Dr. Craig R. EverettAssistant Professor of FinanceDirector, Pepperdine Private Capital Markets Project
2017 Private Capital Markets Report
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PEPPERDINEPRIVATECAPITALMARKETSPROJECT
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SURVEYDESIGN,DISTRIBUTION,ANDOTHERSUPPORT
RobertT.Slee LetitiaGreen BrettPalmerLeonardLanzi NevenaOrbach GaryLaBrancheGrayDeFevere BradTriebsch DennisGanoJanHanssen GaryW.Clark LinhXavierVuong
RobertZielinski M.ToddStemler MichaelNallKevinD.Cantrell PatrickGeorge SimonJames,PhD
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TABLEOFCONTENTS
INVESTMENTBANKERSURVEYINFORMATION.....................................................................................................4
OperationalandAssessmentCharacteristics..................................................................................................4
PRIVATEEQUITYSURVEYINFORMATION............................................................................................................12
OperationalandAssessmentCharacteristics................................................................................................12
BANKANDASSET-BASEDLENDINGSURVEYINFORMATION................................................................................20
OperationalandAssessmentCharacteristics................................................................................................20
Asset-BasedLendingSpecificCharacteristics...............................................................................................27
MEZZANINESURVEYINFORMATION...................................................................................................................29
OperationalandAssessmentCharacteristics................................................................................................29
LIMITEDPARTNERSURVEYINFORMATION.........................................................................................................37
OperationalandAssessmentCharacteristics................................................................................................37
VENTURECAPITALSURVEYINFORMATION.........................................................................................................43
OperationalandAssessmentCharacteristics................................................................................................43
ANGELINVESTORSURVEYINFORMATION..........................................................................................................49
OperationalandAssessmentCharacteristics................................................................................................49
BUSINESSAPPRAISERSURVEYINFORMATION....................................................................................................55
OperationalandAssessmentCharacteristics................................................................................................55
BROKERSURVEYINFORMATION.........................................................................................................................59
OperationalandAssessmentCharacteristics................................................................................................59
BusinessTransactionsValuedUnder$499Thousand..................................................................................68
BusinessTransactionsValuedUnderfrom$500to$999Thousand.............................................................71
BusinessTransactionsValuedUnderfrom$1to$1.99Million....................................................................75
BusinessTransactionsValuedUnderfrom$2to$4.99Million....................................................................78
BusinessTransactionsValuedUnderfrom$5to$50Million.......................................................................82
FACTORSURVEYINFORMATION.........................................................................................................................88
OperationalandAssessmentCharacteristics................................................................................................88
BUSINESSOWNERSURVEYINFORMATION.........................................................................................................94
OperationalandAssessmentCharacteristics................................................................................................94
ABOUTTHEAUTHOR........................................................................................................................................112
INDEXOFTABLES.............................................................................................................................................113
INDEXOFFIGURES............................................................................................................................................116
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PEPPERDINEPRIVATECAPITALMARKETSSURVEY
The Pepperdine private cost of capital (PCOC) survey was originally launched in 2007 and was the firstcomprehensiveand simultaneous investigationof themajorprivate capitalmarket segments. This year’s surveywas deployed in January 2017 and 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 surveyinvestigates, for each private capitalmarket segment, the important benchmarks thatmust bemet in order toqualifyforeachparticularcapitaltype,howmuchcapitalistypicallyaccessible,whattherequiredreturnsareforextending capital in today’s economic environment, and outlooks on demand for various capital types, interestrates,andtheeconomyingeneral.Ourfindingsindicatethatthecostofcapitalforprivately-heldbusinessesvariessignificantlybycapitaltype,size,and risk assumed. This relationship is depicted in the Pepperdine Private Capital Market Line, which appearsbelow.
Figure1.PrivateCapitalMarketRequiredRatesofReturn
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
1quartile Median 3quartile Median2016
Banks (4.0% - 6.5%)
ABL(5.5%- 14.0%)
PEG(20.5%- 27.5%)
VC(25.0%- 35.0%)
Mezz(10.0%- 24.0%)
Angel(35%- 60%)
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Thecostofcapitaldatapresentedbelowidentifiesmedians,25thpercentiles(1stquartile),and75thpercentiles(3rdquartile)ofannualizedgrossfinancingcostsforeachmajorcapitaltypeanditssegments.Thedatarevealthatloanshavethelowestaveragerateswhilecapitalobtainedfromangelshasthehighestaveragerates.Asthesizeofloanorinvestmentincreases,thecostofborrowingorfinancingfromanyofthefollowingsourcesdecreases.
Table1.PrivateCapitalMarketRequiredRatesofReturn
1stquartile Median 3rdquartile
Bank($1MCFloan) 6.0% 6.5% 8.0%
Bank($5MCFloan) 5.1% 5.5% 6.5%
Bank($10MCFloan) 4.4% 5.3% 5.9%
Bank($25MCFloan) 3.8% 5.0% 5.0%
Bank($50MCFloan) 3.5% 4.0% 4.3%
ABL($1Mloan) 9.4% 14.0% 15.8%
ABL($5Mloan) 10.0% 10.0% 12.3%
ABL($10Mloan) 8.6% 10.0% 12.0%
ABL($25Mloan) 6.5% 8.0% 8.0%
ABL($50Mloan) 5.5% 5.5% 6.3%
Mezz($1Mloan) 18.0% 24.0% 24.5%
Mezz($5Mloan) 15.0% 17.0% 17.5%
Mezz($10Mloan) 13.0% 15.5% 20.0%
Mezz($25Mloan) 11.5% 14.5% 16.5%
Mezz($50Mloan) 10.8% 13.5% 16.0%
Mezz($100Mloan) 9.5% 10.0% 13.0%
PEG($1MEBITDA) 21.8% 27.5% 33.8%
PEG($5MEBITDA) 21.0% 25.5% 31.5%
PEG($10MEBITDA) 21.0% 23.0% 30.0%
PEG($25MEBITDA) 20.8% 21.0% 28.8%
PEG($50MEBITDA) 16.5% 21.0% 21.0%
PEG($100MEBITDA) 14.0% 20.5% 21.0%
VC(Seed) 25.0% 35.0% 60.0%
VC(Startup) 25.0% 35.0% 55.0%
VC(EarlyStage) 15.0% 25.0% 50.0%
VC(Expansion) 15.0% 25.0% 50.0%
VC(LaterStage) 15.0% 25.0% 50.0%
Angel(Seed) 45.0% 60.0% 67.5%
Angel(Startup) 35.0% 40.0% 52.5%
Angel(EarlyStage) 30.0% 35.0% 47.5%
Angel(Expansion) 30.0% 35.0% 45.0%
Angel(LaterStage) 25.0% 35.0% 35.0%
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INVESTMENTBANKERSURVEYINFORMATIONThemajorityofthe88respondentstotheinvestmentbankersurveyindicatedincreasingpresenceofstrategicbuyersmakingdealsoverthelasttwelvemonths.Theyalsoreportedincreasesindealflow,leverageanddealmultiples,marginpressureoncompaniesandimprovedgeneralbusinessconditions.Domesticgovernmentregulationsandtaxeswereidentifiedasthemostimportantcurrentissuefacingprivately-heldbusinesses,followingbyeconomicuncertaintyandaccesstocapital.Economicuncertaintywasidentifiedasthemostimportantemergingissue.Otherkeyfindingsinclude:
• Approximately50%ofrespondentsexpecttoclosesixormoredealsinthenext12months.
• Thetopthreereasonsfordealsnotclosingwerevaluationgap(30%),unreasonableseller/buyerdemand(21%),andnomarketforbusiness(12%).
• Respondentsindicatedageneralbalancebetweencompaniesworthyoffinancingandcapitalavailableforthe
same.Thereisareportedshortageofcapitalforthosecompanieswithlessthan$1millioninEBITDA,butageneralsurplusforcompanieswith$1millioninEBITDAormore.
• Themostpopularvaluationmethodsusedbyrespondentswhenvaluingprivately-heldbusinesseswereguidelinecompanytransactions,discountedfutureearnings,andcapitalizationofearningsapproaches.
• Whenusingmultiplestodeterminethevalueofabusiness,themostpopularmethodsusedbyrespondents
whenvaluingprivately-heldbusinesseswererecast(adjusted)EBITDAmultiple(70%),revenuemultiple(11%)andEBITDA(unadjusted)multiple(9%)approaches.
OperationalandAssessmentCharacteristics
Approximately6%oftherespondentsdidn’tcloseanydealsinthelasttwelvemonths;55%closedbetweenoneandfivedeals,while38%closedsixdealsormore.
Figure2.PrivateBusinessSalesTransactionsClosedintheLast12Months
6%
12%
22%
12%10% 10%
6%
1%
5%4%
12%
0%
5%
10%
15%
20%
25%
0 1 2 3 4 5 6 7 8 10 Morethan10
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INVESTMENTBANKERcont.
Figure3.BusinessTypesThatWereInvolvedintheTransactionsClosedintheLast12Months
Themajorityofdeals(82%)took5to12monthstoclose.14%ofcloseddealstookmorethanoneyeartoclose.
Figure4.AverageNumberofMonthstoCloseOneDeal
Nearly53%ofrespondentsexpecttoclosebetweenoneandfivedeals,while46%expecttoclose6dealsormore.
Figure5.PrivateBusinessTransactionsExpectedtoCloseintheNext12Months
64%
38%
36%34%
34%
21%
15%10%8%
4%
16%
ManufacturingBasicmaterials&energyWholesale&distributionBusinessservicesInformationtechnologyConsumergoods&servicesFinancialservices&realestateMedia&entertainmentHealthcare&biotechConstruction&engineeringOther
4%
18%
25%22%
18%
11%
1% 1%
0%
5%
10%
15%
20%
25%
30%
3- 4months 5- 6months 7- 8months 9- 10months
11- 12months
13- 18months
19- 24months
morethan24months
1%
5%
9%
15%
19%
4%
14%
3%
8% 6%
15%
0%
5%
10%
15%
20%
25%
0 1 2 3 4 5 6 7 8 10 Morethan10
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INVESTMENTBANKERcont.Approximately27%ofdealsterminatedwithouttransactingoverthepastyear.
Figure6.PercentageofBusinessSalesEngagementsTerminatedWithoutTransacting
Thetopthreereasonsfordealsnotclosingwere:valuationgapinpricing(30%),unreasonablesellerorbuyerdemand(21%)andnomarketforbusiness(12%).
Figure7.ReasonsforBusinessSalesEngagementsNotTransacting
Ofthosetransactionsthatdidn’tcloseduetoavaluationgapinpricing,approximately64%hadavaluationgapinpricingbetween11%and30%.
Figure8.ValuationGapinPricingforTransactionsThatDidn’tClose
73%
27%Transacted
Nottransacted
30%
21%12%
9%
7%6%
5% 10%
Valuationgapinpricing
Unreasonablesellerorbuyerdemand
Nomarketforbusiness
Sellermisrepresentations
Lackofcapitaltofinance
Economicuncertainty
Insufficientcashflow
Other
12%
33%
31%
14%
2%8%
1-10%
11- 20%
21-30%
31-40%
41-50%
Greaterthan50%
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INVESTMENTBANKERcont.Theweightsofthevariousvaluationmethodsusedbyrespondentswhenvaluingprivately-heldbusinessesincluded26%forguidelinecompanytransactionsmethod.
Figure9.UsageofValuationMethods
Themostpopularmultiplemethodusedbyrespondentswhenvaluingprivately-heldbusinessesistherecast(adjusted)EBITDAmultiplemethod,utilizedby70%ofrespondents.
Figure10.UsageofMultipleMethods
Averagedealmultiplesontransactionsfromthepriortwelvemonthsasobservedbyrespondentsvariedfrom3.6to8.8.
Table2.MedianDealMultiplesbyEBITDASizeofCompany
EBITDA ManufacturingConstruction
&engineering
Cons.goods&services
Wholesale&
distribution
Businessservices
Basicmaterials&energy
Healthcare&biotech
IT Financialservices
Media&entertain. Avg.
$0K-$999K 4.0 3.0 4.0 4.0 4.3 5.0 5.0 2.0 2.5 2.0 3.6
$1M-$4.99M 5.5 5.0 6.0 5.3 6.0 5.3 5.5 6.5 5.0 3.5 5.4
$5M-$9.99M 6.8 5.8 8.0 6.0 7.0 6.0 7.5 7.0 5.8 5.0 6.5
$10M-$24.99M 7.0 7.0 8.5 7.0 6.3 7.0 9.0 8.5 6.0 7.5 7.4
$25M-$49.99M 7.5 7.3 9.0 7.0 6.8 8.5 9.0 9.0 n/a n/a 8.0
$50M+ 10.0 7.8 9.0 7.0 6.8 10.0 11.0 10.0 7.5 n/a 8.8
26% 25%22%
6% 5% 4%
13%
0%5%
10%15%20%25%30%
Guidelinecompany
transactionsmethod
Discountedfutureearningsmethod
Capitalizationofearningsmethod
Guidelinepublic
companymethod
Gutfeel Adjustednetassetmethod
Other
70%
11% 9% 4% 3% 2% 1%0%
20%
40%
60%
80%
Recast(Adjusted)EBITDAmultiple
Revenuemultiple
EBITDA(unadjusted)multiple
Cashflowmultiple
Netincomemultiple
Other EBITmultiple
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INVESTMENTBANKERcont.Averagetotalleveragemultiplesobservedbyrespondentsvariedfrom2.5to5.6.
Table3.MedianTotalLeverageMultiplesbySizeofCompany
EBITDA ManufacturingConstruction
&engineering
Cons.goods&services
Wholesale&distribution
Businessservices
Basicmaterials&energy
Healthcare&biotech
IT Financialservices
Media&entertain.
Median,allindustries
$0K-$999K 3.5 2.0 2.0 3.0 2.5 n/a 3.0 3.0 1.0 n/a 2.5
$1M-$4.99M 4.0 3.8 3.5 3.5 3.0 3.5 4.3 4.0 3.8 2.8 3.6
$5M-$9.99M 4.0 4.0 4.0 4.3 4.0 n/a 4.3 4.3 5.3 n/a 4.3
$10M-$24.99M 4.5 4.0 4.5 4.5 5.0 n/a 5.5 4.5 7.5 n/a 5.0
$25M-$49.99M 5.0 4.5 4.8 4.5 5.0 n/a 6.0 5.0 n/a n/a 5.0
$50M+ 6.0 4.8 5.8 5.8 5.5 n/a 6.5 5.0 n/a n/a 5.6
Averageseniorleveragemultiplesobservedbyrespondentsvariedfrom1.8to4.6.
Table4.MedianSeniorLeverageMultiplesbySizeofCompany
EBITDA ManufacturingConstruction
&engineering
Cons.goods&services
Wholesale&
distribution
Businessservices
Basicmaterials&energy
Healthcare&biotech
IT Financialservices
Media&entertain. Avg.
$0K-$999K 2.5 1.8 2.0 1.5 2.0 n/a 2.5 1.0 2.0 1.0 1.8
$1M-$4.99M 2.8 2.0 2.0 2.3 2.0 2.5 3.0 2.0 3.3 2.0 2.4
$5M-$9.99M 3.0 2.5 2.5 2.5 2.0 n/a 4.3 2.5 3.5 n/a 2.8
$10M-$24.99M 3.5 3.0 4.0 2.5 3.0 3.0 5.0 2.5 n/a n/a 3.3
$25M-$49.99M 5.0 3.0 4.0 3.0 3.3 n/a 5.8 2.5 n/a n/a 3.8
$50M+ 7.0 3.5 5.0 3.0 3.5 n/a 6.3 3.0 5.3 n/a 4.6
Approximately33%ofbusinesssalestransactionsclosedinthelast12monthsinvolvedcontingentearnout.
Figure11.ComponentsofClosedDeals
33%30%
28%
23%
15%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Contingentearnout SellerFinancing/SellerNote
Rollover LoweredmultipleofEBITDA
Adjustedamountofequitysold
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INVESTMENTBANKERcont.Approximately55%ofclosedbusinesssalestransactionsoverthepast12monthsinvolvedstrategicbuyers.
Figure12.PercentofTransactionsInvolvedStrategicandFinancialBuyers
Approximately30%ofrespondentsdidnotwitnessanypremiumpaidbystrategicbuyers,while46%sawpremiumsbetween1%and20%.
Figure13.PremiumPaidbyStrategicBuyersRelativetoFinancialBuyers
Approximately51%ofclosedbusinesssalestransactionsthatinvolvedfinancialbuyersoverthepast12monthswereplatforminvestments.
Figure14.PercentofTransactionsInvolvedStrategicandFinancialBuyers
55%
45%Strategicbuyers
Financialbuyers
30%
16%
30%
10%
1% 3%
9%
0%5%10%15%20%25%30%35%
Nopremium Yes,1-10%more
Yes,11-20%more
Yes,21-30%more
Yes,31-40%more
Yes,41-50%more
Yes,>50%more
51%49% Platforminvestments
Follow-oninvestments
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INVESTMENTBANKERcont.Respondentsindicatedageneralbalancebetweencompaniesworthyoffinancingandcapitalavailableforthesame.Thereisareportedshortageofcapitalforthosecompanieswithlessthan$1millioninEBITDAbutageneralsurplusforcompanieswith$1millioninEBITDAormore.
Table5.BalanceofAvailableCapitalwithQualityCompanies
EBITDA
Companiesworthyoffinancing
GREATLYexceedcapitalavailable
Companiesworthyof
financingexceedcapitalavailable
Generalbalance
Capitalavailableexceeds
companiesworthyoffinancing
CapitalavailableGREATLYexceeds
companiesworthyoffinancing
Score(-2to2)
$0K-$999K 25% 27% 27% 16% 4% -0.5$1M-$4.99M 5% 15% 39% 32% 8% 0.2$5M-$9.99M 0% 6% 30% 47% 17% 0.8$10M-$24.99M 2% 0% 24% 38% 36% 1.0$25M-$49.99M 0% 3% 17% 29% 51% 1.3$50M-$99.99M 0% 0% 19% 22% 59% 1.4$100M+ 0% 0% 10% 28% 62% 1.5
Respondentsindicatedageneraldifficultywitharrangingseniordebtforbusinesseswithlessthan$1millioninEBITDA.
Table6.HowDifficulttoArrangeSeniorDebtforTransactionsoverthePast12Months
EBITDA Extremelydifficult Difficult Somewhat
difficult Neutral Somewhateasy Easy Extremely
easyScore(-3to3)
$0K-$999K 15% 15% 24% 9% 24% 12% 0% -0.5
$1M-$4.99M 4% 4% 9% 17% 37% 26% 2% 0.7
$5M-$9.99M 0% 7% 7% 7% 33% 29% 17% 1.2
$10M-$24.99M 0% 0% 9% 4% 22% 30% 35% 1.8
$25M-$49.99M 0% 8% 0% 0% 8% 31% 54% 2.2
$50M-$99.99M 0% 0% 0% 0% 0% 38% 63% 2.6
$100M+ 0% 0% 0% 0% 0% 14% 86% 2.9
Themajorityofthe78respondentstotheinvestmentbankersurveyindicatedincreasingpresenceofstrategicbuyersmakingdealsoverthelasttwelvemonths.Theyalsoreportedincreasesindealflow,leverageanddealmultiples,marginpressureoncompaniesandimprovedgeneralbusinessconditions.
Table7.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo
Decreasedsignificantly
Decreasedslightly
Stayedaboutthesame
Increasedslightly
Increasedsignificantly
%increase
%decrease
Netincrease/decrease
Dealflow 4% 22% 27% 36% 10% 47% 26% 21%
Leveragemultiples 3% 14% 55% 27% 1% 28% 16% 12%
Dealmultiples 1% 10% 47% 36% 5% 42% 12% 30%
Amountoftimetosellbusiness 0% 6% 57% 30% 6% 36% 6% 30%
Difficultyfinancing/sellingbusiness 3% 13% 63% 18% 3% 21% 16% 5%
Generalbusinessconditions 1% 11% 36% 49% 3% 52% 12% 40%
Strategicbuyersmakingdeals 1% 8% 38% 50% 3% 53% 10% 43%
Marginpressureoncompanies 1% 9% 53% 32% 4% 36% 11% 26%
Buyerinterestinminoritytransactions 5% 8% 41% 36% 10% 45% 14% 32%
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INVESTMENTBANKERcont.Duringthenexttwelvemonths,respondentsexpectfurtherincreasesindealflow,leverageanddealsmultiples,strategicbuyersmakingdeals,marginpressureoncompaniesandimprovinggeneralbusinessconditions.
Table8.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months
Decreasesignificantly
Decreaseslightly
Stayaboutthesame
Increaseslightly
Increasesignificantly %increase %
decrease
Netincrease/decrease
Dealflow 0% 6% 23% 52% 18% 70% 6% 64%
Leveragemultiples 0% 11% 61% 27% 1% 28% 11% 17%
Dealmultiples 0% 12% 49% 35% 4% 39% 12% 27%
Amountoftimetosellbusiness 0% 13% 70% 17% 0% 17% 13% 4%
Difficultyfinancing/sellingbusiness 3% 18% 68% 10% 1% 12% 21% -9%
Generalbusinessconditions 0% 9% 24% 59% 8% 67% 9% 58%
Strategicbuyersmakingdeals 0% 7% 31% 51% 12% 63% 7% 56%
Marginpressureoncompanies 1% 8% 55% 31% 5% 36% 9% 27%
Buyerinterestinminoritytransactions 3% 3% 56% 33% 5% 39% 5% 33%Respondentsbelievedomesticgovernmentregulationsandtaxesisthemostimportantcurrentissuefacingprivately-heldbusinesses,whereasdomesticeconomicuncertaintyisthemostimportantemergingissue.
Figure15.IssuesFacingPrivately-HeldBusinesses
33%
31%
28%
15%
6%
4%
3%
6%
19%
26%
12%
19%
23%
17%
14%
5%
0% 5% 10% 15% 20% 25% 30% 35%
Governmentregulationsandtaxes
Economicuncertainty(Domestic)
Accesstocapital
Politicaluncertainty/elections
Economicuncertainty(International)
Inflation
Competitionfromforeigntradepartners
Other
Today'sissue Emergingissue
Great researchrequires great funding.Beginning with the 2018 Private Capital Markets Report, each of our financial sponsors will receive a full-page advertisement in appreciation for underwriting our important research.
If your organization is interested in becoming a donor, please contact Dr. Craig Everett at [email protected].
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PRIVATEEQUITYSURVEYINFORMATIONApproximately56%ofthe38participantswhorespondedtotheprivateequitygroupsurveyindicatedthattheymakeinvestmentsinthe$1millionto$5millionrange.Nearly52%ofrespondentssaidthatdemandforprivateequityisupfromtwelvemonthsago,thisisupfrom42%ofrespondentsindicatingincreaseddemandinJanuary2016.Otherkeyfindingsinclude:
• Respondentsindicatedflatqualityofcompaniesseekinginvestment.Theyalsoreporteddecreaseinexpectedreturnsonnewinvestments,improvedgeneralbusinessconditionsandincreaseddealmultiples.
• Respondentsexpectfurtherincreasesindemandforprivateequity,dealmultiples,valueofportfoliocompaniesandgeneralbusinessconditions.
• Thetypesofbusinessesrespondentsplantoinvestinovernext12monthsareverydiversewithover21%
targetingmanufacturingandanother18%planningtoinvestinbusinessservices.
• Respondentsbelievedomesticeconomicuncertaintyisthemostimportantcurrentandemergingissuefacingprivately-heldbusinesses.
• Themostpopularvaluationmethodsusedbyrespondentswhenvaluingprivately-heldbusinesseswerediscountedfutureearningsandcapitalizationofearningsapproaches.
• Whenusingmultiplestodeterminethevalueofabusiness,themostpopularmethodsusedbyrespondentswhenvaluingprivately-heldbusinesseswererecastEBITDAmultiple(40%)andcashflowmultiple(22%).
OperationalandAssessmentCharacteristics
Thelargestconcentrationofcheckswrittenwasinthe$1million-$5millionrange(56%),followedby$10-$25million(37%),and$5million-$10million(30%).
Figure16.TypicalInvestmentSize
Respondentsreportedonbusinesspractices,andtheresultsarereflectedbelow.
Table9.PEGFundData
1stQuartile Median 3rdQuartile
Vintageyear(yearinwhichfirstinvestmentmade) 2010 2014 2015
Sizeoffund($millions) 17.5 75 163
Targetednumberoftotalinvestments 8 8 14
Targetfundreturn(grosspretaxcashoncashannualIRR%) 18% 25% 30%
Expectedfundreturn(grosspretaxcashoncashannualIRR%) 15% 20% 30%
26%
56%
30%37%
19%
7% 11% 11%
0%10%20%30%40%50%60%
Lessthan$1M
$1M-$4.99M
$5M-$9.99M
$10M-$24.99M
$25M-$49.99M
$50M-$99.99M
$100M-$499.99M
$500M+
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PRIVATEEQUITYcont.Thetypesofbusinessesrespondentsplantoinvestinovernext12monthsareverydiversewithnearly21%targetingmanufacturingandanother17%planningtoinvestinbusinessservices.
Figure17.TypeofBusinessforInvestmentsPlannedoverNext12Months
Approximately46%ofrespondentsmadebetweenoneandthreeinvestmentsoverthelasttwelvemonths.
Figure18.TotalNumberofInvestmentsMadeintheLast12Months
Figure19.NumberofFollow-onInvestmentsMadeintheLast12Months
21%
17%
16%12%
10%
7%
4% 4%
2% 1%
6%
ManufacturingBusinessservicesHealthcare&biotechConsumergoods&servicesFinancialservices&realestateWholesale&distributionBasicmaterials&energyInformationtechnologyConstruction&engineeringMedia&entertainmentOther
23%
12% 12%
23%
8% 8% 8% 8%
0%
5%
10%
15%
20%
25%
0 1 2 3 4 5 7 Morethan10
31%
15%
23%
12%8%
4%8%
0%
5%
10%
15%
20%
25%
30%
35%
0 1 2 3 4 5 Morethan10
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PRIVATEEQUITYcont.Themajority(69%)ofrespondentsplantomakeonetothreeinvestmentsoverthenext12months.
Figure20.NumberofTotalInvestmentsPlannedoverNext12Months
Figure21.NumberofFollow-onInvestmentsPlannedoverNext12Months
Approximately83%ofbuyoutinvestmentswereintherangebetween$0millionand$10millionofEBITDA.
Figure22.SizeofBuyoutInvestmentsintheLast12Months
15%
35%
19%
8%12%
4%8%
0%5%
10%15%20%25%30%35%40%
1 2 3 4 5 8 Morethan10
16%20%
36%
8% 8%4%
8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0 1 2 3 4 5 Morethan10
23%
47%
13%7% 3% 3% 3%
0%
10%
20%
30%
40%
50%
$0K- $999KEBITDA
$1M- $4.99MEBITDA
$5M- $9.99MEBITDA
$10M-$24.99MEBITDA
$25M-$49.99MEBITDA
$50M-$99.99MEBITDA
$100M+EBITDA
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PRIVATEEQUITYcont.Averagedealmultiplesforbuyoutdealsforthepriortwelvemonthsvaryfrom5.0to8.5timesEBITDAdependingonthesizeofthecompany.Expectedreturnsvaryfrom20%to27.5%.
Table10.GeneralCharacteristics–BuyoutTransactions(medians)
EBITDAsize$0K-$999KEBITDA
$1M-$4.99MEBITDA
$5M-$9.99MEBITDA
$10M-$24.99MEBITDA
$25M-$49.99MEBITDA
$50M-$99.99MEBITDA
Numberofinvestments(total) 21 33 17 3 3 3
Averagesizeofinvestment(inmillionUSD) 1.5 3 4 7.5 7.5 25
Expectedtimetoexit(years)(median) 4 5 5 4.5 2 2
Equityas%ofnewcapitalstructure(median) 45% 35% 30% 10% 5% 5%
%oftotalequitypurchased(median) 80% 75% 65% 15% 5% 5%
Averagedealmultiple(multipleofEBITDA) 3 4 4.5 6 n/a n/aMediantotalexpectedreturns(grosscashoncashpre-taxIRR) 27.5% 26% 23% 21% 21% 20.5%
Approximately27%ofnon-buyoutinvestmentswereintherangebetween$0millionand$1millionofEBITDA.
Figure23.SizeofNon-BuyoutInvestmentsintheLast12Months
Averageexpectedreturnsonnon-buyoutdealsvaryfrom15%to50%.
Table11.GeneralCharacteristics–Non-BuyoutTransactions(medians)
$0K-$999KEBITDA
$1M-$4.99MEBITDA
$5M-$9.99MEBITDA
$10M-$24.99MEBITDA
$25M-$49.99MEBITDA
$50M+EBITDA
Numberofinvestments 7 2 3 3 n/a 2 AveragesizeofinvestmentinmillionUSD 0.5 2 2.5 25 n/a n/a Expectedtimetoexit(years)(medians) 6 3 4 5 n/a 5.5 Equityas%ofnewcapitalstructure 10% 20% 20% 45% n/a 60% %oftotalequitypurchased 25% 25% 50% 65% n/a 50%
Averagedealmultiple(multipleofEBITDA) 4 3.5 4.5 5 n/a 9.3
Totalexpectedreturns(grosscashoncashpre-taxIRR) 50% 27.5% 27.5% 25% n/a 16%
27%
23%
14%
9% 9%
5%
14%
0%
5%
10%
15%
20%
25%
30%
$0K- $999KEBITDA
$1M- $4.99MEBITDA
$5M- $9.99MEBITDA
$10M-$24.99MEBITDA
$25M-$49.99MEBITDA
$50M-$99.99MEBITDA
$100M+EBITDA
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PRIVATEEQUITYcont.Whenvaluingabusiness,approximately29%oftheweightisplacedondiscountedfutureearningsmethod.
Figure24.UsageofValuationApproaches
Theweightsofthevariousmultiplemethodsusedbyrespondentswhenvaluingprivately-heldbusinessesincluded40%forrecast(adjusted)EBITDAmultipleand22%forcashflowmultiple.
Figure25.UsageofMultipleMethods
29%
23%
11% 11% 11%8%
6%
0%
5%
10%
15%
20%
25%
30%
35%
Discountedfutureearningsmethod
Capitalizationofearningsmethod
Guidelinecompany
transactionsmethod
Adjustednetassetmethod
Gutfeel Guidelinepublic
companymethod
Other
40%
22%
15%12%
8%3%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
RecastEBITDAmultiple
Cashflowmultiple
EBITDAmultiple Revenuemultiple
Netincomemultiple
EBITmultiple
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PRIVATEEQUITYcont.Respondentsreportedonitemsrequiredtocloseonedeal.
Figure26.ItemsRequiredtoCloseOneDeal
Respondentsreportedexitstrategiesthatincludesellingtoprivatecompany(35%),sellingtoanotherprivateequitygroup(27%),andsellingtoapubliccompany(17%).
Figure27.ExitPlansforPortfolioCompanies
10 6.8 3 1.5
48
159
2
98
24.312
5
0
20
40
60
80
100
120
Businessplansormemorandumsreviewed
Meetingswithprincipalsconducted
Proposallettersortermsheetsissued
Lettersofintentsigned
1stQuartile Median 3rdQuartile
35%
27%
17%
8%5%
5%
2% 1% Selltoaprivatecompany
SelltoanotherPEG
Selltoapubliccompany
Managementbuyout
Other
IPO
LiquidateorBankrupt
Selltoahedgefund
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PRIVATEEQUITYcont.Mostoftherespondentsbelievethenumberofcompanies“worthyoffinancing”exceeds“capitalavailable”forthecompanieswithlessthan$1MinEBITDA.Whereasforthelargercompanies,“capitalavailable”exceedsthenumberofcompanies“worthyoffinancing.”
Table12.TheBalanceofAvailableCapitalwithQualityCompaniesfortheFollowingEBITDASize
CompaniesworthyoffinancingGREATLY
exceedcapitalavailable
Companiesworthyof
financingexceedcapitalavailable
Generalbalance
Capitalavailableexceeds
companiesworthyoffinancing
CapitalavailableGREATLYexceeds
companiesworthyoffinancing
Score(-2to2)
$0K-$999K 14% 27% 23% 27% 9% -0.1
$1M-$4.99M 14% 18% 32% 23% 14% 0.0
$5M-$9.99M 0% 5% 47% 26% 21% 0.6
$10M-$14.99M 0% 6% 28% 44% 22% 0.8
$15M-$24.99M 0% 0% 33% 28% 39% 1.1
$25M-$49.99M 0% 0% 29% 29% 41% 1.1
$50M-$99.99M 0% 0% 29% 24% 47% 1.2
$100M+ 0% 0% 19% 44% 38% 1.1
Relativetotwelvemonthsago,respondentsindicatedincreasesindemandforprivateequity,qualityofcompaniesseekinginvestment,amountofnon-controlinvestmentsanddealmultiples.Theyalsoreportedadecreaseinexpectedreturnsonnewinvestments,increaseinexpectedinvestmentholdingperiodandimprovedgeneralbusinessconditions.
Table13. GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo
Decreasedsignificantly
Decreasedslightly
Stayedaboutthesame
Increasedslightly
Increasedsignificantly
%increase
%decrease
Netincrease/decrease
Demandforprivateequity 0% 4% 44% 24% 28% 52% 4% 48%
Qualityofcompaniesseekinginvestment 0% 19% 46% 35% 0% 35% 19% 15%
Averageinvestmentsize 0% 23% 46% 27% 4% 31% 23% 8%
Non-controlinvestments 0% 0% 52% 38% 10% 48% 0% 48%
Expectedinvestmentholdingperiod 0% 8% 69% 23% 0% 23% 8% 15%
Dealmultiples 0% 15% 31% 42% 12% 54% 15% 38%
Exitopportunities 0% 16% 40% 36% 8% 44% 16% 28%
Expectedreturnsonnewinvestments 0% 50% 27% 15% 8% 23% 50% -27%
Valueofportfoliocompanies 0% 0% 38% 50% 12% 62% 0% 62%
Generalbusinessconditions 0% 19% 35% 46% 0% 46% 19% 27%
Sizeofprivateequityindustry 0% 4% 36% 40% 20% 60% 4% 56%
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PRIVATEEQUITYcont.Respondentsexpectfurtherincreasesindemandforprivateequity,decreasingexpectedreturnsonnewinvestments,andimprovinggeneralbusinessconditions.
Table14.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months
Decreasesignificantly
Decreaseslightly
Stayaboutthesame
Increaseslightly
Increasesignificantly
%increase
%decrease
Netincrease/decrease
Demandforprivateequity 0% 4% 28% 44% 24% 68% 4% 64%
Qualityofcompaniesseekinginvestment 0% 20% 44% 28% 8% 36% 20% 16%
Averageinvestmentsize 0% 4% 48% 44% 4% 48% 4% 44%
Non-controlinvestments 0% 5% 75% 20% 0% 20% 5% 15%
Expectedinvestmentholdingperiod 0% 8% 60% 32% 0% 32% 8% 24%
Dealmultiples 0% 20% 40% 40% 0% 40% 20% 20%
Exitopportunities 0% 8% 44% 40% 8% 48% 8% 40%
Expectedreturnsonnewinvestments 0% 36% 44% 12% 8% 20% 36% -16%
Valueofportfoliocompanies 0% 4% 36% 44% 16% 60% 4% 56%
Generalbusinessconditions 4% 17% 29% 38% 13% 50% 21% 29%
Sizeofprivateequityindustry 0% 4% 42% 42% 13% 54% 4% 50%
Respondentsbelievedomesticeconomicuncertaintyisthemostimportantcurrentandemergingissuefacingprivately-heldbusinesses.
Figure28.IssuesFacingPrivately-HeldBusinesses
40%
20%
20%
12%
4%
4%
0%
16%
36%
12%
8%
16%
12%
8%
4%
16%
Economicuncertainty(domestic)
Accesstocapital
Governmentregulationsandtaxes
Politicaluncertainty/elections
Economicuncertainty(international)
Competitionfromforeigntradepartners
Inflation
Other
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Currentissue Emergingissue
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BANKANDASSET-BASEDLENDINGSURVEYINFORMATIONTherewere54responsestothebankandasset-basedlendingsurveys.Over36%ofrespondentsbelievethatgeneralbusinessconditionswillimproveoverthenext12monthsandover66%saiddemandforloanswillincrease.Otherkeyfindingsinclude:
• Overthelasttwelvemonthsrespondentswereseeingslightlyincreasedseniorandleveragemultiples,withincreaseindemandforbusinessloansandimprovedgeneralbusinessconditions
• Respondentsalsoexpectincreasesindemandforbusinessloans,lendingcapacityofbanks,improvinggeneralbusinessconditions,totalandleveragemultiples,andfurtherincreaseininterestrates.
• Currently,27%lendersseegovernmentregulationsandtaxesanddomesticeconomicuncertaintyasthetop
issuefacingprivately-heldbusinessestoday,followedbyaccesstocapital(24%)andinternationaleconomicuncertainty(20%).
OperationalandAssessmentCharacteristics
Respondentsreportedonthetypeofentitythatbestdescribestheirlendingfunction.
Figure29.DescriptionofLendingEntity
Themajority(68%)reportparticipatingingovernmentloanprograms.
Figure30.ParticipationinGovernmentLoanPrograms
36%
32%
12%
12% 8% Commercialbank
Communitybank
Commercialfinancecompany
Privatebanker
Corporatebank
68%
32%Yes
No
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BANKScont.Thelargestconcentrationofloansizeswasbetween$0millionand$5million(70%).
Figure31.TypicalInvestmentSize
Respondentsreportedonall-inratesforvariousindustriesandloantypes.
Table15.All-inRatesbyLoanSizeandIndustry
Loansize Lessthan
$1M$1M-$4.99M
$5M-$9.99M
$10M-$24.99M $25M+ $100M $500M
Manufacturing 7.8% 5.5% 4.8% 5.0% 4.5% 4.0% 3.0%
Consumergoodsandservices 6.5% 6.0% 5.0% 5.0% 4.5% 4.0% 3.0%
Wholesale&distribution 6.5% 5.8% 4.8% 4.5% 4.5% 4.0% 3.0%
Businessservices 7.8% 5.8% 5.0% 5.0% 4.5% 4.0% 3.0%
Basicmaterials&energy 7.0% 5.5% 4.8% 4.5% 4.5% 4.5% 4.0%
Healthcare&biotech 6.5% 5.5% 5.0% 4.5% 3.5% 3.5% 2.6%
Informationtechnology 8.3% 6.8% 5.5% 5.0% 4.5% 3.5% 3.0%
Financialservices 8.0% 4.8% 5.0% 5.0% 3.5% 3.5% 3.5%
TypicalFixed-RateLoanTerm(months) 60 60 60 60 60 60 60
Table16.All-inRatesbyLoanType
$1M $5M $10M $25M $50M $100M $500M
Cashflowloan 6.5% 5.5% 5.5% 5.3% 5.0% 4.0% 3.5%
Workingcapitalloan 7.0% 4.8% 4.0% 3.5% 3.5% 3.5% 3.5%
Equipmentloan 6.5% 5.0% 4.5% 3.8% 3.0% 3.0% 3.0%
Realestateloan 5.8% 5.0% 5.0% 5.0% 4.8% 4.5% 4.0%
35% 35%
22%
28%
22%
11%
7%
2%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Lessthan$1million
$1-$5million $6-$10million
$11-$25million
$25-$50million
$50-$100million
$100-$500million
Greaterthan$500million
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BANKScont.SeniorleveragemultiplesarereportedbelowforthevariousindustriesandEBITDAsizes.
Table17.SeniorLeverageMultiplebyEBITDASizeEBITDAsize $0K-$999K $1M-$4.99M $5M-$9.99M $10M-$24.99M $25M-$49.99M $50M+
Manufacturing 1.5 1.8 1.9 1.9 3.0 3.0Construction&engineering 1.0 1.3 1.5 1.8 1.9 2.8Consumergoods&services 0.5 1.3 1.4 1.8 2.3 3.0Wholesale&distribution 1.5 2.0 2.0 2.3 2.3 3.0Businessservices 1.5 1.5 1.5 2.4 2.5 3.0Basicmaterials&energy 1.3 1.9 1.9 2.0 2.0 2.3Healthcare&biotech 1.3 2.0 2.3 2.4 2.5 2.5Informationtechnology 1.3 2.0 2.4 2.5 2.8 2.8Financialservices 1.4 1.5 1.9 2.0 2.0 2.0Media&entertainment 1.3 2.0 2.0 2.3 2.3 3.0Totalmedian 1.3 1.8 1.9 2.1 2.3 2.9Variousfeesasreportedbylendersareasfollows.
Table18.FeesCharged
1stQuartile Median 3rdQuartile
Closingfee 0.1% 0.6% 1.0%
Modificationfee 0.2% 0.3% 0.5%
Commitmentfee 0.0% 0.3% 1.0%
Underwritingfee 0.0% 0.2% 0.6%
Arrangementfee 0.0% 0.2% 0.5%
Prepaymentpenalty(yr1) 0.5% 2.0% 3.0%
Prepaymentpenalty(yr2) 0.9% 1.5% 2.8%
Unusedlinefee 0.2% 0.3% 0.5%
Refinancingwasthemostcommonlydescribedfinancingmotivationat32%,followedbymanagementbuyoutat18%.
Figure32.BorrowerMotivationtoSecureFinancing(past12months)
32%
18%15%
11% 9%5%
10%
0%5%10%15%20%25%30%35%
Refinancingexistingloansorequity
Managementbuyout
Financeworseningoperatingconditions
Expansion Workingcapital
fluctuations
Acquistion Other
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BANKScont.Totaldebt-servicecoverageratio(orfixedchargecoverage)wasthemostimportantfactorwhendecidingwhethertoinvestornot.
Table19.ImportanceofFinancialEvaluationMetrics
Unimportant Oflittleimportance
Moderatelyimportant Important Very
importantScore(1to5)
Currentratio 31% 22% 17% 19% 11% 2.6
SeniorDSCRorFCCratio 11% 3% 20% 29% 37% 3.8
TotalDSCRorFCCratio 8% 3% 16% 30% 43% 4.0
Seniordebt-to-cashflow 15% 12% 30% 18% 24% 3.2
Totaldebt-to-cashflow 6% 17% 19% 22% 36% 3.7
Debt-to-networth 17% 8% 33% 28% 14% 3.1
Table20.FinancialEvaluationMetricsAverageData
Averageborrowerdata Limitnottobeexceeded
Currentratio 1.35 1.05
SeniorDSCRorFCCratio 1.5 1.2
TotalDSCRorFCCratio 1.3 1.15
Seniordebttocashflow 2.4 3.1
Totaldebttocashflow 3.0 4.0
Debttonetworth 2.0 3.0
Respondentsreportedonthepercentageofloans(bysize)thatrequirepersonalguaranteeandcollateral.
Table21.PersonalGuaranteeandCollateralPercentageofOccurrencebySizeofLoan(%)
Loan size Less than $1M $1M - $4.99M $5M - $9.99M $10M - $24.99M $50M - $99.99M $100M+Personalguarantee 95% 95% 95% 55% 0% 0%
Collateral 83% 93% 95% 90% 95% 70%
Approximately25%ofcashflowapplicationsweredeclined.
Table22.ApplicationsData
Reviewed Offered Booked Declined
Cashflowbased 664 40% 35% 25%
Collateralbased 683 41% 36% 24%
Realestate 517 42% 23% 28%
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BANKScont.Approximately31%ofapplicationsweredeclinedduetopoorqualityofearningsand/orcashflowfollowedby20%thatweredeclinedduetoinsufficientcollateral.
Figure33.ReasonforDeclinedLoans
Respondentsbelievegovernmentregulationsandtaxesanddomesticeconomicuncertaintyarethemostimportantissuesfacingprivately-heldbusinessestoday.
Figure34.IssuesFacingPrivately-HeldBusinesses
31%
20%
18%
6%
5%
5%
4%
4%
3%
3%
2%
Qualityofearningsand/orcashflow
Insufficientcollateral
Debtload
Sizeofcompany
Customerconcentrations
Insufficientoperatinghistory
Weakeningindustry
Sizeoravailabilityofpersonalguarantees
Insufficientcredit
Insufficientmanagementteam
Economicconcerns
37%
37%
24%
20%
9%
9%
6%
4%
16%
18%
13%
10%
9%
22%
8%
4%
Governmentregulationsandtaxes
Economicuncertainty(domestic)
Accesstocapital
Economicuncertainty(international)
Competitionfromforeigntradepartners
Politicaluncertainty/elections
Inflation
Other
Currentissue Emergingissue
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BANKScont.Respondentsindicatedincreasesindemandforbusinessloans,duediligenceefforts,improvedgeneralbusinessconditions,loansoutstanding,decreasedloanfees,andinterestrates.
Table23.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo
Decreasedsignificantly
Decreasedslightly
Stayedaboutthesame
Increasedslightly
Increasedsignificantly
%increase
%decrease
Netincrease/decrease
Demandforbusinessloans(applications) 0% 9% 25% 48% 18% 66% 9% 57%
Generalunderwritingstandards 4% 18% 49% 13% 16% 29% 22% 7%
Creditqualityofborrowersapplyingforcredit 2% 11% 59% 25% 2% 27% 14% 14%
Duediligenceefforts 0% 2% 52% 30% 16% 45% 2% 43%
Averageloansize 0% 2% 49% 40% 9% 49% 2% 47%
Averageloanmaturity(months) 0% 7% 69% 19% 5% 24% 7% 17%
Percentofloanswithpersonalguarantees 0% 8% 82% 8% 3% 10% 8% 3%
Percentofloansrequiringcollateral 0% 0% 82% 5% 14% 18% 0% 18%
Sizeofinterestratespreads(pricing) 0% 42% 30% 26% 2% 28% 42% -14%
Loanfees 0% 28% 53% 16% 2% 19% 28% -9%
Seniorleveragemultiples 0% 14% 59% 18% 9% 27% 14% 14%
Totalleveragemultiples 0% 14% 48% 24% 14% 38% 14% 24%
Focusoncollateralasbackupmeansofpayment 0% 8% 70% 15% 8% 23% 8% 15%
SBAlending 13% 13% 47% 20% 7% 27% 27% 0%
Lendingcapacityofbank 0% 19% 43% 38% 0% 38% 19% 19%
Generalbusinessconditions 0% 18% 45% 30% 7% 36% 18% 18%
Appetiteforrisk 9% 20% 39% 30% 2% 32% 30% 2%
Loansoutstanding 11% 0% 32% 42% 16% 58% 11% 47%
Nonaccrualloans 11% 11% 56% 17% 6% 22% 22% 0%
Number/tightnessoffinancialcovenants 0% 6% 83% 11% 0% 11% 6% 6%
Standardadvancerates 0% 5% 90% 5% 0% 5% 5% 0%
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BANKScont.Respondentsexpectfurtherincreasesindemandforbusinessloans,averageloansize,lendingcapacityofbank,seniorandtotalleveragemultiples,improvinggeneralbusinessconditions,focusoncollateralasbackupmeansofpayment,andleveragemultiples,decreasingpercentofloanswithpersonalguarantees.
Table24.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months
Decreasesignificantly
Decreaseslightly
Stayaboutthesame
Increaseslightly
Increasesignificantly
%increase
%decrease
Netincrease/decrease
Demand for business loans (applications) 0% 5% 31% 50% 14% 64% 5% 60%
General underwriting standards 0% 7% 71% 15% 7% 22% 7% 15%
Credit quality of borrowers applying for credit 0% 12% 54% 32% 2% 34% 12% 22%
Due diligence efforts 0% 0% 63% 34% 2% 37% 0% 37%
Average loan size 0% 0% 48% 43% 10% 52% 0% 52%
Average loan maturity (months) 0% 3% 80% 15% 3% 18% 3% 15%
Percent of loans with personal guarantees 0% 8% 86% 6% 0% 6% 8% -3%
Percent of loans requiring collateral 0% 11% 61% 17% 11% 28% 11% 17%
Size of interest rate spreads (pricing) 0% 22% 39% 39% 0% 39% 22% 17%
Loan fees 0% 20% 58% 20% 3% 23% 20% 3%
Senior leverage multiples 0% 5% 68% 26% 0% 26% 5% 21%
Total leverage multiples 0% 5% 68% 26% 0% 26% 5% 21%
Focus on collateral as backup means of payment 0% 5% 70% 16% 8% 24% 5% 19%
SBA lending 8% 15% 46% 8% 23% 31% 23% 8%
Lending capacity of bank 0% 5% 47% 37% 11% 47% 5% 42%
General business conditions 0% 18% 40% 40% 3% 43% 18% 25%
Appetite for risk 0% 15% 63% 23% 0% 23% 15% 8%
Loans outstanding 0% 0% 32% 58% 11% 68% 0% 68%
Nonaccrual loans 0% 11% 83% 6% 0% 6% 11% -6%
Number/ tightness of financial covenants 0% 11% 78% 11% 0% 11% 11% 0%
Standard advance rates 0% 5% 85% 10% 0% 10% 5% 5%
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BANKScont.
Asset-BasedLendingSpecificCharacteristics
Accordingtorespondentsapproximately25%ofasset-basedloanswereissuedtofinancialservices&realestatecompanies.
Figure35.IndustriesServedbyAsset-BasedLenders
Approximately83%ofthecompaniesthatbookedasset-basedloansinthelasttwelvemonthshadEBITDAsizeoflessthan$5million.
Figure33.TypicalEBITDASizesforCompaniesBooked
Respondentsreportedonall-inratesbytypeandsizeofcurrentbookedloansandtheresultsarereportedbelow.
Table25.All-inRatesonCurrentAsset-BasedLoans(medians)
MarketableSecurities
AccountsReceivable Inventory Equipment Realestate Working
capital
TypicalFixed-RateLoanTerm
(months)
Lessthan$1million n/a 14.0% 14.0% 12.0% 12.0% 14.0% 16
$1-5million 9.3% 10.5% 12.0% 12.0% 9.4% 10.0% 28
$5-$10million n/a 10.0% 10.0% 10.0% 8.0% 10.0% 28
$10-25million n/a 8.0% 8.0% 9.0% 8.0% 8.0% 16
$25-50million n/a 5.5% 7.0% 8.0% 7.8% 5.5% 16
$50-100million n/a 4.0% n/a n/a n/a 5.5% 52
25%
19%
13%8%
8%
5%
5% 4%
3%10% Financialservices&realestate
Manufacturing
Wholesale&distribution
Businessservices
Informationtechnology
Construction&engineering
Consumergoods&services
Basicmaterials&energy
Healthcare&biotech
Other
19%
64%
10% 4% 4%0%
20%
40%
60%
80%
NegativeEBITDA $0-5millioninEBITDA
$6-10millioninEBITDA
$11-50millioninEBITDA
$51+millioninEBITDA
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BANKScont.Respondentsreportedonstandardadvanceratesandtheresultsarereflectedbelow.
Table26.StandardAdvanceRate(orLTVratio)forAssets(%)
TypicalLoan UpperLimit
1stquartile Median 3rdquartile 1stquartile Median 3rdquartile
Marketablesecurities 70% 100% 100% 70% 100% 100%
Accountsreceivable 85% 85% 85% 85% 85% 90%
Inventory-lowquality 19% 25% 30% 20% 30% 39%
Inventory-intermediatequality 34% 38% 43% 35% 43% 54%
Inventory-highquality 50% 55% 60% 50% 60% 73%
Equipment 50% 53% 80% 54% 73% 85%
Realestate 50% 65% 75% 65% 70% 80%
Land 5% 23% 46% 5% 5% 45%
RespondentsreportedonvaluationstandardsusedtoestimateLTVratios.
Figure37.ValuationStandardsUsedtoEstimateLTVRatio
Accordingtorespondents,receivables,inventoryandtermfinancingcombinedloanshadthehighestrateofdecline(48%)overthelasttwelvemonths.
Figure34.Asset-BasedLoansDeclineRate
Purchaseprice
DepreciatedValue(Book) Facevalue FairMarket
ValueForced
liquidationOrderly
liquidation Other
Equipment 12% 0% 0% 6% 35% 41% 0%
Realestate 11% 0% 0% 67% 0% 6% 11%
AccountsReceivable 6% 12% 47% 6% 12% 6% 0%
Inventory 18% 6% 6% 6% 24% 29% 0%
0%10%20%30%40%50%60%70%
17.5% 17.5% 17.5%8%
15%
48%
0.0%10.0%20.0%30.0%40.0%50.0%60.0%
Receivablesbased
Inventorybased Equipmentbased
Otheroperatingassetbased(norealestate)
Realestatebased(only)
A/R+Inventory+TermFinancingCombined
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MEZZANINESURVEYINFORMATIONThemajorityofthe24participantsthatrespondedtothemezzaninesurveytypicallybookdealsinthe$5millionto$10millionrange.Over24%planoninvestinginmanufacturingcompaniesoverthenext12months,followedby20%inbasicmaterials&energy.Otherkeyfindingsinclude:
• Relativeto12monthsago,respondentsindicatedincreasesindemandformezzaninecapital,averageinvestmentsize,leveragemultiples,andimprovedgeneralbusinessconditions.Theyalsoreporteddecreasesinwarrantcoverage,loanfees,andexpectedreturnsonnewinvestments.
• Respondentsexpectfurtherincreaseindemandformezzaninecapital,leveragemultiples,appetiteforrisk,andimprovinggeneralbusinessconditions;anddecreaseingeneralunderwritingstandards,warrantcoverage,andexpectedreturnsonnewinvestments.
• Approximately35%ofrespondentsbelieveeconomicuncertaintyisthemostimportantissuefacingprivately-
heldbusinessestoday.
OperationalandAssessmentCharacteristics
Approximately65%ofrespondentsareSBICFirms.
Figure35.SBIC(smallbusinessinvestment)Firms
Thelargestconcentrationoftypicalloansizesisbetween$5millionand$10million.
Figure40.TypicalInvestmentSize
65%
35% Yes
No
13%
35%
83%
43%
13%4% 4%
0%
20%
40%
60%
80%
100%
Lessthan$1M $1M- $4.99M $5M- $9.99M $10M-$24.99M
$25M-$49.99M
$50M-$99.99M
$100M-$499.99M
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MEZZANINEcont.Respondentsreportedonbusinesspracticesandtheresultsarereflectedbelow.
Table27.MezzanineFundData
1stquartile Median 3rdquartile
Vintageyear(yearinwhichfirstinvestmentmade) 2012 2013 2014
Sizeoffund($millions) 125 175 275
Targetednumberoftotalinvestments 18 22 28
Targetfundreturn(grosspretaxcashoncashannualIRR%) 15% 17% 20%
Expectedfundreturn(grosspretaxcashoncashannualIRR%) 15% 17% 18%
Thetypesofbusinessesthatmezzaninelendersplantoinvestinovernext12monthsareverydiversewithover24%targetingmanufacturing,followedby20%whoplantoinvestinbasicmaterials&energy.
Figure36.TypeofBusinessforInvestmentsPlannedoverNext12Months
Approximately57%ofrespondentsmade5investmentsormoreoverthelast12months.
Figure37.TotalNumberofInvestmentsMadeintheLast12Months
24%
20%
15%
11%
11%
6%
3%3%2% 2% 3%
Manufacturing
Basicmaterials&energy
Informationtechnology
Financialservices&realestate
Wholesale&distribution
Businessservices
Construction&engineering
Media&entertainment
Consumergoods&services
Healthcare&biotech
Other
9%
4% 4%
13% 13%
9%
4%
13% 13%
9% 9%
0%
2%
4%
6%
8%
10%
12%
14%
0 1 2 3 4 5 6 7 9 10 Morethan10
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MEZZANINEcont.Figure38.NumberofFollow-onInvestmentsMadeintheLast12Months
Approximately70%ofrespondentsplantomake5investmentsormoreoverthenext12months.
Figure39.NumberofTotalInvestmentsPlannedoverNext12Months
Figure40.NumberofFollow-onInvestmentsPlannedoverNext12Months
4%
22%
13%
26%
9%
13%
9%
4%
0%
5%
10%
15%
20%
25%
30%
0 1 2 3 4 5 6 Morethan10
4% 4%
9%
13%
17% 17%
4% 4%
17%
9%
0%2%4%6%8%10%12%14%16%18%20%
0 2 3 4 5 6 7 8 10 Morethan10
9%
22%
13%
30%
9%
13%
4%
0%
5%
10%
15%
20%
25%
30%
35%
0 1 2 3 4 5 7
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MEZZANINEcont.Approximately34%ofsponsoreddealswereintherangebetween$5millionand$10millionofEBITDA.
Figure41.SizeofSponsoredDealsintheLast12Months
ResultsofresponsestosponsoreddealsbasedonsizeofborrowerEBITDAarereportedbelow.
Table28.SponsoredDealsbyEBITDASize(medians)
EBITDA size $0K - $999K
$1M - $4.99M
$5M - $9.99M
$10M - $24.99M
$25M - $49.99M $50M+
%ofdealswithwarrants 100% 50% 50% 67% 0% 0%
Averageloanterms(years) 2.5 5.0 5.0 5.0 5 6
Seniorleverageratio(multipleofEBITDA) 2.5 2.5 2.5 3.75 4.25 4.5
Totalleverageratio(multipleofEBITDA) 3.5 3.5 3.5 4.5 5.75 6
Averageloansize($millions) 4 4 7.5 15 35 15
Cashinterestrate 11% 12% 11% 11% 10.5% 9%
PIK 0% 2% 1% 0% 0% 0%
Warrantsexpectedreturn(IRRcontribution) 9% 3% 1% n/a n/a n/a
Totalexpectedreturns(grosscashonpre-taxIRR) 24% 17.0% 16% 15% 14% 10%
Table29.InvestmentTypebySizeofInvesteeCompany,SponsoredDeals
Subdebtonly BlendedSr./Jr. Other
$0K-$999KEBITDA 0% 100% 0%
$1M-$4.99MEBITDA 14% 71% 0%
$5M-$9.99MEBITDA 0% 73% 18%
$10M-$24.99MEBITDA 0% 50% 50%
$25M-$49.99MEBITDA 0% 75% 25%
8%
21%
34%
18%
11%8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
$0K- $999KEBITDA
$1M- $4.99MEBITDA
$5M- $9.99MEBITDA
$10M- $24.99MEBITDA
$25M- $49.99MEBITDA
$50M+EBITDA
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MEZZANINEcont.Approximately41%ofnon-sponsoreddealswereintherangebetween$1millionand$5millionofEBITDA.
Figure42.SizeofNon-SponsoredDealsintheLast12Months
Resultsofresponsestonon-sponsoreddealsbasedonsizeofinvesteeEBITDAarereportedbelow.
Table30.Non-SponsoredDealsbyEBITDASize(medians)
EBITDA size $0K-$999K $1M-$4.99M $5M-$9.99M $10M-
$24.99M
%ofdealswithwarrants 100% 50% 100% 0%
Averageloanterms(years) 3 5 5 5
Seniorleverageratio(multipleofEBITDA) 2.5 2.5 2.5 3
Totalleverageratio(multipleofEBITDA) 3.5 3.5 4 4
Averageloansize($millions) 2 7.5 7.5 25
Cashinterestrate 11% 11% 11% 8.5%
PIK 4% 2% 1.5% n/a
Warrantsexpectedreturn(IRRcontribution) 2.5% 9% 9.0% n/a
Totalexpectedreturns(grosscashonpre-taxIRR) 19% 17% 17% 11.0%
Table31.InvestmentTypebySizeofBorrowerCompany,SponsoredDeals
Seniordebtonly Subdebtonly BlendedSr./Jr. Other
$0K-$999KEBITDA 0% 100% 0% 0%
$1M-$4.99MEBITDA 8% 54% 8% 31%
$5M-$9.99MEBITDA 11% 67% 11% 11%
$10M-$24.99MEBITDA 50% 0% 50% 0%
$25M-$49.99MEBITDA 0% 100% 0% 0%
9%
41%
34%
6% 6%3%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
$0K- $999KEBITDA
$1M- $4.99MEBITDA
$5M- $9.99MEBITDA
$10M- $24.99MEBITDA
$25M- $49.99MEBITDA
$50M+EBITDA
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MEZZANINEcont.Acquisitionloanwasreportedby38%ofrespondentsasamotivationtosecuremezzaninefunding,followedbymanagementorownerbuyoutat19%.
Figure43.BorrowerMotivationtoSecureMezzanineFunding(past12months)
Figure44.ItemsRequiredtoCloseOneDeal
Totaldebtservicecoverageratiowasthemostimportantfactorwhendecidingwhethertoinvestornot,followedbytotaldebt-to-cashflowratio.
Table32.ImportanceofFinancialEvaluationMetrics
Unimportant Oflittleimportance
Moderatelyimportant Important Very
importantScore(1to5)
SeniorDSCRorFCCratio 0% 10% 45% 35% 10% 3.5
TotalDSCRorFCCratio 0% 0% 0% 50% 50% 4.5
Seniordebt-to-cashflowratio 0% 5% 40% 35% 20% 3.7
Totaldebt-to-cashflowratio 0% 0% 10% 25% 65% 4.6
38%
19%
16%
15%
4%
2%
6%
Acquisitionloan
Managementorownerbuyout
Refinancing
Financinggrowthorconstruction
Workingcapitalfluctuations
Financeworseningoperationsconditionsordistress
Other
20
6 4 2
33
105 3
68
1910
5
01020304050607080
Businessplansormemorandumsreviewed
Meetingswithprincipalsconducted
Proposallettersortermsheetsissued
Lettersofintentsigned
1stQuartile Median 3rdQuartile
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MEZZANINEcont.
Table33.FinancialEvaluationMetricsAverageData
Averageborrowerdata Limitnottobeexceeded
SeniorDSCRorFCCratio 1.5 1.4
TotalDSCRorFCCratio 1.4 1.2
Seniordebttocashflowratio 2.5 2.5
Totaldebttocashflowratio 3.6 4.6
Respondentsbelievedomesticeconomicuncertaintyisthemostimportantissuefacingprivately-heldbusinessestoday.
Figure50.IssuesFacingPrivately-HeldBusinesses
50%
33%
21%
13%
8%
4%
0%
0%
33%
13%
13%
33%
4%
17%
21%
8%
0% 10% 20% 30% 40% 50% 60%
Economicuncertainty(Domestic)
Governmentregulationsandtaxes
Accesstocapital
Politicaluncertainty/elections
Competitionfromforeigntradepartners
Economicuncertainty(International)
Inflation
Other
Currentissue Emergingissue
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MEZZANINEcont.Relativeto12monthsago,respondentsindicatedincreasesindemandformezzaninecapital,averageinvestmentsize,leveragemultiples,andimprovedgeneralbusinessconditions.Theyalsoreporteddecreasesinwarrantcoverage,loanfees,andexpectedreturnsonnewinvestments.
Table34.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo
Decreasedsignificantly
Decreasedslightly
Stayedaboutthesame
Increasedslightly
Increasedsignificantly %increase
%decrease
Netincrease/decrease
Demandformezzaninecapital 0% 9% 52% 35% 4% 39% 9% 30%
Creditqualityofborrowersseekinginvestment 4% 13% 52% 22% 9% 30% 17% 13%
Averageinvestmentsize 4% 4% 39% 43% 9% 52% 9% 43%
Averageinvestmentmaturity(months) 0% 5% 77% 18% 0% 18% 5% 14%
Generalunderwritingstandards 0% 9% 77% 9% 5% 14% 9% 5%
Warrantcoverage 10% 33% 43% 10% 5% 14% 43% -29%
PIKfeatures 0% 5% 75% 20% 0% 20% 5% 15%
Loanfees 0% 13% 83% 4% 0% 4% 13% -9%
Leveragemultiples 0% 0% 43% 48% 9% 57% 0% 57%
Expectedreturnsonnewinvestments 0% 35% 65% 0% 0% 0% 35% -35%
Generalbusinessconditions 0% 4% 70% 26% 0% 26% 4% 22%
Appetiteforrisk 0% 9% 57% 35% 0% 35% 9% 26%
Respondentsexpectfurtherincreaseindemandformezzaninecapital,leveragemultiples,appetiteforrisk,andimprovinggeneralbusinessconditions;anddecreaseingeneralunderwritingstandards,warrantcoverage,andexpectedreturnsonnewinvestments.
Table35.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months
Decrease
significantlyDecreaseslightly
Stayaboutthesame
Increaseslightly
Increasesignificantly %increase
%decrease
Netincrease/decrease
Demandformezzaninecapital 0% 5% 65% 25% 5% 30% 5% 25%
Creditqualityofborrowersseekinginvestment 5% 5% 70% 20% 0% 20% 10% 10%
Averageinvestmentsize 0% 0% 65% 30% 5% 35% 0% 35%
Averageinvestmentmaturity(months) 0% 0% 89% 11% 0% 11% 0% 11%
Generalunderwritingstandards 0% 10% 85% 5% 0% 5% 10% -5%
Warrantcoverage 6% 28% 61% 0% 6% 6% 33% -28%
PIKfeatures 0% 11% 79% 11% 0% 11% 11% 0%
Loanfees 0% 10% 80% 10% 0% 10% 10% 0%
Leveragemultiples 0% 5% 55% 40% 0% 40% 5% 35%
Expectedreturnsonnewinvestments 0% 35% 55% 10% 0% 10% 35% -25%
Generalbusinessconditions 0% 10% 55% 35% 0% 35% 10% 25%
Appetiteforrisk 0% 10% 45% 45% 0% 45% 10% 35%
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LIMITEDPARTNERSURVEYINFORMATIONApproximately38%ofthe40respondentsinthelimitedpartnersurveyreporteddirectrealestatefundsasbeingthebestrisk/returntrade-offinvestmentclassandanother32%reporteddirectinvestmentsasbeingthebestrisk/returntrade-offinvestmentclass.Whenaskedaboutwhichindustrycurrentlyoffersthebestrisk/returntrade-off,20%ofrespondentsreportedhealthcare&biotech,followedby13%reportinginformationtechnology,andanother10%reportingbasicmaterialsandenergy.Otherkeyfindingsinclude:
• Onaveragerespondentstargettoallocate27%oftheirassetstodirectinvestments,26%torealestatefundsand9%tobuyoutprivateequityand9%tohedgefunds.Respondentsexpectthehighestreturnsof10%fromdirectinvestmentsandrealestatefunds,9%fromventurecapital,and8%fromgrowthprivateequity.
• Respondentsindicatedincreasedallocationtoprivateequity,realestatefundsanddirectinvestments,and
decreasedallocationtoallotheralternativeassetsinthelasttwelvemonths.Theyalsoreportedimprovedbusinessconditionsandincreasedexpectedreturnsonnewinvestments.
• Respondentsalsoexpectfurtherincreasesinallocationtoallotheralternativeassetsexceptmezzanineand
hedgefunds,improvingbusinessconditionsandincreasingexpectedreturns.OperationalandAssessmentCharacteristics
Approximately40%ofrespondentsindicatedbeingfamilyofficefollowedbyprivateinvestor(20%).
Figure45.EntityType
40%
20%
14%
9%
6%3%3% 6%
Familyoffice
Privateinvestor
Investmentcompany
Publicpensionfund
Bankorinvestmentbank
Governmentalagency
Endowment
Other
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LPcont.Approximately35%ofrespondentsreportedtheirassetcategorybeinglessthan$50million,while24%werebetween$50millionand$500million.
Figure46.AssetsunderManagementorInvestableFunds
Respondentsreportedontheir%oftotalassetallocationsfor“AlternativeAssets”.
Figure47.CurrentAssetAllocationfor"AlternativeAssets"(%oftotalportfolio)
Figure48.TargetAssetAllocationfor"AlternativeAssets"(%oftotalportfolio)
35%24%
12% 12% 18%
0%20%40%60%80%100%
6%18%
9%15%
9%3%
9% 6% 3%
21%
0%
20%
40%
60%
80%
100%
0% 1% - 10% 11%- 20% 21% - 30% 31% - 40% 41% - 50% 51% - 60% 61% - 70% 81% - 90% 91% - 100%
3%9% 12%
18% 18%
3% 6% 6% 3%
21%
0%
20%
40%
60%
80%
100%
0% 1% - 10% 11%- 20% 21% - 30% 31% - 40% 41% - 50% 51% - 60% 61% - 70% 71% - 80% 91% - 100%
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LPcont.Onaverage,respondentstargettoallocate27%oftheirassetstodirectinvestments,26%torealestatefunds,9%toprivateequity-buyoutsand9%tohedgefunds.
Figure49.TargetAssetAllocationbyAssets
Onaverage,respondentsexpectthehighestreturnsfrominvestmentsindirectinvestments,realestatefunds,andventurecapital.
Figure50.AnnualReturnExpectationsforNewInvestments
27%
26%
9%
9%
7%
7%
5%
4%
2%
0% 5% 10% 15% 20% 25% 30%
Directinvestments
Realestatefund
Privateequity- buyout
Hedgefund
Venturecapital
Privateequity- growth
Privateequity- distressed
Mezzanine
Secondaryfunds
10% 10% 9%8%
6% 6%4%
3% 2%1%
3%
0%2%4%6%8%10%12%
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LPcont.Approximately38%ofthe40respondentsinthelimitedpartnersurveyreportedrealestatefundsasbeingthebestrisk/returntrade-offinvestmentclassandanother32%reporteddirectinvestmentsasbeingthebestrisk/returntrade-offinvestmentclass.
Figure51.AssetswiththeBestRisk/ReturnTrade-offCurrently
Whenaskedaboutwhichindustrycurrentlyoffersthebestrisk/returntrade-off,20%ofrespondentsreportedhealthcare&biotech,followedby13%reportinginformationtechnology,andanother10%reportingbasicmaterialsandenergy.
Figure52.IndustrywiththeBestRisk/Return
Withregardtothegeographicregionswiththebestrisk/returntrade-offs,94%ofrespondentsreportedNorthAmerica.
Figure53.GeographicRegionsoftheWorldOfferingtheBestRisk/ReturnTradeoffCurrently
38%
32%
9%6%
6% 6% 3%Realestatefunds
Directinvestments
Privateequity- distressed
Venturecapital
Privateequity- growth
Hedgefund
Mezzanineinvestment
20%
13%
10%7%3%
3%3%
3%3%
33%
Healthcare&biotechInformationtechnologyBasicmaterials&energyFinancialservicesManufacturingConsumergoods&servicesWholesale&distributionBusinessservicesMedia&entertainmentOther
94%
3%3%NorthAmerica
Central&EasternEurope
Otheremergingmarkets
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LPcont.Regardingthegeographicregionswiththebestrisk/returntrade-offsintheUS,40%ofrespondentsreportedWestCoast,20%reportedSouthandanother20%reportedMidwest.
Figure60.GeographicRegionsintheUSOfferingtheBestRisk/ReturnTradeoffCurrently
Accordingtorespondents,generalpartnerandspecificstrategyarethemostimportantfactorswhenevaluatinginvestmentfollowedbyhistoricalfundperformanceonallfunds.
Table36.ImportanceofFactorsWhenEvaluating
Unimportant Oflittleimportance
Moderatelyimportant Important Very
importantScore(1to5)
Historicalfundperformanceonallfunds 3% 0% 30% 48% 18% 3.8Returnedcapitalfrommostrecentfund(DistributiontoPaid-inorDPI) 3% 9% 30% 36% 21% 3.6
Residualvalueofmostrecentfund(ResidualValuetoPaid-inorRVPI) 3% 13% 13% 59% 13% 3.7
Generalpartner 6% 3% 12% 24% 55% 4.2
Specificstrategy 0% 3% 16% 41% 41% 4.2
Specificlocation 6% 15% 52% 9% 18% 3.2
Gutfeel/instinct 0% 18% 42% 27% 12% 3.3
Respondentsbelievegovernmentregulationsandtaxesarethemostimportantcurrentissuefacingprivately-heldbusinesses.
Figure54.IssuesFacingPrivately-HeldBusinesses
40%
20%
20%
12%4% 4% WestCoast
South
Midwest
Southeast
Mountain
Mid-Atlantic
52%42%
36%30%
27%21%
12%0%
30%30%
42%15%
24%27%
36%9%
0% 10% 20% 30% 40% 50% 60%
GovernmentregulationsandtaxesEconomicuncertainty(Domestic)Politicaluncertainty/elections
CompetitionfromforeigntradepartnersAccesstocapital
Economicuncertainty(International)Inflation
OtherCurrentissue EmergingIssue
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LPcont.Respondentsindicatedincreasedallocationtoprivateequity,directinvestmentsandrealestatefunds,anddecreasedallocationtoallotheralternativeassetsinthelasttwelvemonths.Theyalsoreportedimprovedgeneralbusinessconditionsandexpectedreturnsonnewinvestments.
Table37.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo
Characteristics Decreasedsignificantly
Decreasedslightly
Stayedaboutthesame
Increasedslightly
Increasedsignificantly
%increase
%decrease
Netincrease/decrease
Allocationtoventurecapital 6% 19% 65% 10% 0% 10% 26% -16%
Allocationtoprivateequity 0% 13% 61% 23% 3% 26% 13% 13%
Allocationtomezzanine 11% 11% 68% 11% 0% 11% 21% -11%
Allocationtohedgefunds 19% 4% 67% 11% 0% 11% 22% -11%
Allocationtosecondaryfunds 8% 8% 81% 4% 0% 4% 15% -12%
Allocationtorealestatefunds 0% 10% 53% 23% 13% 37% 10% 27%
Directinvestments 7% 4% 25% 46% 18% 64% 11% 54%
Generalbusinessconditions 3% 3% 43% 40% 10% 50% 7% 43%
Expectedreturnsonnewcapitaldeployed 3% 10% 52% 29% 6% 35% 13% 23%
Respondentsalsoexpectfurtherincreasesinallocationtoallotheralternativeassetsexceptmezzanineandhedgefunds,improvingbusinessconditionsandincreasingexpectedreturns.
Table38.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months
Characteristics Decreasesignificantly
Decreaseslightly
Stayaboutthesame
Increaseslightly
Increasesignificantly %increase%decrease
Netincrease/decrease
Allocationtoventurecapital 3% 10% 67% 17% 3% 20% 13% 7%
Allocationtoprivateequity 0% 6% 55% 33% 6% 39% 6% 33%
Allocationtomezzanine 0% 14% 76% 10% 0% 10% 14% -3%
Allocationtohedgefunds 11% 11% 64% 11% 4% 14% 21% -7%
Allocationtosecondaryfunds 4% 8% 77% 8% 4% 12% 12% 0%
Allocationtorealestatefunds 0% 7% 43% 43% 7% 50% 7% 43%
Directinvestments 3% 7% 37% 30% 23% 53% 10% 43%
Generalbusinessconditions 3% 6% 47% 31% 13% 44% 9% 34%
Expectedreturnsonnewcapitaldeployed 0% 13% 48% 29% 10% 39% 13% 26%
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VENTURECAPITALSURVEYINFORMATION Ofthe25participantswhorespondedtotheventurecapitalsurvey,approximately44%ofrespondentsexpectanincreasingsizeoftheventurecapitalindustry.Themajority(89%)ofrespondentsplantomakethreeinvestmentsormoreoverthenext12months.Otherkeyfindingsinclude:
• Thetypesofbusinessesrespondentsplantoinvestinthenext12monthsareverydiversewithover34%targetinginformationtechnologyandanother30%planningtoinvestinfinancialservices.
• Respondents’exitstrategiesincludesellingtoapubliccompany(42%)followedbysellingtoaprivatecompany(24%).
• Respondentsbelieveaccesstocapitalisthemostimportantissuefacingprivately-heldbusinessestoday.OperationalandAssessmentCharacteristics
Approximately56%ofrespondentsmadefiveinvestmentsormoreoverthelasttwelvemonths.
Figure55.TotalNumberofInvestmentsMadeintheLast12Months
Figure56.NumberofFollow-onInvestmentsMadeintheLast12Months
11%
17% 17%
22%
6% 6% 6%
17%
0%
5%
10%
15%
20%
25%
0 2 4 5 7 8 10 Morethan10
29%
6%
24% 24%
6% 6% 6%
0%
5%
10%
15%
20%
25%
30%
35%
2 3 4 5 6 8 9
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VENTURECAPITALcont.Themajority(61%)ofrespondentsplantomakefourinvestmentsormoreoverthenext12months.
Figure57.NumberofTotalInvestmentsPlannedoverNext12Months
Figure58.NumberofFollow-onInvestmentsPlannedoverNext12Months
Respondentsreportedonbusinesspracticesandtheresultsarereflectedbelow.
Table39.VCFundData
1stquartile Median 3rdquartile
Vintageyear(yearinwhichfirstinvestmentmade) 2006 2012 2015
Sizeoffund($millions) $18 $75 $125
Targetednumberoftotalinvestments 8 15 22
Targetfundreturn(grosspretaxcashoncashannualIRR%) 15% 25% 25%
Expectedfundreturn(grosspretaxcashoncashannualIRR%) 15% 15% 25%
6% 6%
28%
22%
6% 6% 6%
11% 11%
0%
5%
10%
15%
20%
25%
30%
0 2 3 4 5 6 7 8 Morethan10
12% 12% 12%
24%
18%
12% 12%
0%
5%
10%
15%
20%
25%
1 2 3 4 5 6 10
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VENTURECAPITALcont.Thetypesofbusinessesrespondentsplantoinvestinovernext12monthsareverydiversewithover34%targetingInformationtechnology,andanother30%planningtoinvestinfinancialservices.
Figure59.TypeofBusinessforInvestmentsPlannedoverNext12Months
Respondentsreportedonavarietyofstatisticspertainingtotheirinvestments.
Table40.GeneralInformationonInvestmentsbyCompanyStages
Seed Startup EarlyStage Expansion LaterStage
NumberofInvestmentsMadeinLasttwelvemonths
35 48 63 42 29
AverageSizeofInvestment($million)
1stQuartile 0.5 0.75 1.5 2 5.5
Median 0.5 1.5 2.5 3.5 10
3rdQuartile 0.5 1.5 4 8.5 10
Average%ofTotalEquityPurchased(fullydilutedbasis)
1stQuartile 15% 13% 15% 7.5% 5%
Median 15% 15% 15% 15% 5%
3rdQuartile 35% 25% 25% 15% 20%
TotalexpectedReturns(grosscashoncashpretaxIRR)onnewinvestments 1stQuartile 28% 20% 18% 20% 23%
Median 35% 25% 23% 23% 23%
3rdQuartile 39% 29% 32% 23% 28%
ExpectedTimetoExit(years)
1stQuartile 5 4 3.5 2.5 3
Median 5 5 4 3 4
3rdQuartile 7 5 5 4.5 5
Averagecompany'pre-money'value($million)
1stQuartile 2.5 3.5 4.5 20 65
Median 2.5 7.5 10 25 100
3rdQuartile 3.5 7.5 15 55 100
AverageCompanyValueatTimeofInvestment(post-money$millions) 1stQuartile 4.0 10 7.5 37.5 75
Median 7.5 15 25 50.0 95
3rdQuartile 15.0 15 25 62.5 100
34%30%
10% 9% 8%3% 2% 1% 3%
0%
10%
20%
30%
40%
Informationtechnology
Financialservices Construction&engineering
Media&entertainment
Manufacturing Businessservices Healthcare&biotech
Basicmaterials&energy
Other
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VENTURECAPITALcont.Respondentsreportedonwheretheyplantoinvestoverthenext12months.TheresultsreflectinvestmentthroughouttheU.S.
Figure60.GeographicLocationofPlannedInvestmentoverNext12Months
Whenvaluingthecompany,approximately20%ofrespondentsuseguidelinepubliccompanymethodand20%usecapitalizationofearningsmethodwhenvaluingprivately-heldbusinesses.
Figure61.UsageofValuationMethods
Theweightsofthevariousmultiplemethodsusedbyrespondentswhenvaluingprivately-heldbusinessesincluded59%forrevenuemultipleand13%forrecast(adjusted)EBITDAmultiplemethods.
Figure62.UsageofMultipleMethods
42%
22%
11%7% 5% 3% 3% 2% 5%
0%
10%
20%
30%
40%
50%
WestCoast NewEngland South Midwest OutsideofUS
20% 20% 19%16%
12%7% 6%
0%
5%
10%
15%
20%
25%
Guidelinepublic
companymethod
Capitalizationofearningsmethod
Guidelinecompany
transactionsmethod
Gutfeel Discountedfutureearnings
method
Adjustednetassetmethod
Other
59%
13% 8% 8% 7% 4% 1%0%10%20%30%40%50%60%70%
Revenuemultiple
Recast(Adjusted)EBITDAmultiple
EBITDA(unadjusted)multiple
Cashflowmultiple
EBITmultiple Netincomemultiple
Other
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VENTURECAPITALcont.Respondentsreportedonitemsrequiredtocloseonedeal.
Figure70.ItemsRequiredtoCloseOneDeal
Respondents’exitstrategiesincludesellingtoapubliccompany(42%)followedbysellingtoaprivatecompany(24%).
Figure63.ExitPlansforPortfolioCompanies
Respondentsbelieveaccesstocapitalisthemostimportantissuefacingprivately-heldbusinessestoday.
Figure64.CurrentIssuesFacingPrivately-HeldBusinesses
238 2 1
60
133 2
98
256 5
0
20
40
60
80
100
120
Businessplansormemorandumsreviewed
Meetingswithprincipalsconducted
Proposallettersortermsheetsissued
Lettersofintentsigned
1stQuartile Median 3rdQuartile
42%
24% 19%11%
3% 1% 1%0%10%20%30%40%50%
Selltoapubliccompany
Selltoaprivatecompany
IPO Selltoprivateequitygroup
Liquidateorbankrupt
Selltoahedgefund
Managementbuyout
61%
22%
17%
17%
11%
6%
6%
11%
28%
22%
22%
6%
0%
22%
22%
17%
0% 10% 20% 30% 40% 50% 60% 70%
Accesstocapital
Economicuncertainty(Domestic)
Governmentregulationsandtaxes
Economicuncertainty(International)
Competitionfromforeigntradepartners
Politicaluncertainty/elections
Inflation
Other
Todayissue Emergingissue
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VENTURECAPITALcont.Respondentsindicatedincreasesindemandforventurecapital,follow-oninvestments,valueofportfoliocompanies,presenceofsuperangelsinspaceformerlyoccupiedbyVCs,andimprovedgeneralbusinessconditions.
Table41.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo
Decreasedsignificantly
Decreasedslightly
Stayedaboutthesame
Increasedslightly
Increasedsignificantly
%increase
%decrease
Netincrease/decrease
Demandforventurecapital 0% 0% 39% 33% 28% 61% 0% 61%
Qualityofcompaniesseekinginvestment 0% 11% 56% 28% 6% 33% 11% 22%
Follow-oninvestments 6% 11% 28% 56% 0% 56% 17% 39%
Averageinvestmentsize 6% 11% 44% 33% 6% 39% 17% 22%
Exitopportunities 6% 25% 38% 25% 6% 31% 31% 0%
Timetoexitdeals 0% 18% 29% 35% 18% 53% 18% 35%
Expectedreturnsonnewinvestments 0% 17% 56% 28% 0% 28% 17% 11%
Valueofportfoliocompanies 0% 0% 17% 61% 22% 83% 0% 83%
Generalbusinessconditions 0% 17% 50% 28% 6% 33% 17% 17%
PresenceofsuperangelsinspaceformerlyoccupiedbyVCs 0% 24% 24% 47% 6% 53% 24% 29%
Sizeofventurecapitalindustry 0% 33% 22% 39% 6% 44% 33% 11%
Appetiteforrisk 11% 22% 44% 17% 6% 22% 33% -11%
Respondentsexpectfurtherimprovinggeneralbusinessconditions.
Table42.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months
Decreasesignificantly
Decreaseslightly
Stayaboutthesame
Increaseslightly
Increasesignificantly
%increase
%decrease
Netincrease/decrease
Demandforventurecapital 0% 6% 22% 39% 33% 72% 6% 67%
Qualityofcompaniesseekinginvestment 0% 11% 39% 39% 11% 50% 11% 39%
Follow-oninvestments 0% 11% 17% 61% 11% 72% 11% 61%
Averageinvestmentsize 0% 6% 44% 33% 17% 50% 6% 44%
Exitopportunities 0% 11% 39% 22% 28% 50% 11% 39%
Timetoexitdeals 0% 22% 50% 22% 6% 28% 22% 6%
Expectedreturnsonnewinvestments 0% 11% 50% 22% 17% 39% 11% 28%
Valueofportfoliocompanies 0% 11% 39% 28% 22% 50% 11% 39%
Generalbusinessconditions 0% 17% 56% 6% 22% 28% 17% 11%
PresenceofsuperangelsinspaceformerlyoccupiedbyVCs 0% 18% 29% 41% 12% 53% 18% 35%
Sizeofventurecapitalindustry 0% 22% 33% 33% 11% 44% 22% 22%
Appetiteforrisk 6% 17% 39% 17% 22% 39% 22% 17%
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ANGELINVESTORSURVEYINFORMATIONOfthe46participantswhorespondedtotheangelinvestorsurvey,themajority(67%)ofrespondentsplantomakebetweentwoandfourinvestmentsinthenexttwelvemonths.Otherkeyfindingsinclude:
• Approximately32%ofrespondentsbasevaluationsongutfeelwhenvaluingprivately-heldbusinesses.
• Whenusingmultiplestodeterminethevalueofabusiness,themostpopularmethodsusedbyrespondentswererevenuemultiple(30%),andEBITDAmultiple(22%).
• Thetypesofbusinessesrespondentsplantoinvestinovernext12monthsareverydiversewith22%targeting
informationtechnologyandanother20%planningtoinvestinhealthcareorbiotech.
• Respondentsindicatedincreaseindemandforangelcapital,sizeofangelindustry,qualityofcompaniesseekinginvestmentandimprovedgeneralbusinessconditions.Theyalsoreportedworsenedexitopportunitiesanddecreasedexpectedreturnsonnewinvestments.
• Respondents’exitstrategiesincludesellingtoapubliccompany(33%)andsellingtoaprivatecompany(28%).
OperationalandAssessmentCharacteristics
Approximately64%ofrespondentsmadebetweentwoandfourinvestmentsoverthelasttwelvemonths.
Figure65.TotalNumberofInvestmentsMadeintheLast12Months
Figure66.NumberofFollow-onInvestmentsMadeintheLast12Months
3%
11%
36%
14% 14%
6%3%
11%
3%
0%5%
10%15%20%25%30%35%40%
0 1 2 3 4 5 6 7 Morethan10
31% 31%
17%
6% 6%3% 3%
0%
5%
10%
15%
20%
25%
30%
35%
0 1 2 3 4 5 7
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ANGELcont.Themajority(67%)ofrespondentsplantomakebetweentwoandfourinvestmentsoverthenext12months.
Figure67.NumberofTotalInvestmentsPlannedoverNext12Months
Figure68.NumberofFollow-onInvestmentsPlannedoverNext12Months
Thetypesofbusinessesrespondentsplantoinvestinovernext12monthsareverydiversewithover22%targetinginformationtechnologyandanother20%planningtoinvestinhealthcare&biotech.
Figure69.TypeofBusinessforInvestmentsPlannedoverNext12Months
3% 3%
36%
19%
11%8%
11%
3% 3% 3%
0%5%
10%15%20%25%30%35%40%
0 1 2 3 4 5 6 7 9 Morethan10
17%
31%
23%
9%
3%6% 6%
3% 3%
0%5%
10%15%20%25%30%35%
0 1 2 3 4 5 6 8 Morethan10
22%
20%
14%10%
9%
9%
3%3% 2%1%
7%
InformationtechnologyHealthcare&biotechBasicmaterials&energyFinancialservices&realestateManufacturingBusinessservicesConsumergoods&servicesConstruction&engineeringWholesale&distributionMedia&entertainmentOther
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ANGELcont.Respondentsreportedonavarietyofstatspertainingtotheirinvestments.
Table43.GeneralInformationonInvestmentsbyCompanyStages
Seed Startup Early Stage Expansion
Number of investments made in last twelve months
1st Quartile 91 30 28 14
Average Size of Investment
1st Quartile $25,000 $25,000 $25,000 $75,000
Median $75,000 $100,000 $75,000 $150,000
3rd Quartile $250,000 $150,000 $150,000 $150,000
Average % of Total Equity Purchased (fully diluted basis)
1st Quartile 6% 5% 2% 2.5%
Median 13% 10% 3% 3%
3rd Quartile 26% 20% 6.75% 17.5%
Total EXPECTED Returns (gross cash on cash pretax IRR) on New Investments (%)
1st Quartile 25% 25% 15% 15%
Median 35% 35% 25% 15%
3rd Quartile 60% 55% 50% 28%
Expected Time to Exit (years)
1st Quartile 3 3 3 3
Median 5 4 3.5 3
3rd Quartile 5 5 4.5 3.5
Average company 'pre-money' value
1st Quartile $75,000 $550,000 $1,500,000 $3,250,000
Median $350,000 $950,000 $3,500,000 $4,500,000
3rd Quartile $1,500,000 $2,500,000 $4,750,000 $8,750,000
Average Company Value at Time of Investment (post-money value)
1st Quartile $300,000 $750,000 $1,375,000 $4,000,000
Median $750,000 $1,000,000 $3,750,000 $4,250,000
3rd Quartile $1,500,000 $4,000,000 $4,625,000 $12,500,000 Respondentsreportedonwheretheyplantoinvestoverthenext12months.TheresultsreflectinvestmentthroughouttheU.S.
Figure70.GeographicLocationofPlannedInvestmentoverNext12Months
45%
11%10%
8%
7%5% 5%
4%5%
WestCoast Southeast
Midwest GreatLakes
South Mountain
NewEngland Mid-Atlantic
OutsideofUS
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ANGELcont.Respondentsreportedontheirgeographicallimitsforinvestments.
Figure71.GeographicalLimitforInvestment
Approximately32%ofrespondentsbasevaluationsongutfeelwhenvaluingprivately-heldbusinessesfollowedbycapitalizationofearningsmethod(12%).
Figure80.UsageofValuationMethods
Theweightsofthevariousmultiplemethodsusedbyrespondentswhenvaluingprivately-heldbusinessesincluded30%forrevenuemultipleand22%forEBITDAmultiplemethods.
Figure72.UsageofMultipleMethods
11%14%
8%
16%
51%
2-hourdrive
4-hourdrive
State/province
Region
Norestriction
32%
19%17%
11%
4%2% 15%
Gutfeel
Capitalizationofearningsmethod
Discountedfutureearningsmethod
Guidelinecompanytransactionsmethod
Adjustednetassetmethod
Guidelinepubliccompanymethod
Other
30%
22%15%
11%
9% 9% 4%Revenuemultiple
EBITDAmultiple
Cashflowmultiple
RecastEBITDAmultiple
EBITmultiple
Netincomemultiple
Other
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ANGELcont.Respondentsreportedonitemsrequiredtocloseonedeal.
Figure73.ItemsRequiredtoCloseOneDeal
Respondents’exitstrategiesincludesellingtoapubliccompany(33%)andsellingtoaprivatecompany(28%).
Figure74.ExitPlansforPortfolioCompanies
Respondentsbelieveaccesstocapitalisthemostimportantcurrentissuefacingprivately-heldbusinesses.
Figure84.IssuesFacingPrivately-HeldBusinesses
104.5 2 1
157 3 1
30
134 2.25
010203040
Businessplansormemorandumsreviewed
Meetingswithprincipalsconducted
Proposallettersortermsheetsissued
Lettersofintentsigned
1stQuartile Median 3rdQuartile
33%
28%
11%
7%
6%6% 5% 4% Selltoapubliccompany
SelltoaprivatecompanySelltoprivateequitygroupOtherIPOSelltoaventurecapitalfundManagementbuyoutLiquidateorbankrupt
40%
31%
29%
17%
14%
11%
6%
6%
40%
11%
14%
26%
6%
11%
20%
9%
Accesstocapital
Governmentregulationsandtaxes
Competitionfromforeigntradepartners
Economicuncertainty(Domestic)
Inflation
Politicaluncertainty/elections
Economicuncertainty(International)
Other
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Currentissue Emergingissue
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ANGELcont.Respondentsindicatedincreaseindemandforangelcapital,sizeofangelindustry,qualityofcompaniesseekinginvestmentandimprovedgeneralbusinessconditions.Theyalsoreportedworsenedexitopportunitiesanddecreasedexpectedreturnsonnewinvestments.
Table44.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo
Decreasedsignificantly
Decreasedslightly
Stayedaboutthesame
Increasedslightly
Increasedsignificantly
%increase
%decrease
Netincrease/decrease
Demandforangelcapital 6% 6% 35% 29% 24% 53% 12% 41%
Sizeofangelfinanceindustry 3% 9% 36% 36% 15% 52% 12% 39%
Qualityofcompaniesseekinginvestment 3% 15% 44% 24% 15% 38% 18% 21%
Follow-oninvestments 0% 18% 39% 30% 12% 42% 18% 24%
Averageinvestmentsize 0% 19% 56% 19% 6% 25% 19% 6%
Exitopportunities 0% 27% 52% 21% 0% 21% 27% -6%
Timetoexitdeals 0% 12% 42% 27% 18% 45% 12% 33%
Expectedreturnsonnewinvestments 0% 26% 62% 9% 3% 12% 26% -15%
Valueofportfoliocompanies 3% 26% 24% 32% 15% 47% 29% 18%
Generalbusinessconditions 0% 12% 44% 24% 21% 44% 12% 32%
Appetiteforrisk 6% 21% 38% 26% 9% 35% 26% 9%
Respondentsexpectfurtherincreasesinallbusinesscharacteristics.
Table45.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months
Decreasesignificantly
Decreaseslightly
Stayaboutthesame
Increaseslightly
Increasesignificantly
%increase
%decrease
Netincrease/decrease
Demandforangelcapital 6% 6% 31% 29% 29% 57% 11% 46%
Sizeofangelfinanceindustry 3% 14% 31% 43% 9% 51% 17% 34%
Qualityofcompaniesseekinginvestment 3% 12% 41% 35% 9% 44% 15% 29%
Follow-oninvestments 0% 6% 31% 46% 17% 63% 6% 57%
Averageinvestmentsize 0% 0% 49% 51% 0% 51% 0% 51%
Exitopportunities 0% 17% 34% 37% 11% 49% 17% 31%
Timetoexitdeals 0% 20% 49% 29% 3% 31% 20% 11%
Expectedreturnsonnewinvestments 0% 14% 57% 29% 0% 29% 14% 14%
Valueofportfoliocompanies 3% 9% 29% 54% 6% 60% 11% 49%
Generalbusinessconditions 6% 6% 31% 46% 11% 57% 11% 46%
Appetiteforrisk 9% 11% 40% 31% 9% 40% 20% 20%
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BUSINESSAPPRAISERSURVEYINFORMATION
Accordingtothe131businessappraisersurveyrespondents,governmentregulationsandtaxesarethemostimportantissuefacingprivately-heldbusinesstoday.Respondentsindicatedincreasesinnumberofengagements,feesforservices,competition,andimprovedgeneralbusinessconditionsoverthelasttwelvemonths.Theyalsoexpectslightlyworseningbusinessconditionsinthenexttwelvemonths.Otherkeyfindingsinclude:
• Whenusingvaluationmethodstodeterminethevalueofabusiness,themostpopularmethodsusedbyrespondentswerediscountedfutureearningsmethod(33%),capitalizationofearningsmethod(25%)andguidelinecompanytransactionsmethod(17%).
• Recast(adjusted)EBITDAmultipleisthemostpopularwhenusingmultiplevaluationmethod• Respondentsuseanaveragerisk-freerateof3.16%andamarket(equity)riskpremiumof6.14%• Averagelong-termterminalgrowthisestimatedat3.28%
OperationalandAssessmentCharacteristics
Mostofthecompaniesvaluedbyrespondentshaveannualrevenuesfrom$1millionto$50million.
Figure75.AnnualRevenuesofCompaniesValued
Appraisers,onaverage,applya33%weighttodiscountedfutureearningsmethodwhenvaluingaprivately-heldbusiness.
Figure76.UsageofValuationMethods
31% 36%
63% 62%72%
44%32%
17%
0%10%20%30%40%50%60%70%80%
Lessthan$500Kinrevenues
$500K-$999Kinrevenues
$1M-$4.99Minrevenues
$5M-$9.99Minrevenues
$10M-$49.99Minrevenues
$50M-$99.99Minrevenues
$100M-$499.99Minrevenues
$500M+inrevenues
33%
25%17%
11%
10%1%
3%Discountedfutureearningsmethod
Capitalizationofearningsmethod
Guidelinecompanytransactionsmethod
Adjustednetassetmethod
Guidelinepubliccompanymethod
Gutfeel
Other
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APPRAISERScont.Respondentsusingmultiples-basedapproachesindicateapreferenceforusingrecast(adjusted)EBITDAmultiples(41%),followedbyrevenuemultiples(24%).
Figure77.UsageofMultipleMethods
Respondentsindicatedusinganaveragerisk-freerateof3.16%,averagemarket(equity)riskpremiumof6.14%andaveragelong-termgrowthrateof3.28%.
Figure78.AverageRisk-FreeRateandMarket(equity)RiskPremiumandLong-TermGrowthRate
FigurebelowindicatesconsiderabledifferencesinDLOMsacrosssizesofcompaniesandsubjectinterests.
Figure79.DiscountforLackofMarketability(DLOM)byRevenueSizes
41%
24%
12%
9%6% 5%
3%Recast(Adjusted)EBITDAmultiple
Revenuemultiple
Cashflowmultiple
EBITDA(unadjusted)multiple
EBITmultiple
Netincomemultiple
Other
3.16%
6.14%
3.28%
0% 1% 2% 3% 4% 5% 6% 7%
Risk-freerate
Market(equity)riskpremium
AverageLong-termterminalgrowthrate(%)
17.1%
15.7%
13.8%
11.9%
32.2%
29.4%
25.9%
23.2%
0% 5% 10% 15% 20% 25% 30% 35%
$100,000inrevenues
$1Minrevenues
$25Minrevenues
$250Minrevenues
Controlinterest Minorityinterest
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APPRAISERScont.Only28%ofrespondentsarecomfortapplyingpubliccostofcapitaltoprivately-heldcompanieswithannualrevenueslessthan$1million.
Figure80. OverallComfortLevelwithApplyingPublicCostofCapitaltoPrivately-heldCompaniesofVariousSizes
Figure81. ExplicitForecastPeriodforHigh-GrowthCompaniesbyRevenueSizes(years)
Respondentsindicatedincreasesinnumberofengagements,feesforservices,competition,andimprovedgeneralbusinessconditionsoverthelasttwelvemonths.
Table46.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo
Characteristics Decreasedsignificantly
Decreasedslightly
Stayedaboutthesame
Increasedslightly
Increasedsignificantly
%increase
%decrease
Netincrease/decrease
Numberofengagements 4% 12% 32% 38% 13% 52% 16% 35%
Timetocompleteatypicalappraisal 2% 16% 61% 19% 3% 22% 17% 5%
Feesforservices 1% 7% 56% 33% 3% 36% 8% 28%
Competition 0% 3% 57% 33% 7% 40% 3% 37%
Costofcapital 1% 10% 63% 24% 2% 25% 11% 14%
Market(equity)riskpremiums 0% 4% 76% 19% 1% 20% 4% 15%
Discountsforlackofmarketability(DLOM) 0% 8% 84% 7% 1% 8% 8% 0%
Companyspecificriskpremiums 1% 7% 76% 15% 1% 16% 8% 8%
Generalbusinessconditions 1% 9% 46% 42% 2% 45% 9% 35%
Appetiteforrisk 2% 8% 47% 41% 1% 42% 11% 32%
28% 33%45%
62%
85% 89% 89%
0%
20%
40%
60%
80%
100%
<$1M $1M- $5M $5M- $25M $25M-$100M
$100M-$500M
$500M- $1B >$1B
6.0
5.9
6.0
0 1 2 3 4 5 6 7 8
Privateoperatingcompanywith$1MinEBITDA
Privateoperatingcompanywith$25MinEBITDA
Privateoperatingcompanywith$250MinEBITDA
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APPRAISERScont.Respondentsexpectslightlyworseningbusinessconditionsinthenexttwelvemonths.
Table47.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months
Characteristics Decreasesignificantly
Decreaseslightly
Stayaboutthesame
Increaseslightly
Increasesignificantly
%increase
%decrease
Netincrease/decrease
Numberofengagements 2% 7% 34% 48% 9% 0% 8% -8%
Timetocompleteatypicalappraisal 1% 14% 69% 16% 0% 1% 15% -14%
Feesforservices 0% 5% 50% 40% 2% 3% 5% -2%
Competition 0% 1% 58% 35% 5% 2% 1% 1%
Costofcapital 0% 1% 40% 56% 1% 2% 1% 2%
Market(equity)riskpremiums 0% 2% 57% 34% 3% 4% 2% 2%
Discountsforlackofmarketability(DLOM) 1% 5% 80% 8% 0% 5% 6% -1%
Companyspecificriskpremiums 1% 5% 70% 18% 2% 5% 5% 0%
Generalbusinessconditions 0% 7% 42% 44% 5% 2% 7% -5%
Appetiteforrisk 2% 8% 46% 37% 4% 5% 9% -5%
Respondentsbelievegovernmentregulationsandtaxesisthemostimportantissuefacingprivately-heldbusinessestoday.
Figure82. IssuesFacingPrivately-HeldBusinesses
40%
36%
18%
15%
5%
3%
3%
7%
23%
27%
8%
23%
7%
18%
14%
7%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Governmentregulationsandtaxes
Economicuncertainty(Domestic)
Accesstocapital
Politicaluncertainty/elections
Competitionfromforeigntradepartners
Economicuncertainty(International)
Inflation
Other
Today'sissue Emergingissue
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BROKERSURVEYINFORMATIONApproximately36%ofthe373participantsforthebrokersurveysaidtheyexpecttoclosesixdealsormoreinthenext12months.Otherkeyfindingsinclude:
• Approximately17%ofbusinesslistings/engagementsterminatedwithoutclosinginthelast12months.
• Respondentsindicatedincreasesindealflow,ratioofbusinessessoldtototallistings,businessexitopportunities,difficultysellingbusinessandimprovedgeneralbusinessconditions.
• 41%ofrespondentsclosedmoredealsin2016thanin2015.
OperationalandAssessmentCharacteristics
Approximately20%oftherespondentsdidn’tcloseanydealinthelasttwelvemonths;63%closedbetweenonetofivedeals,while17%closedsixormoretransactions.
Figure83.PrivateBusinessSalesTransactionsClosedintheLastTwelveMonths
Approximately62%ofrespondentsareplanningtoclosebetweenoneandfivebusinesssalestransactionsinthenext12months.
Figure84.PrivateBusinessSalesTransactionsExpectedtoCloseintheNextTwelveMonths
20%
17%19%
11%9%
7%5%
2% 1% 1% 2%
6%
0%
5%
10%
15%
20%
25%
None 1 2 3 4 5 6 7 8 9 10 >10
20%
17%19%
11%9%
7%5%
2% 1% 1% 2%
6%
0%
5%
10%
15%
20%
25%
None 1 2 3 4 5 6 7 8 9 10 >10
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BROKERcont.Respondentsindicatedtypicalsizesoftransactionstheyarecurrentlyworkingon.
Figure85.TypicalSizeofBusinessTransactions
Respondentsindicateoutofallbusinesstransactionstheyworkedoninthelast12months33%wereclosed,44%arecontinuedmarketing,6%areinescrowand16%wereterminatedwithoutclosing.
Figure86.BusinessTransactionsintheLast12Months
Nearly41%ofrespondentsclosedmoretransactionsin2015thanin2014,14%ofrespondentsclosedequalamount.
Figure87.DidRespondentsCloseMoreTransactionsin2016thaninPreviousYears
45%37% 32% 29% 28%
0%10%20%30%40%50%
Dealsvaluedunder$499,999
Dealsvaluedfrom$500,000to$999,999
Dealsvaluedfrom$1millionto$1.99
million
Dealsvaluedfrom$2millionto$4.99
million
Dealsvaluedfrom$5millionto$50
million
44%
7%
31%
17% continuedmarketing
inescrow
closed
terminatedwithoutclosing
0%20%40%60%80%100%
Yes No Equalamount2015 41% 44% 15%
2014 38% 45% 17%
2013 42% 47% 11%
2012 37% 49% 14%
2011 42% 42% 16%
2010 45% 43% 12%
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BROKERcont.Approximatelyin43%ofbusinesstransactionssellershadplannedfortheirexit.
Figure88.ClosedBusinessTransactions
Respondentsindicatedifficultytoarrangeseniordebtfortransactionswithannualrevenuesunder$500thousands.
Table48.HowDifficulttoArrangeSeniorDebtforTransactionsoverthePast12Months
RevenuesizeExtremelydifficult Difficult Somewhat
difficult Neutral Somewhateasy Easy Extremely
easyScore(-3to3)
$100K 24% 16% 20% 15% 6% 12% 7% -0.9
$500K 7% 15% 18% 14% 25% 15% 7% -0.1
$1M 4% 6% 15% 23% 26% 18% 8% 0.2
$5M 2% 10% 10% 20% 31% 19% 8% 0.3
$10M 7% 5% 16% 31% 19% 15% 7% 0.0
$15M 6% 8% 11% 30% 25% 13% 8% 0.1
$25M+ 9% 9% 6% 41% 15% 9% 12% 0.0Approximately60%ofrespondentsindicatebestclientsarrivedbyreferrals.
Figure89.In2016,BestClientArrivedBy:
20%24%
43%
31%
0%
10%
20%
30%
40%
50%
wereinternalbuyers includedrealestate sellershadplannedfortheirexit
utilizedSBAcomponents
60%6%5%5%
4%4%4%
1%1%6% Referral
NetworkingColdcallingDigitalGeneralmailerTargetmailerCompanybrandingPublication/mediasourcePublicspeaking/seminarsOther
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BROKERcont.Nearly27%ofreferralswerepastclients.
Figure90.TypesofReferrals
Figure91.TypesofPublication/MediaSource
Approximately69%ofrespondentsindicateditwas‘buyer’smarket’fordealsvaluedunder$500thousands,whereasonly32%ofrespondentsindicateditwas‘buyer’smarket’fordealsvaluedbetween$5millionand$50million.
Figure92.WasItBuyer'sorSeller’sMarketintheLast3Months
27%
22%13%
10%4%
25% Pastclient
Accountant
Attorney
Financialadvisor
Lender
Other
25%
75%
Article
Web
69%60%
48%40%
32%31%40%
52%60%
68%
0%10%20%30%40%50%60%70%80%
Dealsvaluedunder$499,999
Dealsvaluedfrom$500,000to$999,999
Dealsvaluedfrom$1millionto$1.99million
Dealsvaluedfrom$2millionto$4.99million
Dealsvaluedfrom$5millionto$50million
Buyer'smarket
Seller'smarket
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BROKERcont.Table49.NumberofNewClientsintheLast3Months
Dealsize Greatly
decrease Decrease Staythesame Increase Greatlyincrease
Score(1to5)
Dealsvaluedunder$499,999 8% 12% 53% 22% 5% 3.8
Dealsvaluedfrom$500,000to$999,999 7% 12% 59% 19% 3% 4.0
Dealsvaluedfrom$1millionto$1.99million 6% 11% 63% 17% 2% 4.1
Dealsvaluedfrom$2millionto$4.99million 7% 8% 57% 28% 1% 3.8
Dealsover$5million 7% 9% 56% 24% 3% 3.8
Mediannumberofmonthsfromlisting/engagementtoclosevariesfrom7to10months.
Figure93.MedianNumberofMonthsfromListing/EngagementtoClosebyDealSize
MediannumberofmonthsfromLOI/Offertoclosevariesfrom2to4months.
Figure94.MedianNumberofMonthsfromLOI/OffertoClosebyDealSize
MedianSDEmultiplepaidvariesbetween2.3and3.9.
Figure95.MedianSDEMultiplePaidbyDealSize
7 78.5 9 10
0
5
10
15
<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50M
23 3 3
4
0
2
4
6
<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50M
2.3 2.8 3.3 3.8 3.9
0
2
4
6
<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50M
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BROKERcont.MedianEBITDAmultiplepaidvariesbetween2.0and5.5.
Figure96.MedianEBITDAMultiplePaidbyDealSize
SDEnotincludingworkingcapitalwasthemostpopularmultipletypeusedfordealsvaluedunder$2million,whileEBITDAincludingworkingcapitalwasthemostpopulartypefordealsvaluedbetween$2millionand$50million.
Figure97.MultipleTypesbyDealSize
2.0 2.3
4.34.8
5.5
0
1
2
3
4
5
6
<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50M
0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0%
<500K 500K-1M
1M- 2M 2M- 5M 5M-50M
SDEincludingworkingcapital 27.3% 25.0% 18.8% 37.5% 6.5%
SDEnotincludingworkingcapital 65.2% 63.3% 53.1% 25.0% 0.0%
EBITDAincludingworkingcapital 1.2% 1.7% 18.8% 16.7% 45.2%
EBITDAnotincludingworkingcapital 6.2% 10.0% 9.4% 16.7% 12.9%
TTMEBITDAincludingworkingcapital 0% 0.0% 0.0% 0.0% 22.6%
TTMEBITDAnotincludingworkingcapital 0.0% 0.0% 0.0% 4.2% 12.9%
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BROKERcont.
Figure98.BuyerTypebyDealSize
Reasonnumberoneforsellerstogotomarketwasretirement.
Figure99.ReasonforSellertoGotoMarketbydealSize
0%20%40%60%80%100%
<500K 500K-1M
1M- 2M 2M- 5M 5M-50M
1sttimeindividual 52% 32% 28% 21% 3%
individualwhoownedabusiness 30% 40% 41% 29% 3%
existingcompany/strategicbuyer 12% 25% 28% 29% 42%
PEfirm- Platform 0% 2% 0% 4% 32%
PEfirm- Add-on 0% 0% 0% 13% 13%
Other 6% 2% 3% 4% 6%
0%20%40%60%80%100%
<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50MRecapitalization 3% 0% 0% 4% 13%Burntout 22% 28% 13% 8% 16%Familyissues 5% 5% 6% 0% 6%Health 7% 3% 9% 4% 3%Newopportunity 9% 7% 13% 13% 3%Relocation/moving 8% 7% 6% 0% 0%Retirement 35% 47% 50% 67% 48%Unsolicitedoffer 1% 0% 0% 0% 3%Other 10% 3% 3% 4% 6%
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BROKERcont.Buyingajobwasthenumberonemotivationforbuyerfordealsvaluedunder$1million,whilehorizontaladd-onwasthenumberonemotivationforbuyerfordealsvaluedbetween$1millionand$50million.
Figure100.NumberOneMotivationforBuyerbyDealSize
Averagepercentageoffinal/sellingpricerealizedtoasking/benchmarkpricewas92%.
Figure101.MedianPercentageofFinal/SellingPriceRealizedtoAsking/BenchmarkPricebyDealSize
0%10%20%30%40%50%60%70%80%90%100%
<500K 500K-1M
1M- 2M 2M- 5M 5M- 50M
Buyingajob 55% 35% 25% 25% 0%
BetterROIthanotherinvestment 6% 20% 22% 13% 10%
Verticaladd-on 8% 7% 19% 25% 23%
Horizontaladd-on 19% 23% 28% 25% 35%
Other 12% 15% 6% 13% 32%
89% 93% 94% 96%
122%
92%
0%
20%
40%
60%
80%
100%
120%
140%
<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50M All
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BROKERcont.
Figure102.BuyerLocationbyDealSize
Figure103.FinancingStructurebyDealSize
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50Mwithin20miles 70.2% 56.7% 43.8% 25.0% 9.7%
within50miles 14.9% 11.7% 15.6% 8.3% 9.7%
within100miles 1.9% 8.3% 9.4% 16.7% 6.5%
morethan100miles 13.0% 23.3% 31.3% 50.0% 74.2%
0%20%40%60%80%100%
<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50MBuyersequity 65% 43% 32% 35% 59%
Seniordebt 20% 40% 55% 42% 24%
Sellerfinancing 11% 13% 11% 19% 4%
Earnout 1% 1% 1% 4% 1%
Sellerretainedequity 0% 0% 0% 0% 3%
Mezzaninefinancing 0% 0% 0% 0% 3%
Other 3% 2% 1% 0% 5%
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BROKERcont.
BusinessTransactionsValuedUnder$499Thousand
Figure104.NumberofMonthsfromEngagement/ListingtoClose
Figure105.NumberofMonthsfromLOI/OffertoClose
Figure106.IndustryType
5%
2%4%
8% 9%10% 10%
7%5% 4%
2% 3%
7%
14%
6%4%
0%
5%
10%
15%
<1month 2months 4months 6months 8months 10months 12months 1.6- 2years
9%
17%
35%
19%
8%2% 2% 2% 1% 1% 1% 2%
0%
10%
20%
30%
40%
<1month
1month 2months
3months
4months
5months
6months
7months
9months
10months
12months
1.1- 1.5years
18%19%
16%
12%
6% 6%7%
1%3%
1% 1%
9%
0%
5%
10%
15%
20%
25%
Restaurants Consumergoods&Retail
Services-personal
Businessservices
Healthcare&biotech
Construction&engineering
Manufact. Basicmaterials&energy
Services-financial
Wholesale&distribution
Informationtechnology
Other
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BROKERcont.Figure107.SDEMultiplePaid
Figure108.EBITDAMultiplePaid
Figure109.MultiplePaid
6%1% 1%
4% 2%
12%9%
25%
9%
17%
3%6%
2% 1% 1% 1% 1%0%
10%
20%
30%
40%
50%
0.25 0.75 1 1.25 1.5 1.75 2 2.25 2.5 2.75 3 3.25 3.5 3.75 4.25 4.5 5.5
25% 25%
8%
17%
8% 8% 8%
0%
10%
20%
30%
40%
50%
0.25 1.75 2.25 2.75 3.25 3.75 4.25
27.3%
65.2%
1.2%6.2%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
SDEincludingworkingcapital
SDEnotincludingworkingcapital
EBITDAincludingworkingcapital
EBITDAnotincludingworkingcapital
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BROKERcont.Figure110.BuyerType
Figure111.ReasonforSellertoGotoMarket
Figure112.BuyerLocation
52%30%
12% 6% 1sttimeindividual
individualwhoownedabusiness
existingcompany/strategicbuyer
Other
35%
22%
8% 9%
5%7%
3%1%
10%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Retirement Burntout Relocation/moving New/betteropportunity
Familyissues Health Recapitalization Unsolicitedoffer Other
70%
15%
2%
13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
within20miles within50miles within100miles morethan100miles
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BROKERcont.Figure113.NumberOneMotivationforBuyer
Figure114.FinancingStructure
BusinessTransactionsValuedfrom$500to$999Thousand
Figure115.NumberofMonthsfromEngagement/ListingtoClose
55%
19%
8% 6%12%
0%
10%
20%
30%
40%
50%
60%
Buyingajob Horizontaladd-on Verticaladd-on BetterROIthanotherinvestment
Other
65%
20%11%
1% 3%
0%10%20%30%40%50%60%70%
Buyersequity Seniordebt Sellerfinancing Earnout Other
2%5%
10%15% 17%
7%10% 10%
7%2% 2%
10%3% 2%
0%10%20%30%40%50%
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BROKERcont.
Figure116.NumberofMonthsfromLOI/OffertoClose
Figure117.IndustryType
Figure118.SDEMultiplePaid
3%
13%
23% 22%18%
7% 5% 3% 2% 2% 2%
0%
5%
10%
15%
20%
25%
<1month
1month 2months
3months
4months
5months
6months
7months
8months
10months
>2years
17%13% 13% 12% 10% 10%
7% 7%2%
10%
0%10%20%30%40%50%
9%
2% 2%8%
13%
28%
11% 11%
4% 6%2% 2% 2%
0%10%20%30%40%50%
0.25 1 1.75 2.25 2.5 2.75 3 3.25 3.5 3.75 4 5.25 7.25
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BROKERcont.
Figure119.EBITDAMultiplePaid
Figure120.MultiplePaid
Figure121.BuyerType
14% 14% 14% 14% 14% 14% 14%
0%
10%
20%
30%
40%
50%
0.75 1.25 2 2.5 4 4.25 5.25
25%
63%
2%10%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
SDEincludingworkingcapital
SDEnotincludingworkingcapital
EBITDAincludingworkingcapital
EBITDAnotincludingworkingcapital
32%
40%
25%
2% 2%1sttimeindividual
individualwhoownedabusiness
existingcompany/strategicbuyer
PEfirm- Platform
Other
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BROKERcont.
Figure122.ReasonforSellertoGotoMarket
Figure123.BuyerLocation
Figure124.NumberOneMotivationforBuyer
47%
28%
7% 7% 5% 3% 3%
0%10%20%30%40%50%
57%
12% 8%
23%
0%
10%
20%
30%
40%
50%
60%
within20miles within50miles within100miles morethan100miles
35%
23%20%
7%
15%
0%5%
10%15%20%25%30%35%40%
Buyingajob Horizontaladd-on BetterROIthanotherinvestment
Verticaladd-on Other
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BROKERcont.
Figure125.FinancingStructure
BusinessTransactionsValuedfrom$1to$1.99Million
Figure126.NumberofMonthsfromEngagement/ListingtoClose
Figure127.NumberofMonthsfromLOI/OffertoClose
43%40%
13%
1% 2%
0%
10%
20%
30%
40%
50%
Buyersequity Seniordebt Sellerfinancing Earnout Other
13%
9%
6%
16%
6%
3% 3%
16%
13%
6%
9%
0%2%4%6%8%
10%12%14%16%18%
3months4months6months7months8months9months 10months
12months
1.1- 1.5years
1.6- 2years
>2years
6%
38%
25%
13%
6%3% 3% 3% 3%
0%
5%
10%
15%
20%
25%
30%
35%
40%
1month 2months 3months 4months 6months 7months 8months 9months 12months
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BROKERcont.
Figure128.IndustryType
Figure129.SDEMultiplePaid
Figure130.EBITDAMultiplePaid
BROKERcont.
16% 16%
9%6%
16%
3%
28%
6%
0%
5%
10%
15%
20%
25%
30%
Manufact. Consumergoods&Retail
Wholesale&distribution
Services-personal
Construction&engineering
Healthcare&biotech
Businessservices Other
4% 4%9% 9%
22% 22%
4%9%
4%9%
4%
0%10%20%30%40%50%
1.75 2 2.5 2.75 3 3.25 3.5 3.75 4 4.25 4.75
11% 11% 11%
33%
11% 11% 11%
0%
10%
20%
30%
40%
50%
0.25 2.75 3.75 4.25 4.75 5.25 7.25
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BROKERcont.
Figure131.MultiplePaid
Figure132.BuyerType
Figure133.ReasonforSellertoGotoMarket
19%
53%
19%9%
0%
50%
100%
SDEincludingworkingcapital
SDEnotincludingworkingcapital
EBITDAincludingworkingcapital
EBITDAnotincludingworkingcapital
28%
41%
28%3% 1sttimeindividual
individualwhoownedabusiness
existingcompany/strategicbuyer
Other
50%
13% 13% 9% 6% 6% 3%0%20%40%60%80%100%
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BROKERcont.
Figure134.BuyerLocation
Figure135.NumberOneMotivationforBuyer
Figure136.FinancingStructure
44%
16%
9%
31%
0%
10%
20%
30%
40%
50%
within20miles within50miles within100miles morethan100miles
28%25%
22%19%
6%
0%10%20%30%40%50%
Horizontaladd-on Buyingajob BetterROIthanotherinvestment
Verticaladd-on Other
55%
32%
11%1% 1%
0%
20%
40%
60%
80%
100%
Seniordebt Buyersequity Sellerfinancing Earnout Other
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BROKERcont.
BusinessTransactionsValuedfrom$2to$4.99Million
Figure137.NumberofMonthsfromEngagement/ListingtoClose
Figure138.NumberofMonthsfromLOI/OffertoClose
Figure139.IndustryType
8%
17%
4%
17%13%
8% 8% 8% 8% 8%
-10%
10%
30%
50%
5months 6months 7months 8months 9months 11months
12months
1.1- 1.5years
1.6- 2years
>2years
29%25%
8%4%
17%
4% 4% 4% 4%
0%10%20%30%40%50%
2months 3months 4months 5months 6months 7months 9months 11months 1.1- 1.5years
29%
21%17%
8% 8%4% 4% 4% 4%
0%5%10%15%20%25%30%35%40%45%50%
Manufact. Businessservices
Construction&engineering
Healthcare&biotech
Wholesale&distribution
Consumergoods&Retail
Services-financial
Informationtechnology
Other
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BROKERcont.
Figure140.SDEMultiplePaid
Figure141.EBITDAMultiplePaid
Figure142.MultiplePaid
7%
13% 13%
20%
7%
27%
7% 7%
0%
10%
20%
30%
40%
50%
3 3.25 3.5 3.75 4 4.25 5 6.5
11%
22% 22%
11% 11% 11% 11%
0%
10%
20%
30%
40%
50%
2.25 4.25 4.75 5 6.25 8.5 9
38%
25%17% 17%
4%
0%10%20%30%40%50%60%70%80%90%
100%
SDEincludingworkingcapital
SDEnotincludingworkingcapital
EBITDAincludingworkingcapital
EBITDAnotincludingworking
capital
TTMEBITDAnotincludingworking
capital
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BROKERcont.Figure143.BuyerType
Figure144.ReasonforSellertoGotoMarket
Figure145.BuyerLocation
21%
29%29%
4%13%
4%1sttimeindividual
individualwhoownedabusiness
existingcompany/strategicbuyer
PEfirm- Platform
PEfirm- Add-on
Other
67%
13% 8% 4% 4% 4%
0%20%40%60%80%100%
Retirement New/betteropportunity
Burntout Recapitalization Health Other
25%
8%17%
50%
0%
20%
40%
60%
80%
100%
within20miles within50miles within100miles morethan100miles
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BROKERcont.Figure146.NumberOneMotivationforBuyer
Figure147.FinancingStructure
BusinessTransactionsValuedfrom$5to$50Million
Figure148.NumberofMonthsfromEngagement/ListingtoClose
25% 25% 25%
13% 13%
0%5%10%15%20%25%30%35%40%45%50%
Verticaladd-on Buyingajob Horizontaladd-on BetterROIthanotherinvestment
Other
42%35%
19%4%
0%
20%
40%
60%
80%
100%
Seniordebt Buyersequity Sellerfinancing Earnout
3%6%
3%
13%
3%6%
10%13%
10%
16%
6%10%
0%
10%
20%
30%
40%
50%
3months
4months
5months
6months
7months
8months
9months
10months
12months
1.1- 1.5years
1.6- 2years
>2years
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BROKERcont.
Figure149.NumberofMonthsfromLOI/OffertoClose
Figure150.IndustryType
Figure151.SDEMultiplePaid
23%26%
6%13% 13%
6%3% 3%
6%
0%10%20%30%40%50%
2months 3months 4months 5months 6months 7months 8months 12months 1.1- 1.5years
39%
19%13%
6% 6% 6%10%
0%10%20%30%40%50%
Manufact. Healthcare&biotech
Construction&engineering
Wholesale&distribution
Businessservices
Consumergoods&Retail
Other
50% 50%
0%10%20%30%40%50%60%70%80%90%
100%
1.5 6.25
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BROKERcont.
Figure152.EBITDAMultiplePaid
Figure153.MultiplePaid
Figure154.BuyerType
5%10% 10%
5% 5%10% 10% 10% 10%
5% 5%10%
5%
0%10%20%30%40%50%
3.75 4.25 4.5 4.75 5 5.25 5.5 5.75 6 6.25 6.5 7.25 >10
6%
45%
13%23%
13%
0%20%40%60%80%100%
SDEincludingworkingcapital
EBITDAincludingworkingcapital
EBITDAnotincludingworking
capital
TTMEBITDAincludingworking
capital
TTMEBITDAnotincludingworking
capital
3% 3%
42%
32%
13%6%
1sttimeindividual
individualwhoownedabusiness
existingcompany/strategicbuyer
PEfirm- Platform
PEfirm- Add-on
Other
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BROKERcont.
Figure155.ReasonforSellertoGotoMarket
Figure156.BuyerLocation
Figure157.NumberOneMotivationforBuyer
48%
16% 13%6% 3% 3% 3% 6%
0%10%20%30%40%50%
10% 10% 6%
74%
0%
50%
100%
within20miles within50miles within100miles morethan100miles
35%
23%
10%
32%
0%
10%
20%
30%
40%
50%
Horizontaladd-on Verticaladd-on BetterROIthanotherinvestment
Other
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BROKERcont.
Figure158.FinancingStructure
Table50.ExpectationsofBusinessListings/EngagementsfromNewClientsintheNext3Months
Dealsize Greatlydecrease Decrease Staythesame Increase Greatly
increaseScore(1to5)
Dealsvaluedunder$499,999 1.4% 4.7% 36.3% 52.8% 4.7% 3.5
Dealsvaluedfrom$500,000to$999,999 1.1% 2.7% 35.7% 55.1% 5.4% 3.6
Dealsvaluedfrom$1millionto$1.99million 1.2% 2.4% 37.3% 56.6% 2.4% 3.6
Dealsvaluedfrom$2millionto$4.99million 0.7% 1.3% 44.7% 50.7% 2.7% 3.5
Dealsover$5million 0.7% 2.7% 49.7% 43.5% 3.4% 3.5
Table51.ExpectationsforBusinessValuationMultiplesintheNext3Months
Dealsize Greatlydecrease Decrease Staythesame Increase Greatly
increaseScore(1to5)
Dealsvaluedunder$499,999 0.5% 6.2% 81.5% 11.8% 0.0% 3.0
Dealsvaluedfrom$500,000to$999,999 1.1% 3.2% 80.5% 15.1% 0.0% 3.1
Dealsvaluedfrom$1millionto$1.99million 0.6% 1.8% 78.4% 19.2% 0.0% 3.2
Dealsvaluedfrom$2millionto$4.99million 0.6% 1.9% 73.4% 23.4% 0.6% 3.2
Dealsover$5million 0.7% 2.7% 70.7% 24.0% 2.0% 3.2
59%
24%4% 3% 3% 1% 5%
0%
50%
100%
Buyersequity Seniordebt Sellerfinancing
Sellerretainedequity
Mezzaninefinancing
Earnout Other
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BROKERcont.
Comparedtotwelvemonthsago,respondentsindicatedincreasesindealflow,ratioofbusinessessoldtototallistings,businessexitopportunitiesandimprovedgeneralbusinessconditions.Duringthenexttwelvemonths,respondentsexpectfurtherincreasesindealflow,marginpressureoncompanies,andimprovinggeneralbusinessconditions.
Table52.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo
Decreasedsignificantly
Decreasedslightly
Stayedaboutthesame
Increasedslightly
Increasedsignificantly
%increase
%decrease
Netincrease
Dealflow 7% 12% 35% 35% 11% 46% 19% 27%
Ratioofbusinessessold/totallistings 6% 14% 48% 25% 6% 31% 21% 10%
Dealmultiples 3% 7% 66% 21% 2% 24% 10% 14%
Businessexitopportunities 3% 9% 54% 29% 5% 34% 13% 21%
Amountoftimetosellbusiness 2% 11% 55% 25% 7% 32% 13% 19%
Difficultysellingbusiness 2% 11% 54% 28% 5% 33% 13% 20%
Businessopportunitiesforgrowth 2% 5% 53% 35% 4% 39% 7% 32%
Generalbusinessconditions 2% 7% 43% 44% 3% 47% 10% 38%
Marginpressureoncompanies 2% 9% 61% 26% 2% 28% 11% 17%
Table53.GeneralBusinessandIndustryAssessment:ExpectationsovertheNext12Months
Decreasesignificantly
Decreaseslightly
Stayaboutthesame
Increaseslightly
Increasesignificantly %increase
%decrease
Netincrease
Dealflow 0% 3% 23% 54% 20% 74% 3% 70%
Ratioofbusinessessold/totallistings 0% 2% 31% 54% 13% 67% 2% 65%
Dealmultiples 0% 5% 61% 30% 4% 34% 5% 29%
Businessexitopportunities 0% 4% 47% 40% 9% 49% 4% 45%
Amountoftimetosellbusiness 1% 17% 61% 19% 1% 20% 19% 1%
Difficultysellingbusiness 2% 21% 61% 16% 0% 16% 23% -7%
Businessopportunitiesforgrowth 1% 3% 48% 42% 7% 49% 3% 45%
Generalbusinessconditions 0% 4% 31% 54% 11% 65% 4% 60%
Marginpressureoncompanies 1% 10% 65% 22% 1% 24% 11% 12%
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FACTORSURVEYINFORMATION Approximately55%of16respondentstothefactorsurveysaidtheprimaryusesoffactoringfacilitiesarefinancingworkingcapitalfluctuations,followedbyexpansion(22%),andfinanceworseningoperationsconditions(16%).Factoringfacilitiesarerelativelyshort-termcomparedtootherinvestmentswithrespondentsreportingapproximately60%offactoringfacilitieshavelessthanorequalto12monthsterm.Otherkeyfindingsinclude:
• Respondentsreportedapproximately21%oftheircompany’sgrossinvoicesoverthelasttwelvemonthswereoriginatedfromwholesale&distribution.Manufacturingwasresponsiblefor20%ofinvoicesfollowedbybusinessservicesat17%.
• Whenaskedaboutconditionscomparedtotwelvemonthsagonearly53%ofrespondentssaidtheysawdecreaseddemandforbusinessfactoringlinesinthelast12months.Approximately40%oflendersindicatedincreasedgeneralbusinessconditionsinthelasttwelvemonths.
• Nearly47%ofrespondentsbelievegovernmentregulationsandtaxesarethemostimportantissuefacing
privately-heldbusinessestoday,followedbyeconomicuncertainty(40%)andaccesstocapital(20%).OperationalandAssessmentCharacteristics
Approximately55%ofrespondentsindicatedworkingcapitalfluctuationsastheprimaryusesoffactoringfacilities.
Figure159.PrimaryUseoftheFactoringFacilitiesOvertheLast12Months
Respondentsreportedapproximately21%oftheircompany’sgrossinvoicesoverthelasttwelvemonthswereoriginatedfromwholesale&distribution.
Figure160.IndustriesforGrossInvoicesfortheLast12Months
55%22%
16%4%3%
Financeworkingcapitalfluctuations
Expansion
Financeworseningoperationsconditions
ProjectFinancing
Other
21%
20%
17%9%
6%3%2%
1%1% 20%
Wholesale&distributionManufacturingBusinessservicesConstruction&engineeringInformationtechnologyHealthcare&biotechRetail&consumerservicesBasicmaterials&energyMedia&entertainmentOther
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FACTORcont.Factoringfacilitiesarerelativelyshort-termcomparedtootherinvestmentswithrespondentsreportingapproximately60%offactoringfacilitieshavelessthanorequalto12monthsterm.
Figure161.TermofCurrentTypicalFactoringFacility
Respondentsreportedaverageadvancerateschargedforvarious-sizedfacilitiesrangefrom22%to80%onamonthlybasis.
Figure162.CurrentAverageAdvanceRatesforVarious-SizedFacilities
Nearly100%ofrespondentschargewiretransfer/ACHfee,while36%ofrespondentschargeduediligencefee.
Table54.FeesCharged
13%
47%20%
7% 13%1- 6months
7- 12months
13- 18months
19- 24months
Morethan24months
80%
63% 63%50%
33%22%
0%
20%
40%
60%
80%
100%
$100,000 $500,000 $1,000,000 $5,000,000 $10,000,000 Greaterthan$10,000,000
100%
36%
15% 14% 14% 14% 7% 7%
0%
20%
40%
60%
80%
100%
Wiretransfer/ACHfees
Duediligencefees
Samedayfundingfee
Applicationfees
Filingfees UCCSearch Invoiceprocessing
Accountsetup
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FACTORcont.Table55.MedianPercentageorAmountCharged
Percentage orAmount
Applicationfees n/a $225Duediligencefees 0.1% $3,250Invoiceprocessing n/a $25Wiretransfer/ACHfees n/a $150Filingfees n/a $50UCCSearch n/a $150Linefee 1% $100Samedayfundingfee n/a $225
Approximately36%ofrespondentsareusingprimeratetopriceitems.
Figure163.UsageofReferenceRates
Table56.Spread(%)
1stquartile Median 3rdquartileTiedtoprime 2 2.5 3.5Tiedtothree-monthLIBOR 4 4 4Tiedtosix-monthLIBOR 3 3 3
Figure164.PercentageofFactoringBusiness-RecoursevsNon-recourse
36%
10% 10% 14%
0%
20%
40%
60%
80%
100%
TiedtoPrime Tiedto1MonthLIBOR Tiedto3MonthLIBOR Other
62%31%
7%Recourse
Non-recourse
Other
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FACTORcont.Respondentsreported95%oftheircurrentpurchaseswereonanotificationbasis.
Figure165.PercentageofPurchasesonaNon-notificationBasis
Nearly100%ofrespondentsrequirepersonalguaranteeand93%requireabackgroundcheck.
Table57.TypicalCurrentRequirements
Requirement %LienonA/Rassets 80%Backgroundcheck 93%Personalguarantee 100%Financialstatements 87%Lienonallassets 67%Performanceguarantee 64%Audit 23%
Table58.Discountfee(%)onOutstandingInvoicesforNotificationBasis
$0-$25K
$25K-
$50K$50K-$100K
$100K-$250K
$250K-$1M
$1M-$5M
$5M-$10M
$10M-$25M
$25M-$50M
$50M-$100M $100M+
First30days
1stquartile 2.5% 2.2% 2.0% 1.9% 1.2% 1.0% 0.7% 0.9% 0.8% 0.8% 0.6%
Median 3.0% 3.0% 2.5% 2.4% 1.6% 1.0% 0.9% 1.0% 1.0% 1.0% 1.0%
3rdquartile 3.6% 3.0% 2.8% 2.6% 2.1% 1.8% 1.5% 1.1% 1.3% 1.3% 1.3%
Next15days(31-45)
1stquartile 1.0% 1.5% 1.3% 1.0% 1.0% 0.8% 0.4% 1.0% 1.0% 1.0% 1.0%
Median 1.5% 1.5% 1.3% 1.3% 1.0% 1.0% 0.6% 1.0% 1.0% 1.0% 1.0%
3rdquartile 1.8% 1.7% 1.5% 1.5% 1.3% 1.0% 0.8% 1.0% 1.0% 1.0% 1.0%
Next15days(46-60)
1stquartile 1.3% 1.5% 1.3% 1.0% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%
Median 1.6% 1.5% 1.3% 1.3% 1.0% 0.6% 0.5% 0.5% 0.5% 0.5% 0.5%
3rdquartile 1.8% 1.7% 1.5% 1.5% 1.3% 0.9% 0.5% 0.5% 0.5% 0.5% 0.5%
5%
95%
Non-notifcation Notification
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FACTORcont.
Table59.ExpectedTotalWrite-off–PercentageofReceivablesPurchasedonNewArrangements(%)
1stquartile Median 3rdquartile
Expectedtotalwrite-off 0.5% 0.5% 0.75%
Table60.AverageNumberofDaysOutstandingReceivables
1stquartile Median 3rdquartileDuringLast12Months 35 40 45ExpectedforNext12Months 35 40 45
Accordingtothe43%ofrespondents,themostsignificantconcerntofactoringbusinessislackofqualitybusinessesorpoorfinancialhealth.
Figure166.MostSignificantConcerntoFactoringBusiness
Respondentsbelievegovernmentregulationsandtaxesarethemostimportantcurrentissuefacingprivately-heldbusinesses.
Figure167.CurrentIssuesFacingPrivately-HeldBusinesses
43%
17%6%
6%
28%
Lackofqualitybusinesses/poorfinancialhealth
Businesseslackofunderstandingoffactoringasafinancingsource
Lackofcapitaltodeploy
Returnoftraditionalbusinesslending
Other
47%
40%
20%
13%
7%
0%
0%
20%
33%
7%
0%
7%
27%
7%
Governmentregulationsandtaxes
Economicuncertainty(Domestic)
Accesstocapital
Competitionfromforeigntradepartners
Economicuncertainty(International)
Politicaluncertainty/elections
Inflation
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Currentissue Emergingissue
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FACTORcont.Respondentsindicateddecreasesindemandforbusinessfactoringlines,creditqualityofborrowers,interestratespreads,feesandimprovedgeneralbusinessconditions.
Table61.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo
Decreasedsignificantly
Decreasedslightly
Stayedaboutthesame
Increasedslightly
Increasedsignificantly
%increase
%decrease
Netincrease/decrease
Demandforbusinessfactoringlines(applications) 27% 27% 7% 40% 0% 40% 53% -13%
Creditqualityofborrowersapplyingforcredit 7% 27% 60% 7% 0% 7% 33% -27%
TimetoprocessFacility 0% 27% 53% 20% 0% 20% 27% -7%
Averagefacilitysize 7% 7% 60% 20% 7% 27% 13% 13%
Averagefacilityterm(months) 0% 0% 93% 7% 0% 7% 0% 7%
Sizeofinterestratespreads(pricing) 0% 21% 71% 7% 0% 7% 21% -14%
Fees 0% 40% 53% 7% 0% 7% 40% -33%
Standardadvanceratesonreceivables 7% 0% 67% 27% 0% 27% 7% 20%
Generalbusinessconditions 0% 27% 33% 40% 0% 40% 27% 13%
Respondentsexpectfurtherdecreasesininterestratespreads,feesandimprovinggeneralbusinessconditions.
Table62.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months
Decreasesignificantly
Decreaseslightly
Stayaboutthesame
Increaseslightly
Increasesignificantly
%increase
%decrease
Netincrease/decrease
Demandforbusinessfactoringlines(applications) 7% 27% 27% 27% 13% 40% 33% 7%
Creditqualityofborrowersapplyingforcredit 0% 27% 60% 13% 0% 13% 27% -13%
TimetoprocessFacility 0% 13% 60% 20% 7% 27% 13% 13%
Averagefacilitysize 0% 7% 57% 14% 21% 36% 7% 29%
Averagefacilityterm(months) 0% 14% 86% 0% 0% 0% 14% -14%
Sizeofinterestratespreads(pricing) 0% 15% 77% 8% 0% 8% 15% -8%
Fees 0% 29% 64% 7% 0% 7% 29% -21%
Standardadvanceratesonreceivables 0% 0% 87% 13% 0% 13% 0% 13%
Generalbusinessconditions 0% 7% 33% 47% 13% 60% 7% 53%
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BUSINESSOWNERSURVEYINFORMATION
Ofthe1,034privately-heldbusinessesthatrespondedtothesurvey,10%hadbusinessesthatinvolvedmanufacturing,another10%wereinconstruction&engineering,another10%wereinprofessional,scientificortechnicalservices,followedbybusinessservices(9%).Approximately58%ofbusinesseshaveannualrevenueslessthan$1million.Nearly88%ofbusinessownersreporthavingtheenthusiasmtoexecutegrowthstrategies,yetjust51%reporthavingthenecessaryfinancialresourcestosuccessfullyexecutegrowthstrategies.Oftherespondentswhowereseekingfinancinginthelast12months,approximately51%anticipatedtoraiselessthan$100,000incapital.Approximately45%ofrespondentsreportedthattheywereseekingbankbusinessloansorbusinesscreditcardfinancingasasourceoffunding,followedbyfriendsandfamily(23%).Ofallfinancingoptions,bankloansemergedasthefinancingsourcewiththehighest“willingness”forsmallbusinesstouse,followedbybusinesscreditcards.Resultsalsoshowedthat71%ofprivately-heldbusinessesthatsoughtbankloansoverthepast12monthsweresuccessful.Surveyresultsindicatedthatbusinessownerswhoraisedcapitalonaveragecontacted2.3banks.Nearlythreequartersofbusinesses(73%)areplanningtohireadditionalworkers.Approximately45%ofrespondentsbelievegovernmentregulationsandtaxesarethenumberoneissuesmallbusinessesfacetoday,another31%believeaccesstocapitalisthemostimportantcurrentissue,followedbydomesticeconomicuncertainty(23%)andhealthcarecosts(23%).Accordingtosmallbusinesses,ofthosepoliciesmostlikelytoleadtojobcreationin2016,regulatoryreformemergedasnumberone(27%)followedbyincreasedaccesstocapital(24%),andtaxincentives(22%).Thestudyshowedthatofthosethatdoplantohire,salesandmarketingskills(34%)andskilledlabor(34%)areingreatestdemandfollowedbyservice/customerservice(27%).Also,85%ofcompaniesplanningtohireindicatethey’dneedtotrainthosetheyhire.36%ofrespondentsbelievethatgeneralbusinessconditionsimprovedinthetwelvemonthscomparedto49%surveyedyearago.OperationalandAssessmentCharacteristics
Theprivately-heldbusinesssurveyresultsweregeneratedfrom1,034participants.ThelocationsofbusinessesaredistributedoverallregionsoftheUnitedStates.
Figure168.RespondentsDistributionbyState
0 - 23 - 56 - 1011 - 1516 - 2526 - 5051 - 100more than 100
CA
OR
WA
MT ND MN
IDWY
SD
NVUT
AZ
CO
NM
TX
NE
KS
OK AR
LAMS AL
FL
GA
TNSC
NC
VAWVKYMO
ILIA
WIMI
INOH
MD
PANJ
NY
ME
NHVTMARI
CT
HIAK
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BUSINESSOWNERcont.Businessesinvolvedinmanufacturingaccountedfor12%ofrespondentsfollowedbyprofessional,scientificortechnicalservices(11%)andbusinessservices(9%).
Figure169.DescriptionofEntity
Approximately55%ofbusinesseshavelessthanorequaltofiveemployees.
Figure170.NumberofEmployees
10%10%
10%
9%7%7%6%
5%5%
4%3%
3%3% 3%
2% 2%
2%
1%
1%
7%
ManufacturingConstruction&engineeringProfessional,scientificortechnicalservicesBusinessservicesHealthcare&biotechRetailtradeInformationtechnologyorservicesWholesale&distributionRealestateorrentalandleasingConsumergoods&servicesTransportationandwarehousingFinanceorinsuranceArts,entertainmentorrecreationForestry,fishing,huntingoragricultureEducationalservicesBasicmaterials&energyRestaurantsUnclassifiedestablishmentsHotel/motelorrelatedservicesOtherservices
6%
27%
22%12%
12%
10%4% 5%
1%
0 1-2
3-5 6-10
11-20 21 - 50
51 - 100 101- 500
Morethan500
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BUSINESSOWNERcont.Approximately70%oftherespondentsareactivecontrolownersoftheirbusinesses.
Figure171.OwnershipRole
Approximately58%ofrespondentshavelessthanorequalto$1Minannualrevenues,followedby22%reportingbetween$1Mand$5M.
Figure172.AnnualRevenues
70%2%
8%
1% 9%
1%7%
2%
Controlowner(>50%)whoactivelyoperatesthebusinessControlowner(>50%)whopassivelymanagesthebusinessShared-controlowner(exactly50%)whoactivelyoperatesthebusinessShared-controlowner(exactly50%)whopassivelymanagesthebusiness)Non-controlowner(<50%)whoactivelyoperatesthebusinessNon-controlowner(<50%)whopassivelymanagesthebusinessManagerorexecutivewithnoownershipinterestinthebusinessOther
4% 17%
26%
11%
22%
6% 6%
2% 2%
2%
1% 1%
$0$1- $99K$100K- $499K$500K- $999K$1M- $4.99M$5M- $9.99M$10M- $24.99M$25M- $49.99M$50M- $99.99M$100M- $499.99M$500M+Unknown
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BUSINESSOWNERcont.Averagechangeinannualrevenuesinthelast12monthswas1.8%.
Figure173.AnnualRevenuesChangeintheLast12Months
Onaveragerespondentsexpecttheirannualrevenuestogrowby9.4%inthenext12months.
Figure174.AnnualRevenuesChangeExpectationsintheNext12Months
4% 2% 2% 3% 4% 3% 4%2% 4%
25%
10%6%
10%5% 5% 4%
1% 1%5%
1.8%
-4%1%6%
11%16%21%26%31%
Decline Increase
1% 1% 1% 1% 1% 2% 2%
20%
15%
11%13%
10%
5% 6%
2% 3%
7%9.4%
-4%
1%
6%
11%
16%
21%
Decline Increase
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BUSINESSOWNERcont.
Approximately78%ofbusinesseshavenetincomelessthanorequalto$500,000,9%ofthosehavenegativenetincome.
Figure175.NetIncome
Approximately39%ofrespondentsarecurrentlynotfinancedbyanyexternalcapitalsources.Nearly27%and24%ofrespondents’businessesarefinancedbybankbusinessloansandbusinesscreditcardfinancing,respectively.
Figure176.CurrentSourcesofFinancing
9%
39%30%
9% 9%
2% 1%1%
Negative
$0- $99K
$100K- $499K
$500K- $999K
$1M- $4.99M
$5M- $9.99M
$10M- $24.99M
$50M- $99.99M
Unknown
21%
3%9%
1%
16%16%
24%
9%
27%
2% 4% 2% 2% 2% 3% 2% 4% 2% 4%
39%
0%5%
10%15%20%25%30%35%40%45%
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BUSINESSOWNERcont.Amongthebusinessesthattriedtoraisecapitalinthelast12months45%appliedforbankbusinessloanand71%weresuccessful,whereas40%ofrespondentsdidn’ttrytoraisecapitalfromanysource.
Figure177.CapitalSourcesContactedToRaiseCapitalintheLast12Months
Figure178.SuccessRates
23%
9% 9%3%
14%17%
21%
10%
45%
6% 9% 6%3% 5%
9% 9% 11%5% 2%
6%
0%5%
10%15%20%25%30%35%40%45%50%
81%
40%
83%
27%
86%
66%
83%80%71%
37%
61%
43%33%
78%81%
37%27%
34%46%
30%
48%
0%10%20%30%40%50%60%70%80%90%
100%
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BUSINESSOWNERcont.Onaveragerespondentswhosuccessfullyraisedcapitalcontacted3differentcapitalproviders.
Figure179.AverageNumberofCapitalProvidersContacted
Approximately77%ofrespondentsattemptedtoraiselessthan$1millioninthelast12months.
Figure180.AmountofCapitalAttemptedtoRaiseinthelast12Months
3.2 3.23.9 3.6
2.82.1 1.7 2.0 2.3 2.7
3.5 3.2
6.0
2.5 2.8
5.0 5.4 5.2
3.8 3.74.2
01234567
51%
21%
6%
5% 6%
4%3% 2% 2%
lessthan$100K
$100K- $499K
$500K- $999K
$1M- $1.99M
$2M- $4.99M
$5M- $9.99M
$10M- $24.99M
$25M- $49.99M
$100M+
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BUSINESSOWNERcont.Approximately37%ofrespondentstooklessthan7daystocompletefinancingprocess.
Figure181.AverageTimetoCompleteFinancingProcessinDays
32%ofrespondentsspentlessthanonedayduringtheprocesstosuccessfullyobtainfinancing(timespentbyallemployeesandhiredoutsidersmakinginquiries,submittingproposals,meetingwithcapitalproviders,furnishingdocuments).
Figure182.DaysSpentDuringtheProcesstoSuccessfullyObtainFinancing
37%
18%
12% 12%6%
3% 2% 1% 2% 1% 2% 2%
0%5%
10%15%20%25%30%35%40%
Lessthan7days
7days-15days
15days- 1
month
1- 2months
2- 3months
3- 4months
4- 5months
5- 6months
6- 8months
8- 10months
10- 12months
Morethan12months
32%
13%10%
8%
3%7%
1%3%
1% 2% 3% 3% 3%
10%
0%
5%
10%
15%
20%
25%
30%
35%
Lessthan1day
1day 2days 3days 4days 5days 6days 7days 8days 10days
11- 15days
16- 20days
21- 30days
Morethan30days
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BUSINESSOWNERcont.Amongthoserespondentswhowerenotabletoobtainexternalfinancinginthelast12months44%areplanningtoimprovethefinancialhealthoftheirbusinessesbeforeattemptingtoraisecapitalinthefuture.
Figure183.NextStepstoSatisfyFinancialNeeds
Amongthoserespondentswhodidn’tattempttoobtainanyexternalfinancinginthelast12months,26%saidtheirbusinesseswouldberejectedforfunding,followedby18%ofrespondentswhohavesufficientfinancingalreadyinplace,and13%ofrespondentswhosaidtherewereunfavorableeconomicconditionsorlowdemandforproducts/services.
Figure184.ReasonsforNotTryingtoObtainCapitalintheLast12Months
44%
16%
13%
11%
5%
2%
1%
8%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Improvefinancial'health'ofthecompany
Lookforalternativesourcesoffinancing
Continuelookingfortraditionalcapitalproviders
Lookforapartner/equityinvestor
Sellawholebusiness
Sellpartofabusiness
Ceaseoperations/liquidate
Other
26%
18%
13%
12%
7%
7%
5%
2%
11%
0% 5% 10% 15% 20% 25% 30%
Mybusinesswouldberejectedforfunding
Sufficientfinancingalreadyinplace
Unfavorableeconomicconditionsorlowdemandforproducts/services
Mybusinessisgeneratingenoughcashflowtofundoperations(includinggrowthorexpansion)
Idonothavetheknowledge/expertisetopursueexternalfinancing
Costoffinancing/waitingforcheaperfinancing
Lossofcontrol/flexibility
Idonothavethetimetopursueexternalfinancing
Other
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BUSINESSOWNERcont.Accordingtotherespondents,“bankloans”asacategoryisthemostappealingoptiontoobtainfinancing.
Figure185.WillingnesstoObtainFinancing
Approximately48%ofrespondentsindicatedincreasingrevenuesfromcurrentproductsorservicesastheareatheirbusinessesaremostfocusedontoday.
Figure186.TheMostImportantAreatoFocusOn
2.4
3.4 3.2
2.3 2.52.9
3.5 3.4
4.0
3.43.1
2.5
1.72.0 1.9
2.8 2.8 2.92.5
2.2
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Friend
sand
family
Grants(SBIR,STTR,etc.)
Tradecred
it
Crow
dfund
ing
Cred
itcard-pe
rs.
Loan-pe
rs.
Cred
itcard-bu
siness
Lease
Bankloan
CDFI/Creditu
nion
Assetb
ased
lend
er
Busin
esso
nlinemarketplacelend
er
Loan-taxp
reparatio
ncompany
Factor
Merchantcashadvance
Angelcapita
l
Venturecapital
Privateeq
uitygroup
Mezzanine
Hedgefund
investmen
t
Notwilling
Somewhat unwilling
Neutral
Somewhat willing
Willing touse
48%
17%11% 9% 9% 6%
0%
10%
20%
30%
40%
50%
60%
Increasingrevenuesfrom
currentproducts/services
Expandingproduct/service
lines
Findingtalentedpeople
Raisingfinancing/securing
capital
Reducingexpenses
Other
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BUSINESSOWNERcont.
Approximately27%ofrespondentsarenotplanningtohireadditionalemployeesinthenext12months,while32%ofrespondentsareplanningtohireoneortwoadditionalemployeesinthenexttwelvemonths.
Figure187.AmountofEmployeesPlannedtobeHired
Approximately18%ofrespondentsbelieveeconomicuncertaintyintheU.S.marketisthenumberonereasonpreventingthemfromhiring,followedbyconsumer/businessdemand(16%).
Figure188.ReasonsPreventingPrivately-HeldBusinessesfromHiring
Accordingtorespondents,ofthosepoliciesmostlikelytoleadtojobcreationin2016,regulatoryreformemergedasnumberone(27%)followedbyincreasedaccesstocapital(24%).
Figure189.GovernmentPoliciestoLeadtoJobCreation
27%
37%
17%
8%4% 3% 1% 1%
0%
10%
20%
30%
40%
0 1- 2 3 - 5 6 - 10 11- 20 21-50 51-100 Morethan100
18%16%
14%9%8%
1%1%
1%32%
0% 5% 10% 15% 20% 25% 30% 35%
Economicuncertainty/confidence(domestic)
Governmentregulationsandtaxes
Abilitytofindqualifiedemployees
Inflation
Other
27%
24%22%
10%6%
4% 8%
Regulatoryreform
Increasedaccesstocapital
Taxincentives
RepealormodifyAffordableCareAct
Educationreform
IncreasedcompetitivenesswithforeigntradepartnersOther
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BUSINESSOWNERcont.Forthosebusinesseswhichdoplantohire,salesandmarketingskills(34%)andskilledlabor(34%)areingreatestdemandfollowedbyservice/customerservice(27%).
Figure190.TheSkillsinDemandforNewHires
85%ofbusinessesplanningtohireindicateneedtotrainthosetheyhire.
Figure191.NeedforTrainingofNewHires
34%
34%
27%
21%
18%
15%
13%
11%
5%
5%
8%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Sales&marketing
Skilledlabor
Service/customerservice
Informationtechnology
Management
Finance/financialmanagement
Entrepreneurship
Unskilledlabor
Humanresources
Globalbusiness
Other
85%
15% Yes
No
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BUSINESSOWNERcont.Approximately19%ofrespondentsindicatedtheirbusinesscostofequitycapitalisintherangeof9%-10%.
Figure192.CostofEquityCapital
Privately-heldbusinesseswithrevenueslessthan$5milliononaveragehavealmostthesamedesiretoexecutegrowthstrategies(86%)asprivately-heldbusinesseswithrevenuesgreaterthan$5million(94%).However,privately-heldbusinesseswithsmallerrevenuesreportlowerlevelsofnecessaryresources(people,money,etc.)togrow(46%)ascomparedtoprivately-heldbusinesseswithhigherrevenues(68%).
Figure193.UsageofFinancialAnalysisbyRevenueSizes
6% 6%
10%9%
19%
9%
3%
7%
2%
10%
2% 1%
5%
0%
2%
0% 1% 1% 0% 1% 0%1% 1% 0% 0% 0% 1% 1%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
61%
45%
66%
73%
11%
58%
64%
46%
86%
78%
72%
73%
83%
26%
85%
77%
68%
94%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%
Prepareanannualbudget
Havefinancialstatementsauditedorreviewed(notjustcompiled)byaCPAannually?
Haveamissionandvisionstatementmadeknown
Engageinplanningbeyondthecurrentyear
Haveanoutsideboardofdirectors
Havekeyperformance indicatorsreviewed
Haveasolidgrowthstrategy
Havenecessaryresources(people,money,etc.)togrow
Havethedesire,drive,andenthusiasmtogrowandexecutegrowthstrategies?
Revenueslessthan$5million Revenuesmorethan$5million
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BUSINESSOWNERcont.Respondentsreportedontheirlevelofknowledgefinancingcomponents(scale0-4:none,some,moderate,very,completely).
Figure194.LevelofKnowledgeofFinancingComponents
Mostoftherespondentsareplanningtotransfertheirownershipinterestinmorethanfiveyearsfromnowwhileonly43%plantotransfertheirownershipatthefirstavailableopportunity.
Figure195.AnticipationoftheOwnershipTransfer
0.0
1.0
2.0
3.0
4.0
Typesoffinancing
Specificfirmstocontacttoseekvarioustypesoffinancing
Advantages/disadvantagesofvarioustypesoffinancing
"Costsofcapital"
Processtoobtain
financing
Specificbenchmarkstoqualify
forfinancing
Financingacceptance
rates
Wholesample 2.2 1.9 2.0 2.1 2.0 2.1 1.8
<$5million 2.1 1.8 1.9 2.0 1.9 2.0 1.7
$5- $100million 2.6 2.3 2.5 2.6 2.5 2.4 2.2
4% 3%6% 8%
3%
14%
28%
13%
5%
14%
0%5%
10%15%20%25%30%
Inlessthanoneyear
1year 2years 3years 4years 5years Between5and10years
Between10and15years
Between15and20years
After20years
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BUSINESSOWNERcont.Assumingrespondentsbusinesseswereeligibletoraisefinancingfrombothprivateequityandapublicstockoffering(IPO),58%ofthemwouldchooseprivateequity.
Figure196.PrivateEquityvsInitialPublicOffering
Whenaskedaboutgeneralview,56%ofrespondentsindicatedprivateequityasfavorablefinancingsource.
Figure197.GeneralViewsonInitialPublicOfferingandPrivateEquity
0%
20%
40%
60%
80%
100%
Privateequity Initialpublicoffering(IPO)
Unsure
Wholesample 58% 13% 29%
<$5million 57% 13% 30%
$5- $100million 63% 13% 24%
Favorable Neitherfavorablenorunfavorable Unfavorable
IPO 32% 35% 33%PE 56% 26% 18%
32% 35% 33%
56%
26%18%
0%
20%
40%
60%
80%
100%
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BUSINESSOWNERcont.Privately-heldbusinesseswithannualrevenueslessthan$5millionaremoreconcernedaboutaccesstocapitalthanthosewithrevenuesgreaterthan$5million.Largerprivately-heldbusinessesaremoreconcernedaboutgovernmentregulationsandtaxes.
Figure198.TheNumberOneIssueFacingPrivately-HeldBusinessesTodaybyRevenueSizes
Figure199.TheNumberOneEmergingIssueFacingPrivately-HeldBusinessesbyRevenueSizes
44%
33%
25%
25%
18%
10%
9%
8%
5%
49%
19%
19%
18%
16%
4%
3%
4%
2%
0% 10% 20% 30% 40% 50% 60%
Governmentregulationsandtaxes
Accesstocapital
Economicuncertainty(Domestic)
Healthcarecosts
Politicaluncertainty/elections
Inflation
Economicuncertainty(International)
Competitionfromforeigntradepartners
Other
Revenueslessthan$5million Revenuesmorethan$5million
25%
25%
23%
20%
20%
16%
15%
12%
5%
21%
19%
19%
15%
15%
15%
9%
10%
4%
0% 5% 10% 15% 20% 25% 30%
Healthcarecosts
Economicuncertainty(Domestic)
Governmentregulationsandtaxes
Inflation
Politicaluncertainty/elections
Economicuncertainty(International)
Accesstocapital
Competitionfromforeigntradepartners
Other
Revenueslessthan$5million Revenuesmorethan$5million
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BUSINESSOWNERcont.Mostofrespondentsindicatedincreasedunitsalesandpricesoflaborandmaterials,flataccesstocapital,andslightlyimprovedgeneralbusinessconditions.
Table63.GeneralBusinessandIndustryAssessment:TodayVersusTwelveMonthsAgo
Characteristics Decreasedsignificantly
Decreasedslightly
Stayedabout
thesame
Increasedslightly
Increasedsignificantly %increase %
decrease
Netincrease/decrease
Unitsales 9% 15% 25% 31% 20% 51% 24% 27%
Pricesoflaborandmaterials 1% 4% 37% 46% 13% 58% 5% 54%
Netincome 9% 17% 25% 33% 16% 50% 26% 24%
Inventorylevels 2% 14% 59% 19% 6% 25% 16% 8%
Capitalexpenditures 4% 10% 46% 28% 12% 40% 14% 26%
Opportunitiesforgrowth 4% 10% 28% 36% 23% 58% 14% 45%
Accesstobankloans 8% 10% 54% 20% 7% 28% 18% 10%
Accesstoequitycapital 7% 10% 61% 16% 5% 22% 17% 5%
Pricesofyourproductsorservices 1% 7% 43% 43% 5% 49% 8% 41%
Timetocollectreceivables 2% 9% 64% 19% 7% 26% 10% 15%
Numberofemployees 2% 7% 62% 25% 3% 28% 9% 19%
Competition 1% 9% 53% 28% 9% 36% 10% 26%
Generalbusinessconditions 5% 15% 43% 29% 7% 36% 20% 16%
Appetiteforrisk 3% 12% 52% 26% 7% 34% 15% 19%
Probabilityofbusinessclosure 19% 21% 45% 11% 5% 16% 39% -23%
Timeworryingabouteconomy 8% 16% 41% 20% 15% 35% 24% 12%
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BUSINESSOWNERcont.Participantsofthesurveybelievealmostallgeneralbusinesscharacteristicswillincreaseinthenext12months.
Table64.GeneralBusinessandIndustryAssessmentExpectationsOvertheNext12Months
Characteristics Decreasedsignificantly
Decreasedslightly
Stayedabout
thesame
Increasedslightly
Increasedsignificantly %increase %decrease
Netincrease/decrease
Unitsales 1% 5% 19% 49% 25% 75% 7% 68%
Pricesoflaborandmaterials 1% 3% 34% 55% 7% 62% 4% 57%
Netincome 1% 7% 19% 49% 24% 73% 8% 64%
Inventorylevels 2% 7% 56% 29% 6% 36% 8% 27%
Capitalexpenditures 3% 8% 46% 32% 10% 43% 11% 31%
Opportunitiesforgrowth 1% 5% 25% 41% 29% 69% 6% 63%
Accesstobankloans 4% 5% 54% 28% 8% 36% 10% 26%
Accesstoequitycapital 5% 5% 57% 25% 9% 34% 9% 25%
Pricesofyourproductsorservices 1% 3% 40% 51% 5% 56% 4% 51%
Timetocollectreceivables 2% 8% 69% 18% 3% 21% 10% 11%
Numberofemployees 1% 2% 45% 46% 6% 52% 3% 49%
Competition 2% 6% 56% 30% 6% 36% 8% 28%
Generalbusinessconditions 2% 8% 41% 39% 10% 49% 10% 39%
Appetiteforrisk 2% 11% 51% 28% 8% 36% 13% 23%
Probabilityofbusinessclosure 23% 22% 44% 7% 4% 12% 45% -33%
Timeworryingabouteconomy 11% 20% 45% 14% 11% 24% 31% -7%
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ABOUTTHEAUTHOR CraigR.Everett,PhDDirector,PepperdinePrivateCapitalMarketsProjectCraigR.EverettisanassistantprofessoroffinanceatPepperdineGraziadioSchoolofBusinessandManagementandDirectorofthePepperdinePrivateCapitalMarketsProject.Histeachingandresearchinterestsincludeentrepreneurialfinance,privatecapitalmarkets,businessvaluationandbehavioralcorporatefinance.HeholdsaPhDinfinancefromPurdueUniversity,anMBAfromGeorgeMasonUniversity,andaBAinquantitativeeconomicsfromTuftsUniversity.Dr.Everettistheauthorofthebest-sellingchildren'sfantasynovel,TobyGoldandtheSecretFortune,whichincorporatessuchfinancialliteracytopicsassaving,investing,banking,entrepreneurship,interestrates,returnoninvestment,andnetworth.HisresearchhasappearedintheWallStreetJournal,CNBC,USAToday,andtheNewYorkTimes,beenpublishedinanumberofjournalsandbeenpresentedatdomesticandinternationalconferences.CraigEverettismemberoftheBetaGammaSigmaHonorSociety,FinancialExecutivesInternational,andtheLosAngelesWorldAffairsCouncil.Dr.Everettisacertifiedmergers&acquisitionsadvisor(CM&AA),andaregisteredinvestmentadvisor(RIA)withthestateofCalifornia.Contact:[email protected]
ABOUTPEPPERDINEGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT
Aleaderincultivatingentrepreneurshipanddigitalinnovation,thePepperdineGraziadioSchoolofBusinessandManagementfocusesonthereal-worldapplicationofMBA-levelbusinessconcepts.TheGraziadioSchoolprovidesstudent-focused,globally-orientededucationthroughpart-time,full-time,andexecutiveMBAprogramsatourfiveSouthernCalifornialocations,SiliconValleyandSantaBarbaracampuses,aswellasthroughonlineandhybridformats.Inaddition,theGraziadioSchooloffersavarietyofmasterofscienceprograms,abachelorofscienceinmanagementdegree-completionprogram,andthePresidentsandKeyExecutivesMBA,aswellasexecutiveeducationcertificateprograms.FollowtheGraziadioSchoolonFacebook,onTwitterat@GraziadioSchool,InstagramandLinkedIn.
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INDEXOFTABLES Table1.PrivateCapitalMarketRequiredRatesofReturn.......................................................................................................3
Table2.MedianDealMultiplesbyEBITDASizeofCompany...................................................................................................7
Table3.MedianTotalLeverageMultiplesbySizeofCompany................................................................................................8
Table4.MedianSeniorLeverageMultiplesbySizeofCompany..............................................................................................8
Table5.BalanceofAvailableCapitalwithQualityCompanies...............................................................................................10
Table6.HowDifficulttoArrangeSeniorDebtforTransactionsoverthePast12Months.......................................................10
Table7.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo...............................................................10
Table8.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months..................................................11
Table9.PEGFundData.........................................................................................................................................................12
Table10.GeneralCharacteristics–BuyoutTransactions(medians).......................................................................................15
Table11.GeneralCharacteristics–Non-BuyoutTransactions(medians)...............................................................................15
Table12.TheBalanceofAvailableCapitalwithQualityCompaniesfortheFollowingEBITDASize........................................18
Table13.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo..............................................................18
Table14.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months................................................19
Table15.All-inRatesbyLoanSizeandIndustry.....................................................................................................................21
Table16.All-inRatesbyLoanType........................................................................................................................................21
Table17.SeniorLeverageMultiplebyEBITDASize................................................................................................................22
Table18.FeesCharged..........................................................................................................................................................22
Table19.ImportanceofFinancialEvaluationMetrics............................................................................................................23
Table20.FinancialEvaluationMetricsAverageData.............................................................................................................23
Table21.PersonalGuaranteeandCollateralPercentageofOccurrencebySizeofLoan(%)..................................................23
Table22.ApplicationsData...................................................................................................................................................23
Table23.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo..............................................................25
Table24.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months................................................26
Table25.All-inRatesonCurrentAsset-BasedLoans(medians).............................................................................................27
Table26.StandardAdvanceRate(orLTVratio)forAssets(%)...............................................................................................28
Table27.MezzanineFundData.............................................................................................................................................30
Table28.SponsoredDealsbyEBITDASize(medians)............................................................................................................32
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Table29.InvestmentTypebySizeofInvesteeCompany,SponsoredDeals............................................................................32
Table30.Non-SponsoredDealsbyEBITDASize(medians).....................................................................................................33
Table31.InvestmentTypebySizeofInvesteeCompany,SponsoredDeals............................................................................33
Table32.ImportanceofFinancialEvaluationMetrics............................................................................................................34
Table33.FinancialEvaluationMetricsAverageData.............................................................................................................35
Table34.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo..............................................................36
Table35.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months................................................36
Table36.ImportanceofFactorsWhenEvaluating.................................................................................................................41
Table37.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo..............................................................42
Table38.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months................................................42
Table39.VCFundData..........................................................................................................................................................44
Table40.GeneralInformationonInvestmentsbyCompanyStages.......................................................................................45
Table41.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo..............................................................48
Table42.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months................................................48
Table43.GeneralInformationonInvestmentsbyCompanyStages.......................................................................................51
Table44.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo..............................................................54
Table45.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months................................................54
Table46.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo..............................................................57
Table47.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months................................................58
Table48.HowDifficulttoArrangeSeniorDebtforTransactionsoverthePast12Months.....................................................61
Table49.NumberofNewClientsintheLast3Months..........................................................................................................63
Table49.ExpectationsofBusinessListings/EngagementsfromNewClientsintheNext3Months.......................................86
Table50.ExpectationsforBusinessValuationMultiplesintheNext3Months......................................................................86
Table51.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo..............................................................87
Table52.GeneralBusinessandIndustryAssessment:ExpectationsovertheNext12Months...............................................87
Table53.FeesCharged..........................................................................................................................................................89
Table54.MedianPercentageorAmountCharged.................................................................................................................90
Table55.Spread(%)..............................................................................................................................................................90
Table56.TypicalCurrentRequirements................................................................................................................................91
Table57.Discountfee(%)onOutstandingInvoicesforNotificationBasis.............................................................................91
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Table58.ExpectedTotalWrite-off–PercentageofReceivablesPurchasedonNewArrangements(%).................................92
Table59.AverageNumberofDaysOutstandingReceivables.................................................................................................92
Table60.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo..............................................................93
Table61.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months................................................93
Table62.GeneralBusinessandIndustryAssessment:TodayVersusTwelveMonthsAgo....................................................110
Table63.GeneralBusinessandIndustryAssessmentExpectationsOvertheNext12Months.............................................111
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INDEXOFFIGURES Figure1.PrivateCapitalMarketRequiredRatesofReturn......................................................................................................2
Figure2.PrivateBusinessSalesTransactionsClosedintheLast12Months.............................................................................4
Figure3.BusinessTypesThatWereInvolvedintheTransactionsClosedintheLast12Months...............................................5
Figure4.AverageNumberofMonthstoCloseOneDeal..........................................................................................................5
Figure5.PrivateBusinessTransactionsExpectedtoCloseintheNext12Months...................................................................5
Figure6.PercentageofBusinessSalesEngagementsTerminatedWithoutTransacting............................................................6
Figure7.ReasonsforBusinessSalesEngagementsNotTransacting.........................................................................................6
Figure8.ValuationGapinPricingforTransactionsThatDidn’tClose.......................................................................................6
Figure9.UsageofValuationMethods.....................................................................................................................................7
Figure10.UsageofMultipleMethods.....................................................................................................................................7
Figure11.ComponentsofClosedDeals...................................................................................................................................8
Figure12.PercentofTransactionsInvolvedStrategicandFinancialBuyers............................................................................9
Figure13.PremiumPaidbyStrategicBuyersRelativetoFinancialBuyers..............................................................................9
Figure14.PercentofTransactionsInvolvedStrategicandFinancialBuyers............................................................................9
Figure15.IssuesFacingPrivately-HeldBusinesses.................................................................................................................11
Figure16.TypicalInvestmentSize.........................................................................................................................................12
Figure17.TypeofBusinessforInvestmentsPlannedoverNext12Months...........................................................................13
Figure18.TotalNumberofInvestmentsMadeintheLast12Months...................................................................................13
Figure19.NumberofFollow-onInvestmentsMadeintheLast12Months............................................................................13
Figure20.NumberofTotalInvestmentsPlannedoverNext12Months.................................................................................14
Figure21.NumberofFollow-onInvestmentsPlannedoverNext12Months.........................................................................14
Figure22.SizeofBuyoutInvestmentsintheLast12Months.................................................................................................14
Figure23.SizeofNon-BuyoutInvestmentsintheLast12Months.........................................................................................15
Figure24.UsageofValuationApproaches.............................................................................................................................16
Figure25.UsageofMultipleMethods...................................................................................................................................16
Figure26.ItemsRequiredtoCloseOneDeal.........................................................................................................................17
Figure27.ExitPlansforPortfolioCompanies.........................................................................................................................17
Figure28.IssuesFacingPrivately-HeldBusinesses.................................................................................................................19
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Figure29.DescriptionofLendingEntity.................................................................................................................................20
Figure30.ParticipationinGovernmentLoanPrograms.........................................................................................................20
Figure31.TypicalInvestmentSize.........................................................................................................................................21
Figure32.BorrowerMotivationtoSecureFinancing(past12months)..................................................................................22
Figure33.TypicalEBITDASizesforCompaniesBooked..........................................................................................................27
Figure34.Asset-BasedLoansDeclineRate............................................................................................................................28
Figure35.SBIC(smallbusinessinvestment)Firms.................................................................................................................29
Figure36.TypeofBusinessforInvestmentsPlannedoverNext12Months...........................................................................30
Figure37.TotalNumberofInvestmentsMadeintheLast12Months...................................................................................30
Figure38.NumberofFollow-onInvestmentsMadeintheLast12Months............................................................................31
Figure39.NumberofTotalInvestmentsPlannedoverNext12Months.................................................................................31
Figure40.NumberofFollow-onInvestmentsPlannedoverNext12Months.........................................................................31
Figure41.SizeofSponsoredDealsintheLast12Months......................................................................................................32
Figure42.SizeofNon-SponsoredDealsintheLast12Months..............................................................................................33
Figure43.BorrowerMotivationtoSecureMezzanineFunding(past12months)...................................................................34
Figure44.ItemsRequiredtoCloseOneDeal.........................................................................................................................34
Figure45.EntityType............................................................................................................................................................37
Figure46.AssetsunderManagementorInvestableFunds....................................................................................................38
Figure47.CurrentAssetAllocationfor"AlternativeAssets"(%oftotalportfolio).................................................................38
Figure48.TargetAssetAllocationfor"AlternativeAssets"(%oftotalportfolio)...................................................................38
Figure49.TargetAssetAllocationbyAssets..........................................................................................................................39
Figure50.AnnualReturnExpectationsforNewInvestments.................................................................................................39
Figure51.AssetswiththeBestRisk/ReturnTrade-offCurrently............................................................................................40
Figure52.IndustrywiththeBestRisk/Return........................................................................................................................40
Figure53.GeographicRegionsoftheWorldOfferingtheBestRisk/ReturnTradeoffCurrently..............................................40
Figure54.IssuesFacingPrivately-HeldBusinesses.................................................................................................................41
Figure55.TotalNumberofInvestmentsMadeintheLast12Months...................................................................................43
Figure56.NumberofFollow-onInvestmentsMadeintheLast12Months............................................................................43
Figure57.NumberofTotalInvestmentsPlannedoverNext12Months.................................................................................44
Figure58.NumberofFollow-onInvestmentsPlannedoverNext12Months.........................................................................44
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Figure59.TypeofBusinessforInvestmentsPlannedoverNext12Months...........................................................................45
Figure60.GeographicLocationofPlannedInvestmentoverNext12Months........................................................................46
Figure61.UsageofValuationMethods.................................................................................................................................46
Figure62.UsageofMultipleMethods...................................................................................................................................46
Figure63.ExitPlansforPortfolioCompanies.........................................................................................................................47
Figure64.CurrentIssuesFacingPrivately-HeldBusinesses....................................................................................................47
Figure65.TotalNumberofInvestmentsMadeintheLast12Months...................................................................................49
Figure66.NumberofFollow-onInvestmentsMadeintheLast12Months............................................................................49
Figure67.NumberofTotalInvestmentsPlannedoverNext12Months.................................................................................50
Figure68.NumberofFollow-onInvestmentsPlannedoverNext12Months.........................................................................50
Figure69.TypeofBusinessforInvestmentsPlannedoverNext12Months...........................................................................50
Figure70.GeographicLocationofPlannedInvestmentoverNext12Months........................................................................51
Figure71.GeographicalLimitforInvestment........................................................................................................................52
Figure72.UsageofMultipleMethods...................................................................................................................................52
Figure73.ItemsRequiredtoCloseOneDeal.........................................................................................................................53
Figure74.ExitPlansforPortfolioCompanies.........................................................................................................................53
Figure75.AnnualRevenuesofCompaniesValued.................................................................................................................55
Figure76.UsageofValuationMethods.................................................................................................................................55
Figure77.UsageofMultipleMethods...................................................................................................................................56
Figure78.AverageRisk-FreeRateandMarket(equity)RiskPremiumandLong-TermGrowthRate......................................56
Figure79.DiscountforLackofMarketability(DLOM)byRevenueSizes................................................................................56
Figure80.OverallComfortLevelwithApplyingPublicCostofCapitaltoPrivately-heldCompaniesofVariousSizes..............57
Figure81.ExplicitForecastPeriodforHigh-GrowthCompaniesbyRevenueSizes(years)......................................................57
Figure82.IssuesFacingPrivately-HeldBusinesses.................................................................................................................58
Figure83.PrivateBusinessSalesTransactionsClosedintheLastTwelveMonths..................................................................59
Figure84.PrivateBusinessSalesTransactionsExpectedtoCloseintheNextTwelveMonths................................................59
Figure85.TypicalSizeofBusinessTransactions.....................................................................................................................60
Figure86.BusinessTransactionsintheLast12Months........................................................................................................60
Figure87.DidRespondentsCloseMoreTransactionsin2016thaninPreviousYears............................................................60
Figure88.ClosedBusinessTransactions................................................................................................................................61
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Figure89.In2016,BestClientArrivedBy:.............................................................................................................................61
Figure90.TypesofReferrals.................................................................................................................................................62
Figure91.TypesofPublication/MediaSource......................................................................................................................62
Figure92.WasItBuyer'sorSeller’sMarketintheLast3Months..........................................................................................62
Figure93.MedianNumberofMonthsfromListing/EngagementtoClosebyDealSize........................................................63
Figure94.MedianNumberofMonthsfromLOI/OffertoClosebyDealSize........................................................................63
Figure95.MedianSDEMultiplePaidbyDealSize..................................................................................................................63
Figure96.MedianEBITDAMultiplePaidbyDealSize............................................................................................................64
Figure97.MultipleTypesbyDealSize...................................................................................................................................64
Figure98.BuyerTypebyDealSize.........................................................................................................................................65
Figure99.ReasonforSellertoGotoMarketbydealSize......................................................................................................65
Figure100.NumberOneMotivationforBuyerbyDealSize...................................................................................................66
Figure101.MedianPercentageofFinal/SellingPriceRealizedtoAsking/BenchmarkPricebyDealSize...............................66
Figure102.BuyerLocationbyDealSize.................................................................................................................................67
Figure103.FinancingStructurebyDealSize..........................................................................................................................67
Figure104.NumberofMonthsfromEngagement/ListingtoClose.......................................................................................68
Figure105.NumberofMonthsfromLOI/OffertoClose.......................................................................................................68
Figure106.IndustryType......................................................................................................................................................68
Figure107.SDEMultiplePaid................................................................................................................................................69
Figure108.EBITDAMultiplePaid..........................................................................................................................................69
Figure109.MultiplePaid.......................................................................................................................................................69
Figure110.BuyerType..........................................................................................................................................................70
Figure111.ReasonforSellertoGotoMarket.......................................................................................................................70
Figure112.BuyerLocation....................................................................................................................................................70
Figure113.NumberOneMotivationforBuyer......................................................................................................................71
Figure114.FinancingStructure.............................................................................................................................................71
Figure115.NumberofMonthsfromEngagement/ListingtoClose.......................................................................................71
Figure116.NumberofMonthsfromLOI/OffertoClose.......................................................................................................72
Figure117.IndustryType......................................................................................................................................................72
Figure118.SDEMultiplePaid................................................................................................................................................72
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Figure119.EBITDAMultiplePaid..........................................................................................................................................73
Figure120.MultiplePaid.......................................................................................................................................................73
Figure121.BuyerType..........................................................................................................................................................73
Figure122.ReasonforSellertoGotoMarket.......................................................................................................................74
Figure123.BuyerLocation....................................................................................................................................................74
Figure124.NumberOneMotivationforBuyer......................................................................................................................74
Figure125.FinancingStructure.............................................................................................................................................75
Figure126.NumberofMonthsfromEngagement/ListingtoClose.......................................................................................75
Figure127.NumberofMonthsfromLOI/OffertoClose.......................................................................................................75
Figure128.IndustryType......................................................................................................................................................76
Figure129.SDEMultiplePaid................................................................................................................................................76
Figure130.EBITDAMultiplePaid..........................................................................................................................................76
Figure131.MultiplePaid.......................................................................................................................................................77
Figure132.BuyerType..........................................................................................................................................................77
Figure133.ReasonforSellertoGotoMarket.......................................................................................................................77
Figure134.BuyerLocation....................................................................................................................................................78
Figure135.NumberOneMotivationforBuyer......................................................................................................................78
Figure136.FinancingStructure.............................................................................................................................................78
Figure137.NumberofMonthsfromEngagement/ListingtoClose.......................................................................................79
Figure138.NumberofMonthsfromLOI/OffertoClose.......................................................................................................79
Figure139.IndustryType......................................................................................................................................................79
Figure140.SDEMultiplePaid................................................................................................................................................80
Figure141.EBITDAMultiplePaid..........................................................................................................................................80
Figure142.MultiplePaid.......................................................................................................................................................80
Figure143.BuyerType..........................................................................................................................................................81
Figure144.ReasonforSellertoGotoMarket.......................................................................................................................81
Figure145.BuyerLocation....................................................................................................................................................81
Figure146.NumberOneMotivationforBuyer......................................................................................................................82
Figure147.FinancingStructure.............................................................................................................................................82
Figure148.NumberofMonthsfromEngagement/ListingtoClose.......................................................................................82
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Figure149.NumberofMonthsfromLOI/OffertoClose.......................................................................................................83
Figure150.IndustryType......................................................................................................................................................83
Figure151.SDEMultiplePaid................................................................................................................................................83
Figure152.EBITDAMultiplePaid..........................................................................................................................................84
Figure153.MultiplePaid.......................................................................................................................................................84
Figure154.BuyerType..........................................................................................................................................................84
Figure155.ReasonforSellertoGotoMarket.......................................................................................................................85
Figure156.BuyerLocation....................................................................................................................................................85
Figure157.NumberOneMotivationforBuyer......................................................................................................................85
Figure158.FinancingStructure.............................................................................................................................................86
Figure159.PrimaryUseoftheFactoringFacilitiesOvertheLast12Months..........................................................................88
Figure160.IndustriesforGrossInvoicesfortheLast12Months............................................................................................88
Figure161.TermofCurrentTypicalFactoringFacility............................................................................................................89
Figure162.CurrentAverageAdvanceRatesforVarious-SizedFacilities.................................................................................89
Figure163.UsageofReferenceRates....................................................................................................................................90
Figure164.PercentageofFactoringBusiness-RecoursevsNon-recourse.............................................................................90
Figure165.PercentageofPurchasesonaNon-notificationBasis...........................................................................................91
Figure166.MostSignificantConcerntoFactoringBusiness...................................................................................................92
Figure167.CurrentIssuesFacingPrivately-HeldBusinesses..................................................................................................92
Figure168.RespondentsDistributionbyState......................................................................................................................94
Figure169.DescriptionofEntity............................................................................................................................................95
Figure170.NumberofEmployees.........................................................................................................................................95
Figure171.OwnershipRole...................................................................................................................................................96
Figure172.AnnualRevenues.................................................................................................................................................96
Figure173.AnnualRevenuesChangeintheLast12Months..................................................................................................97
Figure174.AnnualRevenuesChangeExpectationsintheNext12Months............................................................................97
Figure175.NetIncome.........................................................................................................................................................98
Figure176.CurrentSourcesofFinancing...............................................................................................................................98
Figure177.CapitalSourcesContactedToRaiseCapitalintheLast12Months.......................................................................99
Figure178.SuccessRates......................................................................................................................................................99
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Figure179.AverageNumberofCapitalProvidersContacted...............................................................................................100
Figure180.AmountofCapitalAttemptedtoRaiseinthelast12Months............................................................................100
Figure181.AverageTimetoCompleteFinancingProcessinDays........................................................................................101
Figure182.DaysSpentDuringtheProcesstoSuccessfullyObtainFinancing........................................................................101
Figure183.NextStepstoSatisfyFinancialNeeds................................................................................................................102
Figure184.ReasonsforNotTryingtoObtainCapitalintheLast12Months........................................................................102
Figure185.WillingnesstoObtainFinancing........................................................................................................................103
Figure186.TheMostImportantAreatoFocusOn...............................................................................................................103
Figure187.AmountofEmployeesPlannedtobeHired.......................................................................................................104
Figure188.ReasonsPreventingPrivately-HeldBusinessesfromHiring................................................................................104
Figure189.GovernmentPoliciestoLeadtoJobCreation.....................................................................................................104
Figure190.TheSkillsinDemandforNewHires...................................................................................................................105
Figure191.NeedforTrainingofNewHires.........................................................................................................................105
Figure192.CostofEquityCapital........................................................................................................................................106
Figure193.UsageofFinancialAnalysisbyRevenueSizes....................................................................................................106
Figure194.LevelofKnowledgeofFinancingComponents...................................................................................................107
Figure195.AnticipationoftheOwnershipTransfer.............................................................................................................107
Figure196.PrivateEquityvsInitialPublicOffering..............................................................................................................108
Figure197.GeneralViewsonInitialPublicOfferingandPrivateEquity...............................................................................108
Figure198.TheNumberOneIssueFacingPrivately-HeldBusinessesTodaybyRevenueSizes.............................................109
Figure199.TheNumberOneEmergingIssueFacingPrivately-HeldBusinessesbyRevenueSizes........................................109