LOS ANGELES--(BUSINESS WIRE)--All ten investment stakeholder sectors involved in private capital markets, including bankers, private equity investors, venture capitalists and brokers, expect to see an increased demand for capital next year, but business owners remain challenged by lack of access to funding, according to research released today from Pepperdine University Graziadio School of Business and Management.
According to the 2015 Pepperdine Private Capital Markets Project (PPCMP) Survey Report, investors anticipate improved business conditions and many expect to close more deals next year than in 2014. Forty-one percent (41%) of respondents to the Investment Banker survey said that they expect to close six or more deals in the next 12 months.
Despite optimism from lenders, many privately-held businesses report that they lack the financial backing needed to grow. Nearly 89% of 681 privately-held businesses that responded to the survey report having the enthusiasm to execute growth strategies, but only 52% report having the necessary financial resources to successfully execute growth strategies. Approximately 47% of respondents reported that they were seeking bank business loans or business credit card financing as a source of funding, followed by friends and family (13%). Of all financing options, bank loans emerged as the financing source with highest “willingness” for small business to use, followed by grants and credit unions.
“Last year’s frothy private capital markets appear to have calmed down a bit,” said Craig R. Everett, Ph.D., Assistant Professor of Finance and Director of the Pepperdine Private Capital Markets Project. “Lending standards for senior debt seem to have tightened somewhat and private equity deal multiples have pulled back from a year ago. Mezzanine debt is the only capital category that appears to be continuing to increase its appetite for risk.”
This year’s PPCMP survey, deployed in October 2014, specifically examined the behavior of senior lenders, asset-based lenders, mezzanine funds, private equity groups, venture capital firms, angel investors, privately-held businesses, investment bankers, business brokers, limited partners, and business appraisers. The Pepperdine PCOC survey investigated, for each private capital market segment, the important benchmarks that must be met in order to qualify for capital, how much capital is typically accessible, what the required returns are for extending capital in today’s economic environment, and outlooks on demand for various capital types, interest rates, and the economy in general.
More than 69% of respondents to the banks and asset-based lenders surveys believe that general business conditions will improve over the next 12 months and over 49% said demand for loans will increase. Of the participants who responded to the venture capital survey, approximately 46% of respondents expect an increasing size of the venture capital industry. The majority (85%) of respondents plan to make four investments or more over the next 12 months.
Angel investors also indicated a sharp increase in demand for angel capital (37%), increases in size of angel industry, follow-on investments, quality of companies seeking investment and improved general business conditions. They also reported decreased expected returns on new investments.
While business owners remain pessimistic about their ability to secure financing to pursue growth strategies, results also showed that 77% of privately-held businesses that sought bank loans over the past 12 months were successful. Survey results indicated that business owners who raised capital on average contacted 1.9 banks. This is an increase from Pepperdine’s 2014 report, in which 69% of business owners said they were successful in securing a bank loan.
Other key findings include:
- The majority (70%) of respondents to the Private Equity survey plan to make one to four investments over the next 12 months. The types of businesses that Private Equity firms plan to invest in over next 12 months are very diverse, with over 28% targeting manufacturing and another 19% planning to invest in business services.
- Relative to 12 months ago, respondents indicated increases in demand for mezzanine capital, leverage multiples, appetite for risk and improved general business conditions. They also reported decreases in general underwriting standards, warrant coverage, loan fees and expected returns on new investments.
- On average respondents to the Limited Partners survey target to allocate 32% of their assets to real estate funds, 14% to hedge funds and 11% to venture capital. Respondents expect the highest returns of 13% from direct investments, 11% from real estate funds, 10% from investments in venture capital, and 10% from growth private equity.
- Investment Bankers, Private Equity Firms, Brokers, Banks, Mezzanine Lenders, Business Appraisers and Brokers believe that domestic economic uncertainty is the most important current issue facing privately-held businesses.
“Certainty is frequently cited as the most important motivator by the investment community, while the lack of certainty stymies the translation of enthusiasm and desire into empirical, measureable investment and economic growth,” noted Dr. Everett.
- Limited Partners, Venture Capitalists, and Angel Investors believe that access to capital is the biggest current issue facing privately-held businesses today. According to data from the National Small Business Association, there is a clear correlation to a small-business owner’s ability to attain adequate financing and his/her ability to hire employees, perform on contracts, meet obligations and grow their companies – critical components to restore evenness and certainty to the U.S. economic recovery.
- Privately-held businesses with annual revenues less than $5 million are more concerned about access to capital than those with revenues greater than $5 million. Larger privately-held businesses are more concerned about government regulations and taxes.
The Pepperdine private cost of capital survey (PCOC) was originally launched in 2007 and is the first comprehensive and simultaneous investigation of the major private capital market segments in the U.S.
Certificate in Private Capital Markets
The Graziadio School of Business will also offer a Certificate in Private Capital Markets (CIPCM), June 22-24, 2015 in Malibu. The three-day, curriculum-based training program certification will teach critical analysis and evaluation skills for transacting successful financing deals within the private capital markets and the valuation methods used by capital providers when evaluating transactions. The program will be instructed by both Pepperdine faculty members and industry experts.
CIPCM is designed for business owners and professionals employed within the finance, banking, investment, mergers and acquisitions, valuation, management consulting, legal, and accounting fields. The certificate qualifies for continuing education credit for CPAS licensed in CA and MCLE for attorneys licensed in CA and may qualify for other credentials depending on the state of jurisdiction.
About Pepperdine University Graziadio School of Business and Management
A leader in cultivating entrepreneurship and digital innovation, The Graziadio School of Business and Management at Pepperdine University focuses on the real-world application of MBA-level business concepts. The Graziadio School provides student-focused, globally-oriented education through part-time, full-time, and Executive MBA programs at our 5+ Southern California campuses, Northern California campus, as well as through online and hybrid formats. In addition, The Graziadio School offers a variety of Master of Science programs, a Bachelor of Science in Management degree completion program, Presidential and Key Executives MBA and executive education certificate programs. Follow the Graziadio School at www.facebook.com/pepperdine.graziadio and https://twitter.com/graziadioschool