The latest annual private equity survey conducted by Gotham Consulting Partners reveals that private equity firms cite operating improvement at the portfolio level as an imperative part of doing business in today’s challenging environment. In fact, 77% of survey respondents think operating value improvement is the most important value creation lever, while 64% cite financial leverage as the least important.
“The overall economy, coupled with the rich valuations and excess use of leverage over the past few years, has left private equity firms looking for best practices to protect their portfolio. It is more important than ever for private equity firms to look for next-generation operating value,” says Deepak Agrawal, Managing Director of Gotham Consulting Partners, a New York-based consulting firm.
Additional key findings include:
* 73% of respondents have adopted more conservative assumptions in their investment thesis
* Market conditions are affecting deal flow, 66% of respondents report fewer deals are available, while 42% believe there is an increase in distressed or lower quality deals
* 35% of respondents say credit is not available at all
* 46% of respondents reveal that at least one of their portfolio companies is reaching covenant threshold.
Private equity firms are spending more time trying to boost portfolio company performance:
* 77% of respondents are increasing involvement with company management, primarily focusing on capital structure, lender negotiations, and recession planning
* Average rating of 6.5 (scale of 1-10) given to portfolio performance, with about one-half ranking the performance below 6.
The 4th Annual PE survey, conducted in December 2008-January 2009, was completed by 278 professionals from 189 PE firms of various sizes (22% with less than $200MM, 25% with $200-500MM, 25% with $500MM-2B and 28% with $2B or more).
About Gotham Consulting Partners LLC
Gotham Consulting Partners specializes in rapidly creating significant operating value for private equity firms and their portfolio companies. Our clients, ranging from mega buyout funds to middle-market PE firms, rely on us either throughout or at discrete points in their investment lifecycle for: Proactive Investment Strategy, Operational Due Diligence, Customer and Market Due Diligence, Pragmatic Growth Strategy, and Operations Improvements.
For a copy of the survey results, contact Deepak Agrawal at 212-497-9200 or firstname.lastname@example.org.