs.
– In 2008, average equity contribution rose to nearly 43% – the highest level this decade
– 14 acquisitions announced in 2008 topped the $1 billion mark
-Most alarming are the IPO stats: 2008 was the worst year for new issues since 1978, and PE-backed IPOs fell from 47 in 2007 to just 5 in 2008.
Download: You can download the full report here.
3. 2009 PE Market Outlook
From Russell Reynolds Associates
The survey takes a human resources angle to the PE market, looking at details the ways private equity firms are recruiting new talent in places like distressed debt, secondaries, and sector-specific activity.
-Through the lens of the myriad of factors, mostly negative, affecting buyout firms these days (from the dry powder conundrum to the lack of debt and portfolio company value deterioration), the report outlines how they’ve affected executive talent. The study finds: -The trend that started about five years ago to bring operating talent to PE funds continues, and PE funds will likely place an even higher value on these resources as they develop models to deploy these skills to help existing portfolio companies.”
-In other HR findings, the study reports that firms with fundraising on the horizon are looking to bolster their LP marketing and relations capabilities.
-Regarding portfolio companies, the study reports a significant increase in activity surrounding changing or adding to leadership teams, often at the highest levels. “Boards and PE investors are concluding that the strategies and competencies needed to run their businesses in this economy are different from what was needed in the past.”
Download: 2009 Leadership Outlook Global Perspective for the Private Equity Market
So if I’m to take all three of these surveys together, I can conclude that private equity firms, while positioned to lead us out of the economy, should be freaking out over their portfolio companies, and if they don’t know how, they better scramble to hire someone who can. Easy enough, right?