PE firms more willing to back their companies than traditional lenders

PRIVATE equity-backed businesses in the West Midlands say that their saviours are more willing to finance their strategic growth plans than more traditional lenders.

According to a new study by PwC, 74% of private equity-backed companies say that their PE backers are willing to invest further capital into their businesses. By comparison, slightly fewer portfolio companies – 66% – said the same about their lenders and more than a third said their lenders were not willing to extend further facilities.

PwC said the findings seemed to contradict the popular perception that private equity investors were only interested in short-term gains.

Steven Kentish, partner and private equity leader at PwC in the Midlands, said: “Private equity investors have been much maligned for appearing to extract value from a portfolio company before quickly moving on, but our research paints a different picture.

“Most portfolio companies have stated that their strategy has sufficient flexibility built in to achieve their objectives and also that, more often than not, their private equity owners are happy to back their growth strategies.”

He said the confidence in future growth was further backed up by the fact that 90% of respondents expected to maintain or increase their permanent staffing levels in the coming year – a significant increase on last year when only 60% said the same.

“Given the economic backdrop, it is perhaps surprising to note that the sectors most likely to increase headcount are retail, leisure and hospitality and it is encouraging to find that private equity sees growth in these generally troubled areas. Overall, the survey shows us that PE-backed companies are optimistic about the future and confident that their backers will support them in their growth ambitions,” he added.

PE investors are also holding onto their portfolio companies for longer in the current climate, which PwC was causing some tension in situations where owners were looking to their backers for help in planning for an exit.

However, portfolio companies overall, have reported an improvement in exit conditions as well as their own readiness for exit.

The survey concluded almost three quarters of respondents felt they were ‘quite or very ready’ for an exit if an offer came up now and 60% had drawn up a list of potential purchasers. Expectations around the time frame for an exit have also fallen slightly from the previous year.  

Trade sales remain the most likely exit route, with less than a fifth favouring an Initial Public Offering (IPO). However, PwC said its recent IPO Watch survey saw a surge in PE-backed IPOs in March, with two of the top five European IPOs being private equity-backed companies. With the pipeline for listings from PE-backed companies also looking strong, the advisor said it remained to be seen if this perception rang true.