Nineteen per cent of private equity companies plan to invest in the manufacturing sector over next 12 months, according to the 2013 Capital Markets Report by Pepperdine University’s Graziadio School of Business and Management.
Overall, private equity investors said that they expect further increases in demand for private equity, deal multiples, value of portfolio companies and slightly improving business conditions.
Based on a survey of 1,613 lenders, investors and business owners, the report is the latest edition in an annual release from the Pepperdine Private Capital Markets Project, examining capital trends and condition across ten segments.
“Private equity investment in manufacturing companies will infuse capital into a sector that has huge potential to create jobs and has been one of the areas of economic strength,” says Dr John Paglia, director of the Pepperdine Private Capital Markets Project and associate professor of finance at Pepperdine University’s Graziadio School of Business and Management. “The interest from private equity in manufacturing is driven by the rebound in the US auto industry and optimism in the housing sector. All in all, it is a positive signal that a large and important lending segment is favourably looking ahead at a more robust economy.”
The Pepperdine Private Capital Markets Project also revealed that of the small businesses who said they plan to hire, skills in sales and marketing are in greatest demand (54 per cent) followed by skilled labour (44 per cent) and service/customer service (34 per cent). Furthermore, 85 per cent of companies planning to hire indicate they would need to train the workers that they hire.
Nearly all of the private capital lenders, investors and business owners surveyed say that domestic economic uncertainty is the biggest issue that private businesses currently face. This differs from the Capital Markets Report released in late 2011 which found that lenders were spilt on whether they thought access to capital or domestic economic uncertainty was the biggest issue facing private businesses. While access to capital remains a concern, the general sentiment is that uncertainty about the future is stifling economic recovery.
“Our nation’s economic uncertainty – due to factors such as an unpredictable post-election political environment, mixed economic indicators and the fiscal cliff – is taking an enormous toll on private capital lenders, investors and businesses,” says Paglia. “Without certainty both lenders and businesses cannot plan for the future. Our economic recovery is dependent on many factors, but one essential element is providing the private capital markets with a sense of stability and an assurance that taxes and regulations are not going to change mid-game.”