Despite facing continuing economic uncertainty and difficult debt markets, private equity (PE) backed companies remain focused on growth and expect to increase both turnover and profitability in 2012. Eight out of ten expect to grow turnover and almost three quarters anticipate EBITDA growth, says PwC in a new report.
To reach their optimistic growth targets, 60% of portfolio companies expect to increase permanent headcount in the coming year and say that their private equity houses are ready to inject additional capital should it be needed, according to the firm’s survey of management teams from 77 private equity backed companies: Supporting UK growth – private equity backed company survey 2012.
The findings also suggest that PE houses are looking to invest for the longer term, with a view to helping their businesses withstand the downturn. Although the number of PE houses that have needed to inject additional capital into their businesses has dropped to 27%, compared with 37% in last year’s survey, 70% of the management teams this time round said they expected their PE houses to invest for growth, and this was most prevalent among the larger companies.
John Dwyer, UK private equity leader, PwC, says: “With its focus on growth, private equity has a critical role to play in the UK’s recovery and is well aligned with the government’s efforts to rebalance the economy. But 2012 is likely to be another tough year for companies seeking to secure financing and new funding.
Management teams at PE backed companies need a clearly defined strategy to achieve their ambitious growth targets. As well as the willingness to invest, they need to focus on efficiencies to give their businesses the best chance to weather the increased uncertainty in the marketplace and improve their EBITDA and bank covenant headroom.”
Alan Kinnear (pictured), UK private equity partner, PwC, says: “The version of the private equity model that relied on high leverage for its success was a product of the credit boom and private equity now needs to show that it has the ability to adapt and refocus on growth and achieving operational improvements. It is no surprise therefore that improving cash flow, reducing costs and seeking efficiencies are now high on management’s agenda. “
The report notes that reducing costs and seeking efficiencies has moved up to joint third position in this year’s ranking of strategic criteria. At the same time, seeking acquisitions and international expansion are both of less importance this year, reflective of the unavailability of funding. The message is that the PE sector is focused on generating growth in the UK economy and is optimistic of achieving it.
