The pink slips were apparently flowing quite freely at portfolio companies earlier in the year. A recently released survey found that 88 percent of private equity firms polled in March had already implemented workforce reductions. And of the ones who hadn’t, another 10 percent were considering it. Ouch.
That’s just one of the findings from the 2009 Managing Portfolio Investments survey jointly conducted by accounting and tax consulting firm RSM McGladrey Inc. and its investment banking affiliate McGladrey Capital Markets LLC. RSM McGladrey is a unit of H&R Block Inc. Roughly 100 private equity professionals participated in the poll. The majority of respondents (74 percent) were from buyout funds. Fund sizes for participants ranged from less than $100 million in assets to more than $3 billion.
Other answers to the question of what management activities had already been implemented at portfolio companies that got heavy responses in the affirmative were working capital management (83 percent), salary freezes (75 percent), business process improvements (71 percent), and reductions in capital spending (68 percent).
Add-on acquisitions were on the minds of many respondents as roughly 60 percent of those polled said they were considering such deals. More than 20 percent had already transacted.
The economic outlook, meeting business forecasts and potential loan covenant defaults ranked as the top concerns when private equity firms were asked what was most worrisome with regard to their portfolio companies in 2009. Respondents were asked to rank their level of concern on a scale of 1 to 5, with 5 being the most concerned. Both the economic outlook and meeting business forecasts were just above 4, while potential loan covenant defaults came in right at 3.5.
The options for improving portfolio company performance and value that were getting the longest looks from private equity professionals were increasing their focus on corporate strategy (more than 50 percent), operational changes (45 percent), and cash management (30 percent).
Unsurprisingly, a strong majority of respondents had stepped up communications with their portfolio companies of late. Asked about frequency of contact, 21 percent of those polled said they were speaking with the management teams of their portfolio companies on a daily basis, while 65 percent said a weekly basis. Eighty-five percent said their current level of contact represented an increase from just six months ago.
One interesting data nugget unearthed by the survey was that 35 percent of those polled had one or more funds engaged in fundraising. As for deal flow, 2009’s glacial pace was in evidence as more than 60 percent of respondents said they’d yet to close on a single investment. Nearly 20 percent had managed to nail down one deal to that point in 2009, while a little more than 15 percent said they’d closed on two-to-three transactions.