(Posted in Private Equity Professional Digest / April 7, 2010)
As the economy continues to recover most CEOs interviewed for PricewaterhouseCoopers’ Private Company Trendsetter Barometer survey have plans to monetize the value of their business, many of which are developing plans to exit their businesses over the next 5 years. The time frame for monetizing the value of their business is reasonably short-term: 38 percent over the next 5 years and 36 percent in 6 years or longer.
Overall, 46 percent of Trendsetter CEOs plan to monetize their business with the intention of a sale — either to another company or strategic buyer (41 percent) or to a private equity firm (24 percent). The second major pathway, cited by 36 percent, involves a transition to a family member (21 percent), a management buyout (12 percent) or an ESOP (10 percent).
Small companies, those with less than $100 million in revenue, are more likely to seek out a private equity firm with 60 percent of respondents citing this option. Additionally, small companies also outpace their larger counterparts with plans to sell the business to family members, management buyout or an employee stock ownership plan (ESOP) at 45 percent versus only 21 percent, respectively.
“The number of small business owners planning to monetize the value of the business through a sale is another positive indicator for future M&A activity,” says Ken Esch, partner with PricewaterhouseCoopers Private Company Services practice. “However, many expect there will need to be a further thawing of the credit markets before we begin to see transactions close.”
Interestingly, 66 percent of leading private-company CEOs planning to monetize their business over the next five years cite their primary reason as a desire to diversify their own net worth and create liquidity. Only 28 percent cite their primary reason as financial difficulties, while another 43 percent identified a want, or need, to retire. More small firms cite retirement as a primary reason (59 percent versus 11 percent).
PricewaterhouseCoopers’ Private Company Trendsetter Barometer tracks the business issues and standard industry practices of leading, privately-held U.S. businesses. It incorporates the views of 251 executives (CEOs/CFOs): 151 from companies in the product sector and 100 in the service sector, averaging $191.2 million in revenue/sales, and including large, $300M plus private companies.