Professional Documents
Culture Documents
B y Dr. Jo h n K. Pagl i a
Denney Academic Chair and Associate Professor of Finance
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PEPPERDINEPRIVATECAPITALMARKETSPROJECT
SeniorResearcher
JOHNPAGLIA,PhD,MBA,CPA,CFA
ResearchSupport
IRINASHAYKHUTDINOVA,MBA
ExecutiveOfficer PublicRelations
MICHAELSIMS F.DOUGLASSGORE
KPPUBLICAFFAIRS
AdvisortoProject
RACHELWILLIAMS Design
R&RPARTNERS
ACKNOWLEDGEMENTS
Thisresearchwasmadepossiblebythegenerousfunding
fromtheDenneyEndowedProfessorship.
PEPPERDINEUNIVERSITY
DeanLindaA.Livingstone,PhD
AssociateDeanDavidM.Smith,PhD
MarkW.S.Chun,PhD,Director,CenterforAppliedResearch
DianneKing JuanMena
MichaelStamper JingZhang
DarleneKiloglu DorisJones
RogerLotho
DUN&BRADSTREETCREDIBILITYCORP.
JeffreyStibel,ChairandChiefExecutiveOfficer
AaronStibel,SeniorVicePresident,Technology
JudyHackett,ChiefMarketingOfficer
ErikSimon
BrendaGary
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|1
PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
ORGANIZATIONALSUPPORT
AllianceforMergersandAcquisitionsAdvisors(AM&AA) InternationalBusinessValuationAssociationLinkedinGroup
AssociationforCorporateGrowth(ACG) InternationalFactoringAssociation(IFA)
BusinessValuationResources(BVR) LinkedBusinessLinkedinGroup
CaliforniaBankersAssociation(CBA) LosAngelesVentureAssociation(LAVA)
CaliforniaMortgageBankersAssociation(CMBA) NationalAssociationforSmallBusinessInvestment
CaliforniaSmallBusinessAssociation(CSBA) Companies(NASBIC)
CommericalFinanceAssociation(CFA) NationalAssociationofWomenBusinessOwners
DealFlowSourceLinkedinGroup PE/VCRoundtable
ExitPlanningInstitute PepperdinePrivateCapitalMarketsProjectLinkedinGroup
FinanceClubLinkedinGroup RiskManagementAssociation(RMA)
ValuationLinkedinGroup
GraziadioAlumniNetwork(GAN) VentureCapitalLinkedinGroup
Harvard/USCBusinessGrowthConference VirginiaActiveAngelNetwork(VAAN)
InternationalBusinessBrokerAssociation(IBBA)
SURVEYDESIGN,DISTRIBUTION,ANDOTHERSUPPORT
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|2
PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
TABLEOFCONTENTS
BUSINESSAPPRAISERSURVEYINFORMATION...................................................................................................10
OperationalandAssessmentCharacteristics.....................................................................................................10
INVESTMENTBANKERSURVEYINFORMATION..................................................................................................14
OperationalandAssessmentCharacteristics.....................................................................................................14
BROKERSURVEYINFORMATION.......................................................................................................................24
OperationalandAssessmentCharacteristics.....................................................................................................24
LIMITEDPARTNERSURVEYINFORMATION........................................................................................................32
OperationalandAssessmentCharacteristics.....................................................................................................32
ANGELINVESTORSURVEYINFORMATION.........................................................................................................39
OperationalandAssessmentCharacteristics.....................................................................................................39
VENTURECAPITALSURVEYINFORMATION........................................................................................................46
OperationalandAssessmentCharacteristics.....................................................................................................46
PRIVATEEQUITYSURVEYINFORMATION...........................................................................................................54
OperationalandAssessmentCharacteristics.....................................................................................................54
MEZZANINESURVEYINFORMATION..................................................................................................................63
OperationalandAssessmentCharacteristics.....................................................................................................63
BANKANDASSETBASEDLENDINGSURVEYINFORMATION...............................................................................70
OperationalandAssessmentCharacteristics.....................................................................................................71
AssetBasedLendingSpecificCharacteristics.....................................................................................................79
ABOUTTHEAUTHOR.........................................................................................................................................81
INDEXOFTABLES..............................................................................................................................................82
INDEXOFFIGURES............................................................................................................................................84
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|3
EARN A CERTIFICATE
IN PRIVATE CAPITAL MARKETS
T he Certificate in Private Capital Markets (CIPCM) is a 3-day curriculum- NOVember 14-16, 2011
and
based training program developed by Dr. John Paglia in association with
April 18-20, 2012
his ground-breaking research, Pepperdine Private Capital Market Project.
Designed for business owners and professionals employed within the finance, Pepperdine University
banking, investment, mergers and acquisitions, valuation, management Graziadio School
of Business
consulting, legal, and accounting fields
and Management
Learn in-depth critical analysis and evaluation skills necessary for successfully 6100 Center Drive
Los Angeles, CA 90045
operating a business within the private capital markets
Overview of Private Capital Markets Theory and Sources of Capital
For more information, visit:
The Role of Intermediaries http://bschool.pepperdine.edu/cipcm
Angel Investments, Venture Capital, and other Early Stage or contact Rachel Williams at
Financing Sources Rachel.Williams@pepperdine.edu
Senior Debt, Cash Flow Based, Asset Based Lending and Factoring
Mezzanine and Private Equity Capital
Determining the Cost of Capital Using The Pepperdine Private Cost of
Capital Model
REGISTER: bschool.pepperdine.edu/cipcm
Building wealth by making better investment and financing decisions.
FOREWORD
Since its onset in late 2007, the Great Recession has created neverbeforeseen economic conditions for
economies around the world. Private capital markets have endured significant turbulence during the economic
downturn.Frombusinessclosurestobankfailurestofinancialservicebailouts,wehaveseensomesurvivorsand
many,manylosers.
Sincethe2008passageoftheTroubledAssetReliefProgram(TARP),wehaveseenrapidevolutionofthecapital
providersindustry.Atthesametime,capitalseekershavestruggledtosecurefunding.Theeraofeffortlesscredit
linesandbankloansforsmallbusinessesislittlemorethanafondmemory.Venturecapitalistshavebecomemore
focused on investments in safer, more established companies. Angel Investors are increasingly taking up
opportunitiesvacatedbyVCs.Privateequityandinvestmentbankersareenduringlongerperiodstoprofitablyexit
deals.
Theserapidchangeshaveleftpolicymakersfumblingforhastilyformedgovernmentbasedsolutionstocorrectthe
markets.Atthesametime,overstretchedbusinessownersandcapitalprovidersarestrugglingtocreateworkable
marketbasedsolutions.
One thing is clear; businesses, capital providers, policy makers and economists would benefit from more upto
date,preciseinformationtoaidtheprivatecapitalmarkets.Improvedunderstandingoftheentiremarket,notjust
individual segments, from capital providers to individual businesses would improve operations and market
efficiency.Italsowouldsavebusinessownersincalculablehoursspentchasingcapitalandcapitalproviderstime
reviewingonlythosecompaniesthataredeservingofinvestment.
ThePepperdinePrivateCapitalMarketsProjectisthefirstcomprehensivesetofdatatolookatthemarketfrom
businesses to capital providers perspective. The Capital Markets 20112012 Report allows capital providers to
betterunderstandtheissuesasdeterminedbypeerlendersacrossthemajorcapitalsegments.Thereportalso
sharesbehindthescenesinsightsintothemindsofcapitalproviders.
The Capital Markets 20112012 Report has uncovered data that highlights the state of the overall market. For
example,PrivateequityfirmsandInvestmentbankershavecloselymatchingpointsofviewregardingaccessibility
ofcapital.Accordingtothemostrecentdata,76%ofthe253investmentbankerssurveyedsaidthatthenumberof
companieswith$1millionEBITDA(acompany'searningsbeforethedeductionofinterest,taxandamortization
expenses)whoareworthyofinvestmentexceedstheamountofcapitalavailable.Whereas,58%oftheinvestment
banker respondents said the capital available exceeds the number of companies with $100 million EBITDA that
meetinvestmentcriteria.Intermsofprivateequityrespondents,63%ofthe288surveyedsaythatthenumberof
companieswith$5millionEBITDAthatareinvestmentworthyexceedsthecapitalavailable.Ontheotherhand,
58%ofprivateequityrespondentssaidthatthecapitalavailableexceedsthenumberofcompanieswithover$100
millionEBITDAwhoareworthyofinvestment.
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|5
PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
Historically,agreementamonginvestmentbankersandprivateequityfirmsisuncommonbuttheiragreementis
corroborated by the fact that larger safer companies enjoy access to growth capital. However, smaller
companiesseekingcapitalgreatlyoutweightheavailablecapital.
Otherrevealingfindingsinclude:
Dealsaretakinglonger.Respondentsinprivateequitysurveysaidonly12%plannedIPOs.Respondents
exitstrategiesincludesellingtoaprivatecompanyat28%,another26%ofrespondentsplantosellto
anotherprivateequitygroupand22%saytheywouldselltoapubliccompany.PEfundersalsosaidthey
arewaiting4yearsormoretoexitregardlessofinvestmentsize.
Refinancingcomprisesalmosthalfofbankloans.Respondentstothebankssurveysaidrefinancing
accountedfornearly49%ofalllendingactivityfollowedbyexpansion(22%)andworkingcapital(11%).
Thelargestconcentration(58%)ofloansizeswasbetween$1millionand$25million.
Privateequityfearsfutureregulation.While11%saidtheyfearedgovernmentregulationandtaxes
today,28%saiditwasanemergingissue.Thiscouldbeinresponsetoarecentlyapprovedrulefromthe
CommodityFuturesTradingCommission(CFTC)(October31st)requiringthelargestU.S.hedgefundsand
privateequityfundstoreportfinancialinformationtothegovernmentstartingnextyear.TheCFTCrule
wasalsopassedbytheSecuritiesandExchangeCommission.Thereportingrequirementsweremandated
underthe2010financialoverhaullaw.
In2004,RobertT.Sleewrote"PrivateCapitalMarkets:Valuation,Capitalization,andTransferofPrivateBusiness
Interests, in which he discussed the importance of the private capital markets but relatively little market wide
understanding or research. The Private Capital Markets Projects Capital Markets 20112012 Report seeks to
improve the innerworkings of the private capital markets based on real world responses and reactions from
professionals. Through improved understanding of market wide conditions and interconnectedness based on
responsesfrombusinessownersandcapitalproviders,publicandpolicymakerswillbebetterabletoencourage
marketdrivensolutions.
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|6
PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
PEPPEERDINEPRIVAT
TECAPITALMA
ARKETSSURVEEY
Ourfindinggsindicatethaatthecostofccapitalforprivvatelyheldbussinessesvariesssignificantlyb bycapitaltypee,size,
and risk assumed. This relationship iss depicted in the Pepperdinne Private Capital Market LLine, which ap ppears
below.
Figure
F 1. Priv
vate Capital Market Requ uired Rates o of Return
100%
Angel (38% 45
5%)
90%
80%
70%
60%
VC(28% 3
38%)
50%
PEG(23% 330%)
40% Mezz((18% 23%)
30% ABL(4% 7%)
7
20% Banks (5 7%))
10%
0%
1stQ
Quartile Median 3rdQ
Quartile MedianSp
pring2011
2011|PEPPERDINEUNIVERSITYYGRAZIADIOSCHO
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PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
Thecostofcapitaldatapresentedbelowidentifiesmedians,25thpercentiles(1stquartile),and75thpercentiles
(3rdquartile)ofannualizedgrossfinancingcostsforeachmajorcapitaltypeanditssegments.Thedatarevealthat
loanshavethelowestaveragerateswhilecapitalobtainedfromangelshasthehighestaveragerates.Asthesizeof
loanorinvestmentincreases,thecostofborrowingorfinancingfromanyofthefollowingsourcesdecreases.
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|8
EARN YOUR EDGE
The Certified Merger &
Acquisition Advisor Certificate Program
Sponsored by
PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
BU
USINESSA
APPRAISEERSURVEEYINFORMATION
Otherkeyffindingsinclude
e:
In ncomevaluation napproachistheoverwhelmingfavoriteamoongrespondennts
Re espondentsuse eanaveragerisskfreerateof3 3.9%andamarkket(equity)riskkpremiumof6.3%
Avveragelongterrmterminalgro owthisestimate edat3.2%
Th hemajorityofrrespondentsanticipateanincrreaseinbusinesssengagementssoverthenext12months
Operatio
onalandAsssessmentCh
haracteristicss
Mostofthe
ecompaniesvaluedbyrespondentshaveann
nualrevenuesfrrom$2,000,0000to$50,000,0000.
0.7 62%
6 64
4% 63 %
0.6
0.5 42% 42%
%
0.4 30% 31%
0.3
0.2 15%
0.1
0
essthan
Le $50 million $5million $10miillion $50million $100million Greaterth
00,000 $2m han
$5
500,000 $1million $5m
million $10m million $50mmillion $100million $5000 $500million
million
Appraisers,,onaverage,ap
pplya50%weigghttoincomeaapproacheswheenvaluingapri vatelyheldbussiness.
Figu
ure 3. Usage of Valuation Approaches
s
17% Inco
omemethod(D
DCF,NPV,IRR)
12% 50%
%
Tran
nsactionmetho
od
Publiccompanym
method
21%
Otheer
2011|PEPPER
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APPRAISER
RScont.
Respondenntsusingmultiplesbasedapproachesindicate
eapreferencefforusingrecastt(adjusted)EBITTDAmultiples((34%),
followedbyyrevenuemultiples(22%).
Figure 4. Usage
U of Mu
ultiples
Revenuem
multiple
5% 4%
Recast(ad
djusted)EBITDA
Amultiple
22%
2
17% EBITDA(u
unadjusted)mu
ultiple
6% EBITmultiiple
12% 34% Cashflowmultiple
Netincom
memultiple
Other
Responden ntsindicatedusinganaverageriskfreerateof3.9%,averageemarket(equitty)riskpremium
mof6.3%and
averagelon
ngtermgrowth hrateof3.2%.FFigure7indicatesconsiderableedifferencesinDLOMsacrosssizesofcompaanies
andsubjecttinterests.
Figure
e 5. Average Risk-Free Ra
ate, Market (equity)
( Risk
k Premium an
nd Long-Term
m Growth Ra
ate
0% 1% 2% 33% 4% 5% 6% 7%
Riskfreerate 3.99%
Market(equity)riskp
premium 6.3%
%
mterminalgro
Longterm owthrate 3.2%
0% 1
10% 20% 30% 4
40%
$100,000inrevenues 19.0%
34.0%
$1Minrevenues 17.0%
31.4%
$25Minrevenues 144.6%
27.8%
%
$250Minrevenues 11.1%
223.2%
Controlinterrest Minorrityinterest
2011|PEPPER
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APPRAISER
RScont.
Figu
ure 7. Explicit Forecast Period
P for Hig
gh-Growth C
Companies b
by Revenue S
Sizes (years))
$1million 5.6
$25million 5.8
$250million 5.5
Responden ntsindicatedinccreasesincosto
ofcapital,riskp
premiumsandD
DLOMs,andwo
orsenedgeneraalbusinesscond
ditions
overthelasstsixmonths.
Ta
able 2. Gene
eral Business
s and Industrry Assessme
ent: Today v
versus Six Mo
onths Ago
Stayed Net
Decrreased Decreas sed Increased Inccreased % %
Characteris
stics about the crease/
inc
signifficantly slighttly slightly sign
nificantly increa
ase decrease
same decrease
Number of engagements
e 3%
3 19%
% 27% 34% 17% 51%
% 22% 29%
Time to com
mplete a typical appraisal 1%
1 11%
% 65% 19% 4% 23%
% 13% 10%
Fees for serrvices 2%
2 18%
% 63% 15% 1% 16%
% 20% -4%
Competition 0%
0 3% 63% 27% 7% 34%
% 3% 30%
Cost of capital 1%
1 18%
% 53% 27% 2% 28%
% 19% 9%
Market (equity) risk premium
ms 0%
0 11%
% 57% 29% 3% 32%
% 11% 21%
DLOM 0%
0 6% 73% 18% 3% 21%
% 6% 16%
Company sp
pecific risk premiums 1%
1 3% 54% 37% 4% 42%
% 4% 37%
General bus
siness conditions
s 3%
3 32%
% 40% 20% 5% 25%
% 35% --10%
Responden ntsexpectincreasingcostofcaapital,riskprem
miums,andslighhtlyimprovingggeneralbusinesssconditionsovverthe
nextyear.
Table
e 3. General Business
B and Industry Assessment
A E
Expectations
s over the Ne
ext 12 Month
hs
Stay Net
Deccrease Decrease Increase In
ncrease % %
Characteris
stics about the inc
crease/
signifficantly slighttly slightly signnificantly increa
ase decrease
same decrease
Number of engagements
e 1% 5%
% 36% 49% 8% 56%
% 6% 51%
Time to com
mplete a typical appraisal 1% 10%
% 78% 9% 1% 10%
% 10% -1%
Fees for serrvices 0% 6%
% 63% 29% 1% 30%
% 6% 24%
Competition 0% 2%
% 72% 24% 1% 24%
% 2% 23%
Cost of capital 0% 7%
% 66% 24% 1% 25%
% 7% 19%
Market (equity) risk premium
ms 0% 7%
% 66% 25% 1% 26%
% 7% 19%
DLOM 0% 4%
% 78% 14% 1% 16%
% 4% 11%
Company-sp
pecific risk premiiums 1% 6%
% 64% 26% 1% 26%
% 7% 19%
General bus
siness conditions
s 3% 19%
% 51% 23% 2% 25%
% 22% 3%
2011|PEPPER
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REPORT20112012
APPRAISER
RScont.
Responden
ntsbelieveecon
nomicuncertain ntyisthemostiimportantissueefacingprivatelyheldbusinesssestoday.
Governmen
ntregulationsaandtaxesasacategoryisindiccatedasthemoostimportantemmergingissue.
0% 20% %
40% 60% 80% 100% 120
0%
To
otal 100%
665%
Economicuncerrtainty(domesstic)
15%
Accesstocap
pital
13%
1
Governmentregu
ulationsandtaaxes
3%
omicuncertain
Econo nty(internation
nal)
1%
Competittionfromforeiigntradepartn
ners
Inflattion 1%
Currentissue Emergiingissue
2011|PEPPER
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REPORT20112012
INV
VESTMEN
NTBANKEERSURVEEYINFOR
RMATION
N
Themajorittyofthe253re
espondentstotheinvestmentbankersurvey indicatedincreasingmarginprressureon
companiesoverthelastsixmonths.Theyyalsoreportedslightincreasessindealflow,rrelativelyflatleverageanddeaal
multiples,increasedprese worsenedbusin essconditions.Domesticecon
enceofstrategiccbuyers,andw nomicuncertainnty
wasidentiffiedasthemosttimportantissu
uefacingprivatelyheldbusineessestoday.Governmentregulationsandtaxes
wereindicaatedasthemosstimportantem mergingissue.
Otherkeyffindingsinclude
e:
Ap pproximately84%ofresponde entsexpecttocclosebetweenooneandfivedeealsinthenext12months.Thiisisup
fromtheroughlyy72%ofrespon ndentsinSpringg2011.
Re espondentsinddicatedageneraalimbalancebe etweencompanniesworthyofffinancingandcaapitalavailablefor
thhesame.Thereisareportedshhortageofcapittalforthosecoompanieswithlessthan$10m millioninEBITDA
A,but
ageneralsurplussforcompaniesswith$25milliooninEBITDAorrmore.
Th hemostpopulaarvaluationapp proachesusedb byrespondentsswhenvaluingpprivatelyheldb businessesweree
in
ncomeandtransactionapproaches.
Operatio
onalandAsssessmentCh
haracteristicss
Approximately25%oftheerespondentsddidntcloseanydealsinthelasstsixmonths;557%closedbetw
weenoneandffive
deals,while
e9%closedmo
orethansix.
Figure 9. Private
P Busin
ness Sales Transactions
T Closed in th
he Last Six M
Months
3% 0
9%
6% 25% 1
6%
2
7%
7
3
%
24% 4
20%
5
6
Greaterthan6
2011|PEPPER
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REPORT20112012
IBANKEERcont.
Approximately20%ofallttransactionsclo
osedinthelastsixmonthsinvoolvedmanufactturing,followed
dby15%that
involvedbu
usinessservicess,and12%thatinvolvedwhole esaleandmanuufacturing.
Figure 10.
1 Business Types That Were Involve
ed in the Tra
ansactions C
Closed in the Last Six Mo
onths
Manufacturing
7%
8% Businessserrvices
20%
8% Wholesale&
&distribution
9% %
15% Healthcare
11% Informationtechnology
12%
11% Retail&con
nsumerservices
Financialserrvices
Basicmaterials&energy
Other
Themajorittyofdeals(58%
%)tooksixto12
2monthstoclo
ose.Rarelydidaanydealtakem
morethanoneyyeartoclose(4%
%).
4% 7% 24m
months 46m
months
9%
16% 22%
2
68m
months 810months
13%
29% 10122months 1218
8months
Greateerthan18mon
nths
Nearly7%ooftherespondeentsdontexpe
ecttocloseanydealsintheneext12months;884%expecttocclosebetweenone
andfivedeals,whileonly2%expecttoclosemorethan6deals.
Figure
F 12. Pri
rivate Busine
ess Transactiions Expecte
ed to Close iin the Next 1
12 Months
2%
7% 7%
% 0 1
12%
% 13%
2 3
16%
23%
4 5
20%
6 Greaterthan6
2011|PEPPER
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PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
IBANKEERcont.
Approximately42.7%ofdealsterminated
dwithouttranssactingovertheepastyear.
Figu
ure 13. Perce
entage of Bu
usiness Sales
s Engageme
ents Terminated Without Transacting
g
42.7%
Trransacted
57.3
3% %Nottransacted
Topthreerreasonsfordealsnotclosing:vvaluationgapin
npricing(29%), economicunceertainty(18%),andunreasonaable
Seller/buye
erdemands(17%).
Valuationggapinpricing
2%
6%
6% Economicuuncertainty
29%
8% Unreasonabblesellerorbu
uyerdemand
14%
1 Lackofcapiitaltofinance
18% Nomarketfforbusiness
17%
Insufficient cashflow
Sellermisreepresentationss
Other
Ofthosetraansactionsthattdidntclosedu
uetoavaluationgapinpricingg,approximatelly39%hadavaaluationgapinp
pricing
between21 1%and30%.
7% 010%
7% 8%
9% 1120%
29%
2130%
39%
% 3140%
4150%
Greaterthaan50%
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IBANKEERcont.
Theweighttsofthevarioussvaluationapproachesusedb
byrespondents whenvaluingpprivatelyheldb
businessesincluded
34%forbotthincomeandtransactionapp proaches.
%
11% 6% Incomeapprroach(DCF,NP
PV,IRR)
34%
15% Transactionaapproach
Publiccompaanyapproach
Other
RecastEBITTDAmultiples(3
39%)andEBITD
DAmultiples(21
1%)carriedthe mostweightw
whenusingmulttiplestodeterm
mine
valuations.
Revvenuemultiplee
3%
RecastEBITDAm
multiple
7% 13%
%
12%
EB ITDAmultiple
5%
39% EB ITmultiple
21%
Casshflowmultipple(excludingEEBITDAorEBITT)
Neetincomemulttiple
Ot her
Averagede
ealmultiplesontransactionsfrromthepriorsixmonthsasobbservedbyresppondentsvaried
dfrom2to9.
Table
Ta 4. Media
an Deal Multtiples by EBIITDA Size off Company
Ba
asic
Retail and Wholesale
Business
B matterials Health Information Financial
EBITDA Manufacturing
g consumer & A
Average
services & care technology services
services distribution
en ergy
$1M 4 3.5 3.5 4 3
3.5 4 4.25 3.5 4
$5M 4.5 4 4.5 5 4 5 5.5 4 5
$10M 5.25 7 5.5 6 5 6 6 5 6
$25M 6 6.5 6 6 5 5.75 7.5 5.25 6
$50M 6.5 4.5 6.25 6 7
7.5 7 7.75 5 6
$100M 6.5 7.25 6 7.5 8 6.5 8.75 6.75 7
2011|PEPPER
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IBANKEERcont.
Averagetottalleveragemu
ultiplesobserve
edbyresponden
ntsvariedfrom
m1.5to6.
Averagetottalleveragemu
ultiplesobserve
edbyresponden
ntsvariedfrom
m1.5to6.
Tab
ble 6. Median
n Senior Leve
erage Multip
ples by Size o
of Company
Approximately37%ofbussinesssalestran
nsactionsclosed
dinthelast12 monthsinvolveedcontingenteearnouts.
Figu
ure 18. Comp
ponents of C
Closed Deals
s
40% 37%
32%
28% 27%
30%
20%
10%
0%
Contingenteaarnout Selllerfinancing//seller Low
weredmultipleeof Adjusstedamountoof
note EBITDA eequitysold
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IBANKEERcont.
Approximately19%ofrespondentsdidntwitnessanyp
premiumpaidbbystrategicbuyers,while51%sawpremiums
between1%
%and20%.
Figure 19
9. Premium Paid
P by Strategic Buyers
s Relative to Financial Bu
uyers
2% No
3%
13% 19
9% Yes,110%more
13% Yes,1120%more
23% Yes,2130%more
28% Yes,3140%more
Yes,4150%more
Yes,>50%m
more
Responden ntsindicatedaggeneralimbalanncebetweenco
ompaniesworthhyoffinancingaandcapitalavailableforthesaame.
Thereisarreportedshortageofcapitalfo
orthosecompan
nieswithlessthhan$10millionninEBITDAbutageneralsurpllusfor
companieswith$25millio oninEBITDAormore.
Ta
able 7. Balance of Availab
ble Capital w
with Quality C
Companies
Capital
Comp panies Capital
Coompanies availablee
worthhy of available
worthy
w of GREATL LY
finan
ncing General exceeds Scorre
EBITDA fiinancing exceedss
GREA ATLY balance companies (-2 to 2)
exceed capital companie es
exceedd capital worthy of
available
a worthy oof
availlable financing
financingg
$1M 45
5% 31% 12% 8% 4% -1.04
4
$5M 20
0% 39% 22% 13% 6% -0.55
$10M 6%
% 31% 34% 22% 7% -0.07
$25M 6%
% 25% 36% 25% 8% 0.06
6
$50M 5%
% 19% 32% 26% 18% 0.33
3
$100M 2%
% 11% 29% 35% 23% 0.66
6
Respondenntsindicatedaggeneraldifficulttywitharrangin
ngseniordebtfforbusinessesw
withlessthan$$5millionin
EBITDA.
Tab
ble 8. How Diifficult to Arrrange Seniorr Debt for Tra
ansactions o
over the Pastt Six Months
Extremely Somewhat S
Somewhat Extremely Score
EBITDA Difficult Neutral Easy
difficult difficult easy e
easy (-3 tto 3)
$1M 38% 34% 14% 8% 6% 0% 1% -1
1.9
Figure 20.
2 Would Se
enior Manage
ers and Chie
ef Executives s Benefit from
m Additionall Leadership and
Skillls Training?
?
4% 1%
Stronnglyagree
17% 30% Agree
Neuttral
49%
Disaggree
Stronnglydisagree
Accordingttorespondentsleadershipskillsarethemostimportantforsseniormanagem
menttohave.
Figure
e 21. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve
Leaderrship 94
4%
Understaandingcompettitiveenvironm
ments 88%
Strategicplan
nning 86%
Saalesandmarke
eting 69%
%
Knowled
dgeofbusinessandworldevvents 67%
Corporatefinance 60%
nspiringinnovaation
In 58%
Legalandreggulatoryknowle
edge 38%
Managgementaccoun
nting 37%
Quantitative
eanalysis/rese
earch 36%
Globalbusinessmanagem
ment 32%
Humanresou
urces 30%
Todayy Inthefutture
IBANKEERcont.
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Respondentsindicatedincreasesindealflow,marginpressureoncompanies,strategicbuyersmakingdeals,and
worsenedgeneralbusinessconditionsrelativetosixmonthsago.
Table 9. General Business and Industry Assessment: Today versus Six Months Ago
Stayed Net
Decreased Decreased Increased Increased % %
about the increase/
significantly slightly slightly significantly increase decrease
same decrease
Amount of time to sell business 2% 12% 47% 25% 14% 39% 13% 26%
Difficulty financing/selling business 2% 13% 50% 23% 11% 35% 15% 20%
General business conditions 10% 42% 29% 17% 2% 19% 52% -33%
Strategic buyers making deals 3% 14% 35% 40% 7% 48% 17% 31%
Buyer interest in minority transactions 13% 20% 49% 16% 1% 17% 34% -16%
Duringthenexttwelvemonths,respondentsexpectfurtherincreasesindealflow,marginpressureoncompanies,
strategicbuyersmakingdeals,andworseninggeneralbusinessconditions.
Table 10. General Business and Industry Assessment Expectations over the Next 12 Months
Net
Decrease Decrease Stay about Increase Increase % %
increase/
significantly slightly the same slightly significantly increase decrease
decrease
Deal flow 2% 15% 27% 46% 9% 55% 17% 38%
Amount of time to sell business 1% 20% 42% 29% 7% 37% 21% 16%
General business conditions 10% 28% 36% 25% 2% 27% 38% -11%
Strategic buyers making deals 2% 10% 40% 40% 8% 48% 12% 36%
Buyer interest in minority transactions 8% 16% 55% 19% 3% 22% 23% -1%
IBANKERcont.
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|21
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Responden
ntsbelieveecon
nomicuncertain ntyisthemostiimportantissueefacingprivatelyheldbusinesssestoday.
ntregulationsaandtaxesareindicatedasthemostimportanttemergingissuue.
Governmen
0
0% 5% 10%
1 15% 220% 25% 30% 35% 40% 45% 50%
Econo
omicuncertaintty(domestic) 43%
29%
Accesstocapital 32%
117%
Governmentregulatio
onsandtaxes 11%
24%
Economicuncertainty(international) 10%
15%
%
Compettitionfromfore
eignpartners 2%
9%
Other 2%
2%
Inflation 0%
4%
Currentisssue Emerggingissue
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BROKERSURV
VEYINFO
ORMATIO
ON
Otherkeyffindingsinclude e:
Th hemajorityofd deals(87%)tooklessthan1yeeartoclosewithhthelargestco
oncentrationbeeingtheinsixto
o
eightmonthcate egory.Another9%tookaboutayearandahaalfandrarelyddidadealtakem morethanoneaanda
haalfyearstoclosse.
Ap pproximately45%ofresponde entsexpectworseningbusinesssconditionsinnthenext12mo onths.Respond
dents
alsofurtherincre easesindealflo
ow,marginpresssureoncompaanies,andstrattegicbuyersmaakingdeals.
To opthreereason nsfordealsnotclosing:valuationgapinpricinng(24%);lacko
ofcapitaltofinaance(23%);
ecconomicuncerttainty(19%).
Operatio
onalandAsssessmentCh
haracteristicss
Approximately25%oftheerespondentsddidntcloseanydealinthelasttsixmonths;577%closedbetw
weenoneandfivve
deals,while
e9%closedmo
orethansix.
2% 0%
6%
6 5%
19
9% 0 1
8%
16% 20% 2 3
24% 4 5
6 Greaterthan
n6
Approximately20%ofallttransactionsclo
osedinthelastsixmonthsinvoolvedmanufactturingfollowed
dby15%that
involvedbu
usinessservicessand12%thatiinvolvedwholesaleandmanuffacturing.
3%
0 1
6% 8%
16%
%
20% 2 3
11%
4 5
6%
16%
14% 6 710
Greaterthan10
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BROKEERcont.
Approximately58%ofrespondentsarep
planningtoclose
ebetweenoneandfivebusineesssalestransaactionsintheneext12
months.
Fig
gure 25. Priva
ate Business
s Sales Trans
sactions Exp
pect to Close
e in the Nextt 12 Months
3%
3% 4% 0 1
4% 6% 8%
5%
% 2 3
20%
%
11%
1 4 5
6% 6 7
16%
14%
8 9
10 Greaterthan10
Themajorittyofdeals(51%
%)tookfourtoe
eightmonthsto
oclose.
24mo
onths
4% 7%
9% 46mo
onths
22%
16% 68mo
onths
810m
months
13%
1012months
29%
1218months
Greaterrthan18montths
Approximately46%ofdeaalsterminatedw
withouttransacctingovertheppastyear.
Figu
ure 27. Perce
entage of Bu
usiness Sales ents Terminated Without Transacting
s Engageme g
46% Transacted
54%
Nottransacted
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BROKEERcont.
Topthreerreasonsfordealsnotclosing:vvaluationgapin
npricing(24%), lackofcapitalttofinance(23%
%),andeconom
mic
uncertaintyy(19%).
2% Valuationgap inpricing
5%
5 Lackofcapitalltofinance
7% 24%
7%
Economicunceertainty
13
3%
Unreasonablesellerorbuyerdemand(non
nprice)
23%
19% Insufficientcashflow
Nomarketforrbusiness
Sellermisrepreesentations
Other
Ofthosede
ealsthatdidntcloseduetoavvaluationgapin
npricing,approoximately42%hhadavaluation
ngapinpricing
between211%and30%.
2%
5% 6%
23% 23% 010% 11
120%
21130% 31
140%
42%
41150% Grreaterthan50%
%
popularvaluatio
Themostp onapproachesu
used(byweightt)byrespondenntswhenvaluinngprivatelyheldbusinessesw
were
incomeand
dtransactionap
pproaches.
13% Incom
meapproach((DCF,NPV,IRR)
5% 30%
13% Tran sactionapproaach
5% Publiiccompanyap
pproach
Assetbasedapproaach
34%
Costsstocreateapp
proach
Otheer
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BROKEERcont.
MostofresspondentsuserrecastEBITDAm
multiples(34%)andcashflow multiples(23%
%).
5%
4% RecaastEBITDAmultiple
7%
% 34%
12% Cash
hflowmultiplee
EBITTDAmultiple
15% Reveenuemultiple
23% Otheer
Netincomemultip
ple
EBITTmultiple
Averagerevvenuemultiplesondealsobse
ervedbyrespon
ndentsvariedfrrom1to3.
Table 11.
1 Median Re
evenue Deall Multiples by
y Revenue S
Size of Comp
pany
Retail & B
Basic
Wholesale & Business Health Information Financial
Revenue Manufacturing consuumer matterials & Ave
erage
distribution services care technology services
servic
ces en nergy
$100,000 1.9
1 1.4
4 1.3 1.5 2 2 2 1 2
$500,000 1 1.7
7 1.4 1.1 2 2.1 2.1 1.2 2
$1M 2 1.6
6 0.8 1.4 2.1 0.8 2.4 1.8 2
$5M 1.4
1 1.5
5 1 1 2 1.2 3 1.4 2
$10M 1.6
1 2 3 1 2.4 3 2.8 2.7 2
Greater than
n $10M 2.3
2 2 3 2 3 2.1 3 2.8 3
AverageEB
BITDAmultiplesondealsobserrvedbyrespond
dentsvariedfroom2to7.
Table 12.
1 Median EBITDA
E Deal Multiples by
y Revenue Siize of Compa
any
BROKEERcont.
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Approximately61%ofbussinesssalestran
nsactionsclosed
dinthelast12 monthsinvolveedsellerfinancingorsellernote.
Figu
ure 32. Comp
ponents of C
Closed Deals
s
70% 61%
60% 49%
50%
36%
40%
30%
20% 15%
10%
0%
SellerFinancing
S g/Seller Contingentearn
nout Low
wereddealpricce Lowerredamountoff
Note eq
quitysold
Respondenntsindicatedaggeneraldifficulttywitharrangin
ngseniordebtfforbusinessesw
withlessthan$$1millionin
revenues.
Revenu
ue Extremmely Somewhat S
Somewhat Extremely Score e
Difficult Neutral E
Easy
size difficu
ult difficult easy eassy (-2 to 2
2)
$100K 71%
% 8% 3% 16% 0% 3% 0%
% -1.26
$500K 41%
% 23% 9% 11% 7% 9% 0%
% -0.52
$1M 31%
% 27% 10% 16% 10% 6% 0%
% -0.33
$5M 14%
% 22% 19% 17% 14% 14% 0%
% 0.36
$10M 12%
% 19% 27% 12% 15% 8% 8%
% 0.54
$15M 13%
% 9% 22% 9% 26% 9% 13% 1.04
$25M+ 12%
% 12% 18% 12% 29% 0% 18% 1.06
Figure 34.
3 Would Se
enior Manage
ers and Chie
ef Executives s Benefit from
m Additionall Leadership and
Skillls Training?
?
5% Stronglyagreee
23% 36%
Agree
Neutral
36%
Disagree
BROKEERcont.
2011|PEPPER
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Accordingttorespondents,,leadershipskills,strategicplaanning,andundderstandingcom
mpetitiveenvironmentsareth
he
mostimporrtantforseniorrmanagementttohave.
Figure
e 35. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve
0% 10
0% 20% 30% % 60% 70% 80% 90% 1
% 40% 50% 100%
Leadeership 86%
75%
Strategicplaanning 86%
77%
Understtandingcompe etitiveenvironmments 73% 86%
Salesandmarketing 58% 73%
Knowleedgeofbusineessandworldeevents 62%
59%
Corporatefinance 488% 56%
Inspiringinnovvation 53%
64%
Manaagementaccou unting 41%47%
Humanreso ources 42% 52%
Legalandre
egulatoryknowwledge 40%
41%
Quantitativveanalysis/ressearch 277%
41%
266%
Globalbuusinessmanage ement 55%
4%
%
Other 6%
6
Todayy Inthefutture
Responden
ntsbelieveecon
nomicuncertainntyisthemostiimportantissueefacingprivatelyheldbusinesssestoday.
Governmen
ntregulationsaandtaxesandeconomicuncerttaintyareindiccatedasthemo ostimportantemmergingissues..
Ecconomicuncerttainty(domesttic) 48%
27%
Accesstocapital 27%
16%
%
Econo
omicuncertaintty(internation
nal) 10%
16%
%
Govvernmentregulationsandtaxxes 8%
27%
Competitiionfromforeiggntradepartne
ers 0%
7%
Oth
her 7%
%
5%
Currentisssue Emerggingissue
BROKEERcont.
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Comparedtosixmonthsago,respondentsindicatedincreasesindealflowanddifficultyfinancingorsellingbusiness,
increaseinmarginpressureoncompaniesanddeterioratedgeneralbusinessconditions.Respondentsalsoindicated
decreaseddealmultiples.
Table 13. General Business and Industry Assessment: Today Versus Six Months Ago
Stayed Net
Decreased Decreased Increased Increased % %
about the increase/
significantly slightly slightly significantly increase decrease
same decrease
Deal flow
11% 10% 32% 36% 11% 47% 21% 26%
Ratio of businesses sold/total listings
13% 4% 49% 28% 6% 33% 17% 16%
Deal multiples
3% 23% 59% 13% 3% 16% 26% -10%
Business exit opportunities
6% 26% 30% 33% 6% 39% 31% 7%
Amount of time to sell business
0% 11% 39% 38% 11% 49% 11% 38%
Difficulty selling business
4% 16% 36% 24% 20% 44% 20% 24%
Business opportunities for growth
4% 20% 42% 28% 6% 33% 25% 9%
General business conditions
15% 33% 29% 22% 0% 22% 49% -26%
Margin pressure on companies
1% 8% 37% 39% 14% 54% 10% 44%
Duringthenexttwelvemonths,respondentsexpectfurtherincreasesindealflow,marginpressureoncompanies,and
worseninggeneralbusinessconditions.
Table 14. General Business and Industry Assessment Expectations over the Next 12 Months
Net
Decrease Decrease Stay about Increase Increase % %
increase/
significantly slightly the same slightly significantly increase decrease
decrease
Deal flow 10% 14% 34% 32% 10% 42% 24% 19%
Ratio of businesses sold/total listings 12% 12% 47% 27% 2% 29% 24% 5%
Amount of time to sell business 2% 17% 37% 32% 13% 45% 18% 27%
Difficulty selling business 2% 15% 37% 25% 20% 46% 17% 29%
General business conditions 12% 33% 30% 25% 0% 25% 45% -20%
Margin pressure on companies 2% 14% 41% 34% 10% 44% 15% 29%
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LIMITEDP
L PARTNER
RSURVEY
YINFORM
MATION
Re espondentssee ebestdomesticcopportunitiesinCalifornia,TeexasandNewEEnglandstates.Theyalsoexpeect
in
ncreasingallocationtoalternattiveassets,sligh htlyimprovingbbusinesscondittions,increaseindirectinvestm ments
anndfurtherincreeaseinexpected dreturns.
Operatio
onalandAsssessmentCh
haracteristicss
Approximately26%ofrespondentsreporrtedtheirassettcategorybeingglessthan$50million,while223%werebetw
ween
$50millionand$500million.
Figure
F 37. As
ssets under Managemen
M t or Investab
ble Funds
15% Leessthan$50million
26%
9% $550million$50
00million
$5500million$1
1billion
18%
23% $11billion$5billion
8%
$55billion$10b
billion
Grreaterthan$10
0billion
Responden
ntsreportedontheir%oftotalassetallocatio
onsforAlternaativeAssets.
Figure
e 38. Currentt and Target Asset
A Alloca
ations for "A
Alternative As
ssets" (% of total portfollio)
100%
52% 55%
50%
0%
Currentalloccation Targgetallocation
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LPcont.
Onaverage e,respondentsttargettoallocate20%oftheirrassetstoventuurecapital,19%
%tobuyoutprivvateequity,and
d15%
todirectinvvestments.
Figurre 39. Curren
nt Target Ass
set Allocation
n
Venturecapital 20%
Privateequitybuyo out 19%
%
Diirectinvestments 155%
Privateequitygrowwth 11%
Realestatefu
und 9%
Hedgefuund 8%
Secondaryfun nds 5%
Privateequitydistresssed 4%
Mezzanine 3%
Fundoffunnds 2
2%
Onaverage
erespondentse
expectthehighe
estreturnsfrom
minvestments inventurecapital,buyoutprivvateequityanddirect
investmentts.
25%
20% 20%
% 20%
20% 18% 18%
%
15% 15% 15%
%
15% 14% 13% %
12%
10%
5%
0%
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LPcont.
Approximately20%ofrespondentsreporrtedbuyoutprivateequityasbbeingthebestrisk/returntrad
deoffinvestmeent
class,follow
wedbydirectin
nvestmentsat1
19%.
Privateeequitybuyo
outs
Directinvestments
6% 4% 20%
6% Ventu recapital
7%
Privateeequitygrow
wth
7%
%
19% Privateeequitydistrressed
7%
Secon daryfunds
11%
% 13%
Hedgeefund
Mezzaanineinvestmeent
Realestatefunds
Fundooffunds
Whenaskedaboutwhichindustriescurreentlyoffertheb
bestrisk/returnntradeoffs,48%
%ofresponden
ntsreportedheealth
care,follow
wedby36%reportinginformattiontechnologyy.
Figure
e 42. Industry
y with the Be
est Risk/Retu
urn
60%
48%
50%
40% 36% 34%
%
30%
30% 24%
20% 12% 10% 10
0% 8%
10%
0%
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LPcont.
Inregardto
othegeographicregionswiththebestrisk/re
eturntradeoffss,57%ofrespondentsreporteedNorthAmericca,
followedbyytheLatinAme
erica(41%),and
demergingAsiaa(35%)areas.
Figure
e 43. Geograp
phic Regions
s of the Worlld Offering th
he Best Risk
k/Return Trad
deoff Curren
ntly
60% 57%
50%
41%
40% 35%
30%
2
20%
20% 166%
%
10%
10%
4% 2%
0%
North Latin Em
merging Deve
eloped Wesstern Other Centraland Otherr
America America
A Asia Asia
A Euroope emergging Easterrn
markkets Europpe
Accordingtto38%ofrespo ondentsthegeo
ographicregionwithbestrisk//returntradeofffsisSiliconValleywithanotheer24%
selectingBaayArea,followedbyTexas(35
5%),andNewEngland(27%).
40% 38%
35%
35%
30% 27%
24%
25% 22%
19%
20%
15% 11%
10%
5%
0%
SiiliconValley Texas NewEngland BayArea NewYork Southern Washingto
on
Metro California DC
LPcont.
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Accordingttorespondents,,thegeneralpaartneristhemo
ostimportantfaactorwhenevaaluatinginvestm
mentfollowedb
by
specificstraategyandhisto
oricalfundperfo
ormance.
Table 15
5. Importance
e of Factors When Evalua
ating
Of
O little Mod
derately ery
Ve Scoore
Characteris
stics Un
nimportant Imp
portant
importance Im
mportant impo
ortant (1 to
o 5)
General pa
artner 2% 2% 2% 3
37% 58
8% 4.4
46
Specific strategy 0% 0% 8% 4
40% 52
2% 4.4
44
Historical fund performance on all
2% 2% 2
21% 4
42% 33
3% 4.0
02
funds
Returned capital from most m recent
22% 0% 0% 2 2% 56
6% 3.5
54
fund (distribution to paid-in or DPI)
Residual value
v of most recent fund
4% 10% 3
31% 4
40% 15
5% 3.4
46
(residual va
alue to paid-in orr RVPI)
Gut feel/ins
stinct 6% 8% 2
29% 5
50% 8%
% 3.3
31
Specific loc
cation 6% 12% 3
38% 3
35% 10
0% 3.17
Other - ple
ease specify 4% 27% 2
29% 2 9% 12
2% 3.8
89
Figure 45.
4 Would Se
enior Manage
ers and Chie
ef Executives s Benefit from
m Additionall Leadership and
Skillls Training?
?
4% 8% Stronglyagreee
36%
Agree
52%
5 Neural
Disagree
LPcont.
2011|PEPPER
RDINEUNIVERSITYYGRAZIADIOSCHO
OOLOFBUSINESS ANDMANAGEMEENT.AllRightsReserved.|36
PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
Accordingttorespondents,,importantskillstohaveinseniormanagemeentareleadersship,strategicp
planning,and
dingcompetitiveenvironmentss.
understand
Figure
e 46. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve
0% 20% 400% 60% 80% 100% 12
20%
Todayy Inthefutture
Responden ntsindicatedinccreasedallocationstodirectin
nvestmentsanddprivateequityanddecreased dallocationstoall
otheraltern
nativeassetsin
nthelastsixmo
onths.Responde entsalsoindicaatedincreasedeexpectedreturn
nsonnewcapittal
deployedbbutworsenedge eneralbusinesssconditions.
Ta
able 16. Gene
eral Business and Industtry Assessm
ment: Today v
versus Six M
Months Ago
Stayed Net
Deecreased Decre eased Increased In creased % %
Characteris
stics about the
e in
ncrease/
significantly sligh
htly gnificantly increa
slightly sig ase decrease
same decrease
Allocation to
o venture capital
6% 15%
% 69% 10% 0% 10%
% 21% -10%
Allocation to
o private equity
0% 11%
% 70% 15% 4% 19%
% 11% 9%
Allocation to
o mezzanine
4% 22%
% 67% 7% 0% 7%
% 27% -20%
Allocation to
o hedge funds
11% 16%
% 68% 5% 0% 5%
% 27% -22%
Allocation to
o secondary fund
ds
8% 8%
% 77% 5% 3% 8%
% 15% -8%
Allocation to
o real estate fund
ds
8% 10%
% 74% 5% 3% 8%
% 18% -10%
Direct investtments
4% 6%
% 47% 23% 19% 43%
% 11% 32%
General bus
siness conditions
s
4% 43%
% 35% 17% 0% 17%
% 48% -30%
Expected returns on new capital
deployed 2% 19%
% 38% 38% 4% 42%
% 21% 21%
LPcont.
2011|PEPPER
RDINEUNIVERSITYYGRAZIADIOSCHO
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PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
Responden
ntsexpectfurtherincreasesinallocationtodirectinvestmenntsandprivateeequity,aswellasrealestatefu
unds.
Net
Decrease Decreaase Stay about Increase Inccrease % %
Characteristtics ncrease/
in
signifficantly slightly the same slightly sign ificantly increasse decrease
d
decrease
Allocation to
o venture capital
0%
0 13%
% 79% 8% 0% 8% 13% -4%
Allocation to
o private equity
0%
0 6% 81% 11% 2% 13% 6% 6%
Allocation to
o mezzanine
2%
2 14%
% 74% 7% 2% 9% 16% -7%
Allocation to
o hedge funds
5%
5 5% 78% 8% 3% 11% 11% 0%
Allocation to
o secondary fund
ds
5%
5 13%
% 68% 8% 5% 13% 18% -5%
Allocation to
o real estate fund
ds
5%
5 13%
% 56% 23% 3% 26% 18% 8%
Direct investtments
2%
2 4% 57% 26% 1
11% 37% 7% 30%
General bus
siness conditions
s
2%
2 22%
% 40% 30% 6% 36% 24% 12%
Expected returns on new capital
deployed 2%
2 13%
% 54% 26% 4% 30% 15% 15%
Respondenntsbelieveaccesstocapitalandeconomicunccertaintyarethhemostimportantissuesfacin
ngprivatelyheld
businessestoday.Governmmentregulation nsandtaxesan
ndeconomicunncertaintyareinndicatedasthemostimportannt
emergingisssues.
Figure 47
7. Issues Faciing Privately
y-Held Busin
nesses
0% 5%
5 10% 15% 220% 25% 30% 35%
Accesstocapital 30%
13%
Ecconomicuncerttainty(domesttic) 28%
33%
Govvernmentregulationsandtaxxes 17%
29%
Econo
omicuncertaintty(internation
nal) 17%
8%
Competitiionfromforeiggntradepartne
ers 2%
4%
Inflation 2%
12%
her
Oth 4%
2%
Currentisssue EmerggingIssue
2011|PEPPER
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PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
ANGELIN
A NVESTORSURVEYINFORMATION
Ap pproximately30%ofresponde entsbasevaluationsonabasiccmethod(quickestimate)whenvaluingprivaately
heeldbusinesses.
Th hetypesofbusinessesrespond dentsplantoin
nvestinoverneext12monthsaareverydiverseewithover34% %
taargetinginformationtechnologgyandanother22%planningttoinvestinheaalthcare.
Re espondentsind dicatedasharpincreaseindem ofangelindustryy,
mandforangelccapital,andinccreasesinsizeo
foollowoninvestmments,andexp pectedreturnsoonnewinvestm ments.Theyalso oreportedincreeasedqualityoff
coompaniesseekinginvestmentssandtimetoexxitdeals,decreaasedopportuniitiestoexit,wo orsenedgenerall
buusinessconditio
onsandappetitteforrisk.
Re espondentsexitstrategiesthaatincludesellinngtoaprivateccompanytotal334%,whileanotther34%of
reespondentsplan ntoselltoapu
ubliccompany.
Operatio
onalandAsssessmentCh
haracteristicss
Approximately47%ofrespondentsmade
eeitheroneortwoinvestmenntsoverthelasttsixmonths.
Figure
e 48. Total Nu
umber of Inv
vestments Ma
ade in the La
ast Six Montths
7% 0 1
2% %
12% 12%
%
8% 25%
2 3
15%
19% 4 5
610 M
Morethan10
Figure 49
9. Number of Follow-on Investments
I Made in the
e Last Six Mo
onths
4% 1% 5%
4% 0 1
23%
%
18%
2 3
20%
25
5% 4 5
610 Morethan10
2011|PEPPER
RDINEUNIVERSITYYGRAZIADIOSCHO
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PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
ANGELcont.
Themajoritty(56%)ofresp
pondentsplanttomakebetwee
enoneandfiveeinvestmentso
overthenext122months.
8% 0 1
18% 15%
18% 2 3
23%
2
7% 4 5
5% 6%
610 Mo
orethan10
Figure 51
1. Number off Follow-on In
nvestments Planned ove
er Next 12 Mo
onths
6% 21%
% 0 1
14%
10%
20% 2 3
1% 7%
21% 4 5
610 M
Morethan10
Thetypeso
ofbusinessesre
espondentsplan
ntoinvestinovvernext12monnthsareverydiversewithoveer34%targetingg
information
ntechnologyanndanother22%
%planningtoinvestinhealthccare.
Figure 52
2. Type of Bu
usiness for In
nvestments P
Planned ove
er Next 12 Mo
onths
1%
3% Inform
mationtechno
ology
5% Healtthcare
7% 34%
9% Basic materials&en
nergy
9%
9 Retail&consumersservices
Businnessservices
10%
22% Manuufacturing
Finanncialservices
Whollesale&distrib
bution
Otherr
2011|PEPPER
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PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
ANGELcont.
Respondentsreportedonavarietyofstatspertainingtotheirinvestments.
1st quartile 1 1 1 1
Median 1 2 1 2
3rd Quartile 4 2 2 3
1st quartile 5% 4% 3% 1%
Median 15% 6% 6% 2%
Total EXPECTED returns (gross cash on cash pretax IRR) on new investments (%)
1st quartile 4 4 3 3
Median 5 5 4 4
3rd quartile 5 5 5 4
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|41
PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
ANGELcont.
Responden ntsreportedonwheretheyplaantoinvestove
erthenext12m
months.Theressultsreflectinveestmentthrougghout
theU.S.,14
4%ofrespondentsareplanningtoinvestoutssideoftheU.S.
SouthhernCalifornia
14% 17
7% Texass
8% NewEEngland
7% SiliconnValley
39% 6% NewYYorkMetro
4%
% 3%
2% WashhingtonDC
BayAArea
AllothherUS
OutsiddeofUS
Approximately35%ofrespondentsdontthavegeograph
hicalrestrictionnsfortheirfutureinvestmentss.
Figure
e 54. Geograp
phical Limit for Investme
ent
15% 2houurdrive
35%
12%
%
4houurdrive
18%
% State//province
21% Regioon
Noreestrictions
Approximately30%ofrespondentsbasevaluationsonaabasicmethod (quickestimatee)whenvaluinggprivatelyheld
d
businesses..Only14%ofre
espondentsuse
eanincomeapp
proach.
Basic method(quickkestimate)
5% 14% 30% Transaactionapproacch
7%
% Incom
meapproach(D
DCF,NPV,IRR)
9%
%
Publicccompanyapp
proach
14% 21%
Costs tocreateapprroach
Assetbasedapproacch
Otherr
ANGELcont.
2011|PEPPER
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PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
Responden
ntsreportedonitemsrequired
dtocloseonedeal.
Figure
e 56. Items Required
R to C
Close One De
eal
50
40
4
40
30
20
20
8 6.5 10
0
10 5 3
1 2 1 1 2
0
Businessplanssor Meettingswithprincipals Propossallettersorteerm ofintentsigneed
Letterso
morandumsre
mem eviewed conducted sheetsissued
Responden ntsexitstrategiiesthatincludesellingtoaprivvatecompanyttotal34%,whileeanother34%ofrespondentssplan
toselltoapubliccompanyy.
Figure
e 57. Exit Plan
ns for Portfo
olio Companiies
3%
5% 5% Sellttoaprivatecom
mpany
5%
34% Sellttoapubliccom
mpany
7%
Sellttoprivateequittygroup
7%
Liquidateorbankru
upt
IPO
34%
SellttoaVC
Manaagementbuyo
out
Otheer
Figure 58.
5 Would Se
enior Manage
ers and Chie
ef Executives s Benefit from
m Additionall Leadership and
Skillls Training?
?
5% 5%
Strronglyagree
41%
Aggree
50% Neeutral
Dissagree
ANGELcont.
2011|PEPPER
RDINEUNIVERSITYYGRAZIADIOSCHO
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PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
Accordingttorespondents,,leadershipskills,understandingcompetitiveeenvironmentssandstrategicp
planningarethe
mostimporrtantforseniorrmanagementttohave.
Figure
e 59. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve
Todayy Inthefutture
Responden ntsindicatedassharpincreaseindemandforaangelcapital,inncreasesinsizeofangelindusttry,followon
investmenttsandexpected dreturnsonnewwinvestments.Theyalsorepoortedincreaseddqualityofcom mpaniesseekingg
investmenttsandtimetoe exitdeals,decre
easedopportun
nitiestoexit,woorsenedgeneraalbusinesscond ditions,andapppetite
forrisk.
Ta
able 19. Gene
eral Business and Industtry Assessm
ment: Today v
versus Six M
Months Ago
Stayed Net
Decrreased Decreas sed Increased Incrreased % %
about the inc
crease/
signifficantly slightly slightly sign ificantly increasse decrease
same decrease
Demand for angel capital
2%
2 2% 32% 28% 3
37% 65% 3% 62%
Size of ange
el finance industrry
3%
3 25%
% 25% 25% 2
22% 47% 28% 19%
Quality of co
ompanies seeking
investment 0%
0 14%
% 43% 34% 9% 43% 14% 29%
Follow-on in
nvestments
0%
0 17%
% 43% 28% 1
12% 40% 17% 23%
Average investment size
3%
3 23%
% 45% 26% 3% 29% 26% 3%
Exit opportunities
6%
6 33%
% 43% 13% 5% 17% 40% --22%
Time to exit deals
3%
3 14%
% 34% 27% 2
22% 48% 17% 31%
Expected returns on new inv
vestments
2%
2 9% 60% 25% 5% 29% 11% 18%
Value of porrtfolio companies
s
2%
2 28%
% 34% 34% 3% 37% 29% 8%
General bus
siness conditions
s
20
0% 31%
% 25% 20% 5% 25% 51% --26%
Appetite for risk
15
5% 38%
% 31% 11% 5% 15% 54% --38%
ANGELcont.
2011|PEPPER
RDINEUNIVERSITYYGRAZIADIOSCHO
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PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
Responden
ntsexpectfurtherincreasesinbusinesscharacteristicsexcepptgeneralbusinnessconditions.
Stay Net
Decrease Decreaase Increase Inccrease % %
about the inc
crease/
signifficantly slightly slightly sign ificantly increasse decrease
same deccrease
Demand for angel capital 0%
0 0% 20% 56% 2
23% 80% 0% 80%
Size of ange
el finance industrry 5%
5 8% 35% 41% 1
11% 52% 13% 40%
Quality of co
ompanies seeking
5%
5 9% 48% 34% 3% 38% 14% 23%
investment
Follow-on in
nvestments 0%
0 14%
% 38% 41% 6% 48% 14% 33%
Exit opportunities 6%
6 14%
% 47% 27% 6% 33% 20% 13%
General bus
siness conditions
s 16% 23%
% 28% 25% 8% 33% 39% -6%
Responden ntsbelieveaccesstocapitalistthemostimporrtantissuefacinngprivatelyheldbusinessesto
oday.Governmeent
regulationssandtaxesareindicatedasthe emostimportaantemergingisssue.
Accesstocapital 41
1%
222%
Ecconomicuncerttainty(domesttic) 36%
25%
Econo
omicuncertaintty(internation
nal) 8%
11%
Govvernmentregulationsandtaxxes 5%
26%
Competitiionfromforeiggntradepartne
ers 0%
6%
Inflation 0%
3%
her
Oth 11%
8%
Currentisssue Emerggingissue
2011|PEPPER
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PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
VENTURE
V CAPITALLSURVEYYINFORM
MATION
Otherkeyffindingsincludee:
Th hetypesofbusinessesrespond dentsplantoin
nvestinthenexxt12monthsarreverydiversew
withover43%
taargetinginformationtechnologgyandanother19%planningttoinvestinheaalthcare.Appro oximately39%o of
reespondentsplanntomakenewinvestmentsou utsideoftheU. S.
Re espondentsexitstrategiesthaatincludesellin
ngtoapubliccoompanytotal411%,whileanothher27%of
reespondentsplanntoselltoapu
ubliccompany.
Re espondentsbelieveaccesstoccapitalisthemostimportanti ssuefacingprivvatelyheldbusinessestoday.
Do omesticeconommicuncertaintyyisindicatedassthemostimpoortantemerginggissue.
Operatio
onalandAsssessmentCh
haracteristicss
Approximately47%ofrespondentsmade
ebetweenoneandthreeinve stmentsoverthhelastsixmontths.
Figure
e 61. Total Nu
umber of Inv
vestments Ma
ade in the La
ast Six Montths
11% 14% 0 1
18% 13%
2 3
5%
5% 19% 4 5
15%
610 M
Morethan10
Figure 62
2. Number of Follow-on Investments
I Made in the
e Last Six Mo
onths
8% 16%
% 0 1
19%
12%
2 3
10% 12%
6%
% 4 5
17%
610 M
Morethan10
2011|PEPPER
RDINEUNIVERSITYYGRAZIADIOSCHO
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PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
VENTURACAPITA
ALcont.
Themajoritty(52%)ofresp
pondentsplanstomakebetwe
eentwoandfivveinvestmentsoverthenext112months.
19% 7% 4%
12% 0 1
18% 2 3
21%
12% 4 5
%
7%
610 Mo
orethan10
18% 11%
1
9% 0 1
17% 2 3
18%
1
4 5
8%
8
6% 13% 610 Moreethan10
Responden
ntsreportedonbusinesspractiicesandtheressultsarereflecttedbelow.
Figure 65
5. Type of Bu
usiness for In
nvestments P
Planned ove
er Next 12 Mo
onths
1% Informmationtechno ology
13% Healt hcare
4%4% 43% Basic materials&ennergy
5%
5% Manuufacturing
6% Businnessservices
19% Retaill&consumersservices
Finanncialservices
Wholesale&distrib bution
Otherr
2011|PEPPER
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PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
VENTURACAPITALcont.
Respondentsreportedonavarietyofstatspertainingtotheirinvestments.
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|48
PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
VENTURACAPITA
ALcont.
Responden ntsreportedonwheretheyplaantoinvestove
erthenext12m
months.Theressultsreflectinveestmentthrougghout
theU.S.,39
9%ofrespondentsareplanningtoinvestoutssideoftheU.S.
SiliiconValley
11%
%
11% BayArea
39% 5% NeewEngland
5%
3% NeewYorkMetro
26%
SouthernCaliforn
nia
AllOtherUS
Ou
utsideofUS
Whenvaluiingthecompan ny,approximate
ely40%ofthew
weightofthevaaluationisputo
onatransaction
napproachwheen
valuingprivvatelyheldbusinesses.
12% Trransactionapp
proach
5% 40%
11
1% ubliccompanyapproach
Pu
15%
1 Incomeapproacch(DCF,NPV,IRR)
17%
% Co
oststocreateaapproach
Asssetbasedapp
proach
Otther
ntsreportedonitemsrequired
Responden dtocloseonedeal.
Figure
e 68. Items Required
R to C
Close One De
eal
120 100
100
80 60
60
40 30 30
0
20
20 10 3 5
2 1 1 2
0
Businessplan
nsor Meettingswithprin
ncipals Propossallettersorteerm Letterso
ofintentsigned
d
emorandumsrreviewed
me conducted shheetsissued
1stQuartile
1 Median 33rdQuartile
2011|PEPPER
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PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
VENTURACAPITA
ALcont.
Responden ntsexitstrategiiesthatincludesellingtoapub
bliccompanytootal41%,while another27%o
ofrespondentsplan
toselltoaprivatecompan ny.
Figure
e 69. Exit Plan
ns for Portfo
olio Companiies
4%3%
% 4%
4% Selltoapubliccoompany
5% 41% Selltoaprivateccompany
12% IPOO
Selltoprivateeq
quitygroup
SelltoanotherVVC
27%
Maanagementbuyout
Liqquidateorbankrupt
Other
Figure 70.
7 Would Se
enior Manage
ers and Chie
ef Executives s Benefit from
m Additionall Leadership and
Skillls Training?
?
7% 22% Stro
onglyagree
16%
%
Agrree
Neu
utral
54%
Disaagree
Accordingttorespondents,,leadershipskills,strategicplaanning,andundderstandingcom
mpetitiveenvironmentsareth
he
mostimporrtantforseniorrmanagementttohave.
Figure
e 71. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve
Leaderrship 81% 9
91%
Strategicplan
nning 72% 89 %
Understaandingcompettitiveenvironm ments 7
70% 83%
Saalesandmarkeeting 7
70% 79%
In
nspiringinnovaation 60%65%
%
Knowleddgeofbusinessandworldevvents 46%%51%
Humanresou urces 499%
57%
Corporatefinance 44%
51%
Legalandreggulatoryknowle edge 39%
40%
Managgementaccoun nting 37%
Globalbusinessmanagem ment 31%
54%
Quantitative eanalysis/rese
earch 30%37%
Other
O 2.9%
%
5%
Todayy Inthefutture
2011|PEPPER
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PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
VENTURACAPITALcont.
Respondentsindicatedincreasesindemandforventurecapital,qualityofcompaniesseekinginvestment,followon
investments,andpresenceofsuperangelsinspaceformerlyoccupiedbyVCs.Theyalsoreporteddecreasedsizeof
venturecapitalindustryandworsenedgeneralbusinessconditions.
Table 23. General Business and Industry Assessment: Today versus Six Months Ago
Stayed Net
Decreased Decreased Increased Increased % %
about the increase/
significantly slightly slightly significantly increase decrease
same decrease
Demand for venture capital 1% 10% 40% 30% 18% 48% 12% 36%
Quality of companies seeking
1% 7% 46% 34% 12% 46% 9% 37%
investment
Follow-on investments 0% 5% 41% 33% 22% 55% 5% 50%
Time to exit deals 0% 12% 32% 44% 12% 56% 12% 44%
Expected returns on new
0% 33% 43% 16% 7% 24% 33% -9%
investments
Value of portfolio companies 1% 28% 33% 30% 7% 37% 30% 7%
General business conditions 15% 36% 31% 16% 1% 18% 51% -33%
Size of venture capital industry 14% 47% 29% 8% 3% 11% 61% -50%
Respondentsexpectfurtherincreasesinallbusinesscharacteristicsexceptgeneralbusinessconditionsandsizeof
venturecapitalindustry.
Table 24. General Business and Industry Assessment Expectations over the Next 12 Months
Net
Decrease Decrease Stay about Increase Increase % %
increase/
significantly slightly the same slightly significantly increase decrease
decrease
Demand for venture capital 3% 3% 27% 52% 15% 67% 6% 61%
Quality of companies seeking
0% 5% 39% 48% 8% 56% 5% 52%
Investment
Follow-on investments 0% 5% 27% 48% 20% 69% 5% 64%
General business conditions 15% 17% 40% 23% 5% 28% 32% -5%
Presence of super angels in space
3% 12% 55% 23% 7% 30% 15% 15%
formerly occupied by VCs
Size of venture capital industry 8% 41% 38% 11% 3% 14% 48% -34%
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|51
PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
VENTURACAPITA
ALcont.
Responden
ntsbelieveaccesstocapitalistthemostimporrtantissuefacinngprivatelyheldbusinessesto
oday.Domestic
economicu
uncertaintyisin
ndicatedasthemostimportan ntemergingissuue.
0% %
5% 10% 15% 20% 25% 0%
30 35% 40%
Accesstocapital 3
37%
200%
Ecconomicuncerttainty(domesttic) 28
8%
26%
Econo
omicuncertaintty(internation
nal) 18%
200%
Govvernmentregulationsandtaxxes 10%
23%
Oth
her 4%
4
%
3%
Competitiionfromforeiggntradepartne
ers 1%
5%
Inflation 0%
3%
%
Currentisssue Emerggingissue
2011|PEPPER
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PEPPERDIN
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PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
PRIVATEEQUITYSSURVEYIINFORMA
ATION
Th hetypesofbusinessesrespond dentsplantoinnvestinoverneext12monthsaareverydiverseewithover19% %
taargetingmanufaacturingandan nother16%plan nningtoinvest inbusinessservvices.
Operatio
onalandAsssessmentCh
haracteristicss
Figure
F 73. Ty
ypical Investm
ment Size
40% 33% 35%
3 333%
30%
30%
18%
% 16%
%
20%
8%
10% 3%
0%
essthan$1 $15million
Le $5$10 $1
1025 $25$50 $50$$100 $100$500 Greatertthan
million million
m miillion mil lion milliion millio
on $500million
Responden
ntsreportedonbusinesspractiicesandtheressultsarereflecttedbelow.
Table 25
5. PEG Fund Data
1st quartiile Median
n 3rd qua
artile
Vintage ye
ear (year in which
h first investmentt made) 2007 2008 2010
0
Size of fun
nd ($ millions) 50 178 428
Targeted number
n of total in
nvestments 7 10 13
Target fund
d return (gross pretax
p cash on ca
ash annual IRR %)
% 20 25 30
Expected fund
f return (gross pretax cash on
n cash annual IRR %) 20 25 30
RIVATEEQUITTYcont.
2011|PEPPER
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PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
Thetypeso
ofbusinessesre
espondentsplan
ntoinvestinovvernext12monnthsareverydiversewithoveer19%targetingg
manufacturingandanothe er16%planninggtoinvestinbu
usinessservicess.
Figure 74
4. Type of Bu
usiness for In
nvestments P
Planned ove
er Next 12 Mo
onths
Maanufacturing
Buusinessservicess
6% 13% 19
9%
6%
6 Heealthcare
7% 16% Reetail&consumerservices
9%
9 Baasicmaterials&
&energy
12% 12%
Wh holesale&disttribution
nancialservices
Fin
Infformationtechhnology
Otther
Approximately58%ofrespondentsmade
ebetweenoneandthreeinve stmentsoverthhelastsixmontths.
Figure
e 75. Total Nu
umber of Inv
vestments Ma
ade in the La
ast Six Montths
2% 3%
7%4% 0 1
26%
11%
% 2 3
17%
% 4 5
30%
610 M
Morethan10
3% 2%1%1%
8% 0 1
39%
17%
% 2 3
4 5
29%
610 M
Morethan10
Themajoritty(61%)ofresp
pondentsplanstomaketwoorthreeinvestm
mentsoverthennext12monthss.
1% 2%
%
12% 9% 0 1
6%
6
9% 31% 2 3
30% 4 5
610 Morethan10
PRIVATEEQUITTYcont.
2011|PEPPER
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Figure 78
8. Number off Follow-on In
nvestments Planned ove
er Next 12 Mo
onths
1%
3% 6% 5% 16%
% 0 1
14% 2 3
31% 4 5
24%
610 Mo
orethan10
Averagede ealmultiplesforrbuyoutdealsfforthepriorsixxmonthsvaryfrromfourtosevventimesEBITD
DAdependingo
onthe
sizeoftheccompany.Expectedreturnsvaaryfrom23%to o30%.
Table
e 26. Generall Characteris
stics Buyou
ut Transactio
ons (medians
s)
$1M $5M $
$10M M
$25M $50M $100M >$
$100M
EBITDA EBITDA EB
BITDA EBITD
DA EBITDA EBITDA EB
BITDA
Averageexxpectedreturnssonnonbuyou
utdealsvaryfro
om20%to25% .
Table 27
7. General Ch
haracteristic
cs Non-Buy
yout Transac
ctions (media
ans)
$1M $5M $
$10M $25M
M $50M $100M >$
$100M
EBITDA EBITDA EB
BITDA EBITD
DA EBITDA EBITDA EB
BITDA
PRIVATEEQUITTYcont.
Whenvaluiingabusiness,approximately35%oftheweightisplacedonnanincomeappproach.
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REPORT20112012
Incomeap
pproach(DCF,NPV,IRR)
12%
% 9%
35% Transactio
onapproach
17
7% Publiccom
mpanyapproacch
27
7% Assetbaseedapproach
Other
Revenu
uemultiple
6% 3% 10%
% RecastEBITDAmultip
ple
%
18%
26% EBITDA
Amultiple
7%
EBITmultiple
30%
Cashflo
owmultiple
Netinccomemultiple
Other
plesvaryfrom3
Dealmultip 3.5to9,thehigghestmultiplesareinhealthcaareindustrywitthaverageat7..2.
PRIVATEEQUITTYcont.
2011|PEPPER
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REPORT20112012
Responden
ntsreportedonitemsrequired
dtocloseonedeal.
Figure
e 81. Items Required
R to C
Close One De
eal
120
100
100
80
60 50
40 5
25
20 15
20 8 5 10
3 1 2 3
0
nsor
Businessplan Meeetingswithprin
ncipals Propoosallettersorterm Lettersofintentsigneed
emorandumsrreviewed
me conducted ssheetsissued
1stQuartile
1 Median 3rdQuartile
Responden ntsexitstrategiiesthatincludesellingtoaprivvatecompanyttotal28%,whileeanother26%ofrespondentssplan
toselltoan
notherprivatee equitygroup.
Figure
e 82. Exit Plan
ns for Portfo
olio Companiies
1% Selltooaprivatecom
mpany
5% 6%
28% SelltooanotherPEG
12%
%
Selltooapubliccompany
22% IPO
26%
Manaagementbuyou
ut
LiquiddateorBankru
upt
Otherr
Responden ntsreportedonaverageitiseaasierforthemto
oarrangesenioordebtforinveestmentsintoco
ompanieswith
$5millioninEBITDAandm
more.
Ta
able 29. The Ease
E to Arrange Senior Debt
D for Tran
nsactions ov
ver the Past S
Six Months
Extremmely Somewhat S
Somewhat Extrremely Score
Difficult Neutral Easy
difficult Difficult Easy E
Easy (-3 to
o 3)
$1M EBITD
DA 31%
% 26% 17% 12% 3% 5% 5
5% -1.5
5
$5M EBITD
DA 13%
% 21% 28% 11% 12% 12% 4
4% -0.6
6
$10M EBIT
TDA 5%
% 7% 25% 16% 18% 25% 5
5% 0.3
3
$15M EBIT
TDA 3%
% 8% 23% 13% 15% 23% 15% 0.5
5
$25M EBIT
TDA 3%
% 3% 28% 19% 19% 14% 14% 0.5
5
$50M EBIT
TDA 3%
% 7% 21% 17% 21% 17% 14% 0.5
5
$100M+ EB
BITDA 4%
% 0% 15% 15% 19% 23% 2
23% 1.3
3
PRIVATEEQUITTYcont.
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REPORT20112012
Mostofthe
erespondentsb
believeworthyyoffinancinge
exceedscapitaalavailableforrthecompaniesswithlessthan
n
$10MinEBBITDA.Whereassforthelargercompanies,caapitalavailableexceedswortthyoffinancingg.
Averagevaluationdiscoun ntsforlackofco
ontrolimpliedttoproratavaluuesforvariousssizedminoritysstockinterestsina
typicalprivatelyheldcompanywithatottalequityvalueof$10million varyfrom10%to25%forprofitablebusinesss,and
from25%to45%forunprrofitablebusine essdependingoonpercentageoofequityinterest.
Figure 83.
8 Would Se
enior Manage
ers and Chie
ef Executives s Benefit from
m Additionall Leadership and
Skillls Training?
?
4% Stronglyagree
17%
35%
Agree
44% Neutral
Disagree
PRIVATEEQUITTYcont.
2011|PEPPER
RDINEUNIVERSITYYGRAZIADIOSCHO
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REPORT20112012
Accordingttorespondentsleadershipskills,strategicplanning,andundderstandingcom
mpetitiveenviro
onmentsarethe
mostimporrtantforseniorrmanagementttohave.
Figure
e 84. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve
0% 10
0% 20% 300% 40% 5 0% 60% 7
70% 80% 9
90%
Todayy Inthefutture
Relativetosixmonthsago
o,respondentsindicatedincreaasesindemanddforprivateequity,qualityofcompaniesseeeking
investmentt,amountofnooncontrolinvesstmentsandsligghtincreasesinndealmultipless.Theyalsoreportedadecreassein
expectedreeturnsonnewiinvestmentsanndworsenedgeneralbusiness conditions.
Ta
able 32. Gene
eral Business and Industtry Assessm
ment: Today v
versus Six M
Months Ago
Stayed Net
Decrreased Decreased Increased Inc reased % %
about the inc
crease/
signifficantly slightly nificantly increasse decrease
slightly sign
same deecrease
Demand fo
or private equity 1%
1 7% 41% 35% 17% 52% 8% 44%
Quality of companies
c seekiing
1%
1 25%
% 29% 38% 7% 45% 26% 19%
investmentt
Average in
nvestment size 1%
1 14%
% 52% 30% 3% 33% 15% 18%
Non-contro
ol investments 0%
0 9% 55% 28% 8% 36% 9% 27%
Expected investment holdin
ng
0%
0 7% 40% 35% 18% 53% 7% 46%
period
Deal multip
ples 3%
3 25%
% 32% 31% 9% 40% 28% 11%
Exit opporttunities 9%
9 34%
% 27% 25% 5% 30% 43% -13%
Expected returns
r on new
2%
2 31%
% 45% 21% 1% 21% 34% -12%
investmentts
Value of po
ortfolio companie
es 2%
2 32%
% 23% 38% 5% 43% 35% 8%
General bu
usiness condition
ns 12% 47%
% 22% 17% 2% 19% 59% -40%
Size of priv
vate equity indus
stry 2%
2 27%
% 43% 22% 5% 28% 29% -2%
PRIVATEEQUITTYcont.
2011|PEPPER
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REPORT20112012
Responden ntsexpectfurtherincreasesinallbusinesschaaracteristicsexcceptgeneralbuusinessconditio
onsandsizeof
privateequ
uityindustry.
Stay N
Net
Decrrease Decreaase Increase Incrrease % %
about the incrrease/
signifficantly slightly slightly signifficantly increase
e decrease
same deccrease
Demand for private equity 0%
0 5% 32% 50% 1 3% 63% 5% 5
58%
Quality of co
ompanies seeking
1% 16% 32% 43% 9
9% 51% 17% 3
35%
investment
Average investment size 0%
0 14% 46% 36% 5
5% 41% 14% 2
27%
Expected inv
vestment holding
g period 0%
0 6% 48% 37% 9
9% 45% 6% 3
39%
Deal multiple
es 3%
3 25% 38% 31% 2
2% 34% 28% 6
6%
Exit opportunities 6%
6 27% 39% 25% 3
3% 29% 33% --4%
Expected returns on new
2%
2 26% 47% 25% 1
1% 26% 27% --2%
investments
s
Value of porrtfolio companies
s 4%
4 22% 36% 32% 6
6% 38% 26% 1
12%
General bus
siness conditions
s 11
1% 33% 28% 25% 3
3% 28% 44% -1
17%
Size of priva
ate equity industrry 4%
4 23% 47% 20% 6
6% 26% 27% --1%
ntsbelievedomesticeconomiccuncertaintyisthemostimporrtantissuefacinngprivatelyheldbusinessesto
Responden oday.
0% %
5% 10% 15% 20% 25% 0%
30 35% 40%
Accesstocapital 3
37%
200%
28
8%
Ecconomicuncerttainty(domesttic) 26%
Econo
omicuncertaintty(internation
nal) 18%
200%
Govvernmentregulationsandtaxxes 10%
23%
Oth
her 4%
4
%
3%
Competitiionfromforeiggntradepartne
ers 1%
5%
Inflation 0%
Currentisssue Emerggingissue
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REPORT20112012
MEZZA
ANINESU
URVEYINFFORMATION
Ofthe75pparticipantsthattrespondedtothemezzaninesurvey,58%reeportedmakinggdealsovertheepastsixmonthsin
the$5milliionto$10millio
onrangeand39 9%madeinvestmentsinthe$$1millionto$5millionrange.Over22%planon
investinginnbusinessservicesovertheneext12months,ffollowedby21% %inmanufactuuring.Otherkeyyfindingsinclud de:
Operatio
onalandAsssessmentCh
haracteristicss
Approximately42%ofrespondentsareSBICFirms.
Figure 86
6. SBIC (small business iinvestment) F
Firms
42%
Yes
58%
No
Thelargestconcentrationofloansizeswasbetween$5 millionand$100million(58%).
Figure
F 87. Ty
ypical Investm
ment Size
70% 58%
60%
50% 39% 37%
40%
30% 18%
20% 10%
6% 5%
10%
0%
Lessthan$1 $15million $5$10 $1025 $25$50 $50$100 $100$500
million million million million million million
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MEZZANIN
NEcont.
Responden
ntsreportedonbusinesspractiicesandtheressultsarereflecttedbelow.
2% 3% Businessservices
8% 22%
2 Manufacturingg
8% Healthcare
10% Retailandcon
nsumerservicees
21% Wholesale&d distribution
12%
14% Informationteechnology
Basicmaterials&energy
Financialserviices
Other
Approximately57%ofrespondentsmade
ebetweenoneandfiveloansooverthelastsixxmonths.
Figure
e 89. Total Nu
umber of Inv
vestments Ma
ade in the La
ast Six Montths
9% 14%
% 0 1
20% 11%
2 3
11% 18%
3% 4 5
14%
610 Morrethan10
MEZZANIN
NEcont.
2011|PEPPER
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REPORT20112012
Figure 90
0. Number of Follow-on Investments
I Made in the
e Last Six Mo
onths
2% 2%
5% 6% 0 1
34%
15%
2 3
17%
% 4 5
19%
610 Morethan10
Approximately32%ofrespondentsplantomakebetwe
eensixand10innvestmentsoveerthenext12m
months.
2% 2%
%
4%
23%
2 14% 0 1
9%
2 3
32%
% 14%
4 5
610 M
Morethan10
2%
10% 12%
% 0 1
13%
25%
8% 2 3
13%
% 4 5
17
7%
610 Mo
orethan10
MEZZANIN
NEcont.
2011|PEPPER
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PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
ResultsofresponsestosponsoreddealsbasedonsizeofinvesteeEBITDAarereportedbelow.
ResultsofresponsestononsponsoreddealsbasedonsizeofinvesteeEBITDAarereportedbelow.
MEZZANINEcont.
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|66
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PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
Senior debt
d only Sub debt onlyy Blende
ed Sr./Jr. Other
$0M - $1M EBITDA 0% 0% 100% 0%
$1M - $5M EBITDA 0% 5
53% 47% 0%
$5M - $10M
M EBITDA 20% 4
40% 40% 0%
$10M - $25
5M EBITDA 20% 2
20% 60% 0%
$25M - $50
0M EBITDA 0% 0% 100% 0%
$50M+ EBITDA 100% 0% 0% 0%
Acquisitionloanwasreportedby31%ofrespondentsassborrowermottivation,followedbymanagem
mentbuyoutsat
22.6%.
Acquisitionloan
6% 2%
16%
% 31% Managemen
ntbuyout
16% Refinancingg
Financinggrrowth
29%
Workingcap
pitalfluctuatio
ons
Financeworrseningoperattionscondition
ns
Responden
ntsreportedonitemsrequired
dtocloseonedeal.
Figure
e 94. Items Required
R to C
Close One De
eal
100 90
90
80
70
60 50
50
40 35
30
18.5
20 10 10
10 5
5.75 4 5.5 3
1 2
0
Businessplan
nsor Meettingswithprincipals Propossallettersorteerm Lettersofintentsigned
d
emorandumsrreviewed
me conducted shheetsissued
1stQuartile
1 Median 33rdQuartile
MEZZANIN
NEcont.
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REPORT20112012
2%
Agree
Neutral
51% Disagree
Accordingttorespondents,,leadershipskills,understandingcompetitiveeenvironmentssandstrategicp
planningarethe
mostimporrtantforseniorrmanagementttohave.
Figure
e 96. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve
Leaderrship 93
3%
84%
Understaandingcompettitiveenvironm
ments 89%
84%
82%
Strategicplan
nning 79%
Saalesandmarke
eting 7
73%
65%
53%
Knowled
dgeofbusinessandworldevvents 551%
Corporatefinance 499%
42%
nspiringinnovaation
In 58%
42%
Managgementaccoun
nting 35%
Legalandreggulatoryknowle
edge 40%
551%
38%
Quantitative
eanalysis/rese
earch 35%
33%
Humanresou
urces 330%
20%
Globalbusinessmanagem
ment 35%
Todayy Inthefutture
MEZZANIN
NEcont.
2011|PEPPER
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PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
Totaldebttocashflowratiowasthemostimportantfactorwhendecidingwhethertoinvestornot,followedbytotal
debtservicecoverageratio.
Table 39. Importance of Financial Evaluation Metrics
Of little Moderately Very Score
Unimportant Important
importance important important (1 to 5)
Senior DSCR or FCC ratio 17% 6% 17% 37% 23% 3.43
Total DSCR or FCC ratio 3% 3% 6% 34% 54% 4.34
Senior debt-to-cash flow ratio 6% 0% 18% 47% 29% 3.94
Total debt-to-cash flow ratio 0% 0% 6% 24% 70% 4.64
Relativetosixmonthsago,respondentsindicatedincreasesindemandformezzaninecapital,qualityofborrowers
seekinginvestment,averageinvestmentsize,andleveragemultiples.Theyalsoreporteddecreasesinwarrantcoverage,
PIKfeatures,andexpectedreturnsonnewinvestments,aswellasworsenedgeneralbusinessconditions.
Table 41. General Business and Industry Assessment: Today versus Six Months Ago
Stayed Net
Decreased Decreased Increased Increased % %
about the increase/
significantly slightly slightly significantly increase decrease
same decrease
Demand for mezzanine capital 0% 12% 33% 47% 9% 56% 12% 44%
Credit quality of borrowers seeking
0% 19% 49% 28% 5% 33% 19% 14%
investment
Average investment size 0% 7% 62% 29% 2% 31% 7% 24%
MEZZANINEcont.
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|69
PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
Respondenntsexpectfurtherincreasesinallbusinesschaaracteristicsexcceptgeneralbuusinessconditio
onsandcreditq
quality
ersseekinginvestment.
ofborrowe
Net
Deccrease Decreaase Stay aboutt Increase In crease % %
ncrease/
in
significantly slighttly the same slightly signnificantly increasse decrease
deecrease
Demand fo
or mezzanine cap
pital 0%
0 2%
% 41% 37% 20% 56%
% 2% 54%
Credit quality of borrowers seeking
2%
2 29%
% 44% 22% 2% 24%
% 32% -7%
investmentt
Average in
nvestment size 0%
0 3%
% 80% 15% 3% 18%
% 3% 15%
Average in
nvestment maturiity 0%
0 3%
% 93% 3% 3% 5% 3% 3%
General un
nderwriting stand
dards 0%
0 13%
% 65% 20% 3% 23%
% 13% 10%
Warrant co
overage 0%
0 13%
% 68% 15% 5% 20%
% 13% 8%
PIK feature
es 0%
0 10%
% 80% 5% 5% 10%
% 10% 0%
Loan fees 0%
0 5%
% 83% 10% 2% 12%
% 5% 7%
Leverage multiples
m 2%
2 27%
% 41% 29% 0% 29%
% 29% 0%
Expected returns
r on new
0%
0 20%
% 44% 29% 7% 37%
% 20% 17%
investmentts
General bu
usiness condition
ns 5%
5 51%
% 27% 17% 0% 17%
% 56% -39%
Size of me
ezzanine industry
y 0%
0 10%
% 49% 34% 7% 41%
% 10% 32%
Responden
ntsbelievedomesticeconomiccuncertaintyisthemostimporrtantissuefacinngprivatelyheldbusinessesto
oday.
Figure 97
7. Issues Faciing Privately
y-Held Busin
nesses
Ecconomicuncerttainty(domesttic) 44%
%
29%
Econo
omicuncertaintty(internation
nal) 21%
Accesstocapital 17%
9%
Govvernmentregulationsandtaxxes 11%
28%
Inflation 2%
5%
5
Competitiionfromforeiggntradepartne
ers 1%
Oth
her 4%
%
Currentisssue Emerggingissue
BANKAN
B NDASSETBASEDLLENDING SURVEYINFORMA
ATION
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PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
onalandAsssessmentCh
Operatio haracteristicss
Respondenntsreportedonthetypeofenttitythatbestde
escribesthemaand55%reportasbeingacom
mmercialbank,
followedbyy15%asacorp
poratebank.
Figu
ure 98. Descrription of Le nding Entity
y
2% 2% 1% Commercialban
nk
5% A
Assetbasedlen
nder
8% 35%
8% Corporatebankk
Communityban
nk
8%
Commercialfinaancecompanyy
31% O
Other
Privatebanker
R esidentialmorrtgagelender
Creditunion
Themajoritty(78%)reportparticipatingin
ngovernmentloanprograms.
22%
Yes No
78%
BANK
KScont.
Thelargestconcentrationofloansizeswasbetween$1millionand$255million(58%).
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Fiigure 100. Ty
ypical Investtment Size
30%
25%
25%
20% 17%
% 118%
14% 15%
15%
11%
10%
5%
0%
Lessthan$1 $15millio
on $6$10m
million $11225million $$25$50 G
Greaterthan$50
million million million
Responden
ntsreportedonallinratesforvariousindustrries.
Table
T 43. Alll-in Rates by
y Industry
$1M $5M $1
10M $25
5M $50M $100M
Table
Ta 44. All-iin Rates by L
Loan Type
Working ca
apital loan 6% 5.5% 5
5.8% 5. 5% 5.5
5% 5%
%
Equipmentt loan 6% 5% 4
4.8% 5. 3% 3.5
5% 4.5%
%
Real estate
e loan 6% 6% 5
5% 5
5% 4.5
5% 5%
%
Typical fixe
ed-rate loan term
m (years) 5.5 6 5 5 5 7
KScont.
BANK
Seniorleveragemultiplesarereportedbe
elowforthevariousindustriessandEBITDAsi zes.
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$1M $5MM M
$10M M
$25M M
$50M M
$100M
EBIT
TDA EBIT
TDA DA
EBITD EBITD
DA EBITD
DA EBITDDA
Manufacturing 1.2
25 1.2
25 1.25
5 1.25
5 1.75
5 1.75
5
Retail and consumer servic
ces 1.2
25 1.2
25 1.25
5 1.25
5 1.25
5 1.25
5
Wholesale & distribution 1.2
25 1.2
25 1.25
5 1.25
5 1.25
5 1.5
Business services
s 1.2
25 1.2
25 1.25
5 1.25
5 1.75
5 1.75
5
Basic mate
erials & energy 1..5 1.2
25 1.25
5 1.25
5 1.25
5 1.75
5
Health care
e 1.2
25 1.5
5 1.75
5 2 1.75
5 1.75
5
Information
n technology 1..5 1.5
5 1.5
5 2 1.5 1.75
5
Financial services
s 1.2
25 1.2
25 1.5
5 1.75
5 1.75
5 1.75
5
Average 1..3 1.3
3 1.4
4 1.5 1.5 1.7
Variousfee
esasreportedb
bylendersareaasfollows.
Table 46
6. Fees Charrged
1st quarttile Me
edian 3rd quartile % reportin
ng
Closing fee
e 0.5% 1 .0% 1.5% 15%
Modificatio
on fee 0.2% 0 .3% 0.5% 12%
Commitme
ent fee 0.5% 0 .5% 1.0% 14%
Underwritin
ng fee 0.0% 0 .5% 1.0% 11%
Arrangeme
ent fee 0.0% 0 .5% 1.0% 11%
Prepaymen
nt penalty (yr 1) 1.0% 2 .0% 3.0% 13%
Prepaymen
nt penalty (yr 2) 0.5% 1 .0% 2.0% 13%
Unused line fee 0.3% 0 .4% 0.5% 11%
Refinancinggwasthemostcommonlydesscribedfinancingbybuyersat552%,followedbyexpansionatt17%.
5%
% Refinancinggexistingloanssorequity
3%
%
11% Expansion
12% 52%
%
Workingcaapitalfluctuatio
ons
17% Financewoorseningoperatingconditions
Managemeentbuyout
Other
BANK
KScont.
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PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
Totaldebtservicecoverageratiowasthemostimportantfactorwhendecidingwhethertoinvestornot,followedby
totaldebttocashflow.
Respondentsreportedonthepercentageofloans(bysize)thatrequirepersonalguarantees..
$1M loan $5M loan $10M loan $25M loan $50M loan $100M loan
Personal guarantee 100% 100% 75% 25% 25% 25%
Approximately63%ofcashflowapplicationsweredeclined.
Declined
BANKScont.
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REPORT20112012
Approximately36%ofappplicationsweredeclineddueto
opoorqualityoofearningsand/orcashflowfo
ollowedby22%
%that
weredeclin
nedduetoinsufficientcollaterral.
Figure 102. Rea
ason for Decllined Loans
Quaalityofearninggsand/orcashflow 3
36%
Inssufficientcollatteral 22%
Debtload 10%
%
Custom merconcentrattions 6%
Sizeofcomp pany 6%
Economicconc
E cerns 4%
Sizeoravvailabilityofpe
ersonalguaran ntees 2%%
Weakeningindu
W stry 2%
%
Insufficientm managementteam 2%
%
Insufficientoperatinghisstory 2%
%
Insufficientcrredit 1%
Lackofbaankingrelation nship 1%
O
Other 5%
Responden
ntsagreetheyarefeelingincre
easedpressureffromregulatorss(72%)toavoiddmakingriskylloans.
Fig
gure 103. Fee
eling Increas
sed Pressure
e from Regullators to Avo
oid Making R
Risky Loans
13% 4% Stronglyagree
13%
% Aggree
52%
17% Aggreesomewhat
Neeitheragreeno
ordisagree
Disagreesomew
what
04. Would Se
Figure 10 enior Manag
gers and Chie
ef Executives s Benefit fro
om Additiona
al Leadership
p and
Skillls Training?
?
12% 12%
% Stronglyagreee
A
Agree
31
1%
46%
Neutral
Disagree
KScont.
BANK
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Accordingttorespondents,,leadershipskills,sales,marke
etingskills,andstrategicplannningarethemo
ostimportantfo
or
seniorman
nagementtohave.
Figure
e 105. Skills That
T Are Imp
portant for Se
enior Manag
gement to Ha
ave
0% 10% 20% 30% 440% 50% 60% 7
70%
6
67%
Leaderrship %
63%
Saalesandmarke
eting 64%
%
63%
%
Strategicplan
nning 61%
63%
%
Understaandingcompettitiveenvironm
ments 61%
63%%
Legalandreggulatoryknowle
edge 42%
46%
In
nspiringinnovaation 39%
39%
39%
Knowled
dgeofbusinessandworldevvents 42%
336%
Corporatefinance 39%
Managgementaccoun
nting 33%%
28%
Quantitative
eanalysis/rese
earch 25%30%
30%
Globalbusinessmanagem
ment 28%
Humanresou
urces 24%
28%
Todayy Inthefutture
Responden
ntsbelievedomesticeconomiccuncertaintyisthemostimporrtantissuefacinngprivatelyheldbusinessesto
oday.
Figure 106
6. Issues Fac
cing Privately
y-Held Busin
nesses
Economicunccertainty(dom
mestic) 56%
40
0%
Accesstocapital 21%
9%
116%
egulationsandtaxes
Governmentre
G 228%
2%
%
onomicuncertaainty(international)
Eco 9%
Compe
etitionfromforreigntradeparrtners 5%
Inflation 7%
Other
O 5%
2%
%
Currentisssue Emerggingissue
KScont.
BANK
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Respondentsindicatedincreasesinalmostallgeneralbusinesscharacteristicsexceptgeneralunderwritingstandards,
amountofnonaccrualloans,sizeofinterestratespreads,businessconditionsandappetiteforrisk.
Table 51. General Business and Industry Assessment: Today versus Six Months Ago
Stayed Net
Decreased Decreased Increased Increased % %
about the increase/
significantly slightly slightly significantly increase decrease
same decrease
Demand for business loans
12% 12% 30% 35% 12% 47% 23% 23%
(applications)
General underwriting standards 0% 20% 64% 12% 4% 16% 20% -4%
Credit quality of borrowers applying for
7% 16% 37% 35% 5% 40% 23% 16%
credit
Loans outstanding 0% 11% 17% 56% 17% 72% 11% 61%
Size of interest rate spreads (pricing) 0% 48% 24% 20% 8% 28% 48% -20%
Interest rate spread (pricing) 6% 56% 17% 17% 6% 22% 61% -39%
BANKScont.
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PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
Respondentsexpectfurtherincreasesinallbusinesscharacteristicsexceptaverageloansize,loanfees,totalleverage
multiples,focusoncollateral,andlendingcapacityofbank.
Table 52. General Business and Industry Assessment Expectations over the Next 12 Months
Net
Decrease Decrease Stay about Increase Increase % %
increase/
significantly slightly the same slightly significantly increase decrease
decrease
Demand for business loans
(applications) 0% 5% 44% 37% 14% 51% 5% 47%
General underwriting standards
0% 8% 72% 16% 4% 20% 8% 12%
Credit quality of borrowers applying for
credit 0% 16% 56% 26% 2% 28% 16% 12%
Due diligence efforts
0% 0% 22% 61% 17% 78% 0% 78%
Average loan size
0% 31% 56% 6% 6% 13% 31% -19%
Average loan maturity (months)
0% 17% 61% 17% 6% 22% 17% 6%
Percent of loans with personal
guarantees 0% 0% 68% 28% 4% 32% 0% 32%
Percent of loans requiring collateral
0% 0% 56% 42% 2% 44% 0% 44%
Size of interest rate spreads (pricing)
0% 5% 70% 21% 5% 26% 5% 21%
Loan fees
0% 14% 82% 0% 5% 5% 14% -9%
Senior leverage multiples
0% 8% 80% 4% 8% 12% 8% 4%
Total leverage multiples
0% 38% 42% 17% 4% 21% 38% -17%
Focus on collateral as backup means
of payment 0% 23% 63% 12% 2% 14% 23% -9%
SBA lending
0% 0% 89% 11% 0% 11% 0% 11%
Lending capacity of bank
0% 28% 50% 22% 0% 22% 28% -6%
General business conditions
0% 4% 64% 28% 4% 32% 4% 28%
Appetite for risk
0% 4% 60% 32% 4% 36% 4% 32%
BANKScont.
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|78
PEPPERDIN
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AssetBa
asedLendinggSpecificCh
haracteristicss
Accordingttorespondentsapproximatelyy25%ofassetb
basedloanswerreissuedformaanufacturingco
ompanies.
Mannufacturing
3% Whoolesale&distribution
5% 12% 25%
7% Heallthcare
Busi nessservices
8% 16%
Basiccmaterials&eenergy
12
2% 12% Inforrmationtechnology
Retaail&consumerrservices
Fina ncialservices
Otheer
Approximately38%ofthe
ecompaniesthaatbookedassettbasedloansinnthelastsixmo
onthshadEBITD
DAsizelessthan
$5million.
Figure
F 108. Typical
T EBIT
TDA Sizes forr Companies
s Booked
40% 38
8%
30%
16% 18%
%
20% 15%
13%
10%
0%
NegativeEBITD
N DA $05m
million $510million
$ $1050m
million $50+millionEBITDA
A
EBITTDA EBITDA EBITDDA
ntsreportedonallinratesbyttypeandsizeoffcurrentbookeedloansandtheeresultsarereportedbelow.
Responden
Tab
ble 53. All-in Rates on Cu
urrent Asset--Based Loan
ns (medians)
Accounts Real Wo
orking
Inventory Equipment
receivablle estate ca
apital
$5 million loan 11 12 6 7 10
$100 millio
on loan 2.4 2.4 2.5 2.8 2
2.8
Average lo
oan length (month
hs) 42 42 42 39 48
BANK
KScont.
Responden
ntsreportedonstandardadvan
nceratesandth
heresultsarer eflectedbelow.
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Tab
ble 54. Stand
dard Advanc
ce Rate (or LTV ratio) for Assets (%)
Typical Loan Upper Lim
mit
1st qu
uartile Media
an 3rd quarttile 1st quarrtile Median 3rd quartile
Marketable
e securities 90
9 90 90 90 90 90
Accounts receivable
r 80
8 85 85 85 85 90
Inventory - low quality 25
2 30 31 21 30 46
Inventory - intermediate quality 40
4 45 50 40 50 60
Inventory - high quality 55
5 60 65 50 60 65
Equipmentt 59
5 75 80 75 75 78
Real estate
e 60
6 65 70 55 70 75
Land 35
3 40 45 37 42 44
Responden
ntsreportedonvaluationstand
dardsusedtoe
estimateLTVrattios.
Fiigure 109. Va
aluation Stan
ndards Used
d to Estimate LTV Ratio
100%
87%
90%
80%
70% 63%
60%
50% 44%
%
40% 35% 33%
%
30% 25% 25%
20% 10% 11%
6% 6% 5% 6% 5% 7%10% 7%10%6%
%
10%
0%
Purchase Depreciated Facevalue Fairmarket Forced Orderly Other
price value(book) value liquidation n
liquidation
Equipment Realestate Accountsreceivable Inventory
Accordingttorespondentsworkingcapitaalbasedloansh
hadthesmallesstdeclinerate(559%)overthelastsixmonths..
Figure
e 110. Asset--Based Loan
ns Decline Ra
ate
100%
774% 79% 79%
80% 72% 73%
%
59%
60%
40%
20%
0%
Workingcapita
W al Receivablees Equipm
ment Invent orybased R
Realestate O
Otheroperatin
ng
based baseed based assetbased
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ABOUTTHEAUTHOR
JohnPaglia,PhD,MBA,CPA,CFA
AssociateProfessorofFinanceandSeniorResearcher
PepperdinePrivateCapitalMarkets
Dr.Paglia,aformerJulianVirtueandDenneyProfessorshiprecipient,isanassociateprofessoroffinanceat
PepperdineUniversityanddirectsthePepperdinePrivateCapitalMarketsProject.Hehasover10yearsof
universityteachingexperienceinfinance,performsbusinessvaluationsforprivatelyheldcompanies,andhas
testifiedasanexpertoneconomicdamageandvaluationmatters.
HisworkonthePepperdinePrivateCapitalMarketsProjectthefirstsimultaneous,comprehensive,andon
goinginvestigationofthemajorprivatecapitalmarketsegmentshasresultedinover20,000report
downloadsinmorethan70countriesandhasearnedhimthe2011GeorgeAward,whichisgiventotheone
facultymemberannuallywhobestleveragesthebusinesscommunitytomakeadifferenceintheclassroom.
HisresearchhasappearedintheWallStreetJournal,CNBC,USAToday,andtheNewYorkTimes,been
publishedinanumberofjournalsandbeenpresentedatdomesticandinternationalconferences.Dr.Paglia
holdsaPhDinfinance,anMBA,aBSinfinance,andisaCertifiedPublicAccountant(CPA)andChartered
FinancialAnalyst(CFA)charterholder.
Contact:privatecap@pepperdine.edu
ABOUTPEPPERDINEUNIVERSITYS
GRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT
Foundedonthecorevaluesofintegrity,stewardship,courage,andcompassion,PepperdineUniversitys
GraziadioSchoolofBusinessandManagementhasbeendevelopingvaluescenteredleadersandadvancing
responsiblebusinesspracticesince1969.Studentfocused,experiencedriven,andgloballyoriented,the
GraziadioSchooloffersfullyaccreditedMBA,masterofscience,andbachelorscompletionbusinessprograms.
Moreinformationfoundat:bschool.pepperdine.edu/newsroom
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INDEXOFTABLES
Table1.PrivateCapitalMarketRequiredRatesofReturn...................................................................................8
Table2.GeneralBusinessandIndustryAssessment:TodayversusSixMonthsAgo............................................12
Table3.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months...............................12
Table4.MedianDealMultiplesbyEBITDASizeofCompany..............................................................................17
Table5.MedianTotalLeverageMultiplesbySizeofCompany...........................................................................18
Table6.MedianSeniorLeverageMultiplesbySizeofCompany.........................................................................18
Table7.BalanceofAvailableCapitalwithQualityCompanies............................................................................19
Table8.HowDifficulttoArrangeSeniorDebtforTransactionsoverthePastSixMonths...................................19
Table9.GeneralBusinessandIndustryAssessment:TodayversusSixMonthsAgo............................................21
Table10.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months.............................21
Table11.MedianRevenueDealMultiplesbyRevenueSizeofCompany............................................................27
Table12.MedianEBITDADealMultiplesbyRevenueSizeofCompany..............................................................27
Table13.GeneralBusinessandIndustryAssessment:TodayVersusSixMonthsAgo.........................................30
Table14.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months.............................30
Table15.ImportanceofFactorsWhenEvaluating.............................................................................................36
Table16.GeneralBusinessandIndustryAssessment:TodayversusSixMonthsAgo..........................................37
Table17.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months.............................38
Table18.GeneralInformationonInvestmentsbyCompanyStages...................................................................41
Table19.GeneralBusinessandIndustryAssessment:TodayversusSixMonthsAgo..........................................44
Table20.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months.............................45
Table21.VCFundData.....................................................................................................................................47
Table22.GeneralInformationonInvestmentsbyCompanyStages...................................................................48
Table23.GeneralBusinessandIndustryAssessment:TodayversusSixMonthsAgo..........................................51
Table24.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months.............................51
Table25.PEGFundData...................................................................................................................................54
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Table26.GeneralCharacteristicsBuyoutTransactions(medians)...................................................................56
Table27.GeneralCharacteristicsNonBuyoutTransactions(medians)............................................................56
Table28.DealMultiplesAmongIndustries(medians)........................................................................................57
Table29.TheEasetoArrangeSeniorDebtforTransactionsoverthePastSixMonths........................................58
Table30.TheBalanceofAvailableCapitalwithQualityCompaniesfortheFollowingSize.................................59
Table31.ValuationDiscountforMinorityStockInterestsinaTypicalPrivatelyHeldCompanywithaTotalEquity
Valueof$10Million.................................................................................................................................59
Table32.GeneralBusinessandIndustryAssessment:TodayversusSixMonthsAgo..........................................60
Table33.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months.............................61
Table34.MezzanineFundData.........................................................................................................................64
Table35.SponsoredDealsbySizeofInvesteeCompanyEBITDA(medians).......................................................66
Table36.InvestmentTypebySizeofInvesteeCompany,SponsoredDeals........................................................66
Table37.NonSponsoredDealsbySizeofInvesteeCompanyEBITDA(medians)................................................66
Table38.InvestmentTypebySizeofInvesteeCompany,SponsoredDeals........................................................67
Table39.ImportanceofFinancialEvaluationMetrics........................................................................................69
Table40.FinancialEvaluationMetricsAverageData.........................................................................................69
Table41.GeneralBusinessandIndustryAssessment:TodayversusSixMonthsAgo..........................................69
Table42.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months.............................70
Table44.AllinRatesbyIndustry......................................................................................................................72
Table45.AllinRatesbyLoanType...................................................................................................................72
Table46.SeniorLeverageMultiplebyEBITDASize............................................................................................73
Table47.FeesCharged......................................................................................................................................73
Table48.ImportanceofFinancialEvaluationMetrics........................................................................................74
Table49.FinancialEvaluationMetricsAverageData.........................................................................................74
Table50.PersonalGuaranteePercentageofOccurrencebySizeofLoan(%)......................................................74
Table51.ApplicationsData...............................................................................................................................74
Table52.GeneralBusinessandIndustryAssessment:TodayversusSixMonthsAgo..........................................77
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Table53.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months.............................78
Table54.AllinRatesonCurrentAssetBasedLoans(medians)..........................................................................79
Table55.StandardAdvanceRate(orLTVratio)forAssets(%)...........................................................................80
INDEXOFFIGURES
Figure1.PrivateCapitalMarketRequiredRatesofReturn..................................................................................7
Figure2.AnnualRevenuesofCompaniesValued...............................................................................................10
Figure3.UsageofValuationApproaches...........................................................................................................10
Figure4.UsageofMultiples..............................................................................................................................11
Figure5.AverageRiskFreeRate,Market(equity)RiskPremiumandLongTermGrowthRate...........................11
Figure6.DiscountforLackofMarketability(DLOM)byRevenueSizes...............................................................11
Figure7.ExplicitForecastPeriodforHighGrowthCompaniesbyRevenueSizes(years).....................................12
Figure8.IssuesFacingPrivatelyHeldBusinesses...............................................................................................13
Figure9.PrivateBusinessSalesTransactionsClosedintheLastSixMonths.......................................................14
Figure10.BusinessTypesThatWereInvolvedintheTransactionsClosedintheLastSixMonths.......................15
Figure11.AverageNumberofMonthstoCloseOneDeal..................................................................................15
Figure12.PrivateBusinessTransactionsExpectedtoCloseintheNext12Months............................................15
Figure13.PercentageofBusinessSalesEngagementsTerminatedWithoutTransacting....................................16
Figure14.ReasonsforBusinessSalesEngagementsNotTransacting.................................................................16
Figure15.ValuationGapinPricingforTransactionsThatDidntClose...............................................................16
Figure16.UsageofValuationApproaches.........................................................................................................17
Figure17.UsageofMultiples............................................................................................................................17
Figure18.ComponentsofClosedDeals.............................................................................................................18
Figure19.PremiumPaidbyStrategicBuyersRelativetoFinancialBuyers.........................................................19
Figure20.WouldSeniorManagersandChiefExecutivesBenefitfromAdditionalLeadershipandSkillsTraining?
................................................................................................................................................................20
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Figure21.SkillsThatAreImportantforSeniorManagementtoHave................................................................20
Figure22.IssuesFacingPrivatelyHeldBusinesses.............................................................................................22
Figure23.PrivateBusinessSalesTransactionsClosedintheLastSixMonths.....................................................24
Figure24.PrivateBusinessSalesTransactionsExpectedtobCloseintheNextTwelveMonths..........................24
Figure25.PrivateBusinessSalesTransactionsExpecttoCloseintheNext12Months.......................................25
Figure26.AverageNumberofMonthstoCloseOneDeal..................................................................................25
Figure27.PercentageofBusinessSalesEngagementsTerminatedWithoutTransacting....................................25
Figure28.ReasonsforBusinessSalesEngagementsNotTransacting.................................................................26
Figure29.ValuationGapinPricingforTransactionsThatDidntClose...............................................................26
Figure30.UsageofValuationApproaches.........................................................................................................26
Figure31.UsageofMultiples............................................................................................................................27
Figure32.ComponentsofClosedDeals.............................................................................................................28
Figure33.HowDifficulttoArrangeSeniorDebtforTransactionsoverthePastSixMonths................................28
Figure34.WouldSeniorManagersandChiefExecutivesBenefitfromAdditionalLeadershipandSkillsTraining?
................................................................................................................................................................28
Figure35.SkillsThatAreImportantforSeniorManagementtoHave................................................................29
Figure36.IssuesFacingPrivatelyHeldBusinesses.............................................................................................29
Figure37.AssetsunderManagementorInvestableFunds.................................................................................32
Figure38.CurrentandTargetAssetAllocationsfor"AlternativeAssets"(%oftotalportfolio)...........................32
Figure39.CurrentTargetAssetAllocation.........................................................................................................33
Figure40.AnnualReturnExpectationsforNewInvestments.............................................................................33
Figure41.AssetswiththeBestRisk/ReturnTradeoffCurrently........................................................................34
Figure42.IndustrywiththeBestRisk/Return....................................................................................................34
Figure43.GeographicRegionsoftheWorldOfferingtheBestRisk/ReturnTradeoffCurrently...........................35
Figure44.GeographicRegionsoftheUSAwiththeBestRisk/ReturnCurrently.................................................35
Figure45.WouldSeniorManagersandChiefExecutivesBenefitfromAdditionalLeadershipandSkillsTraining?
................................................................................................................................................................36
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|85
PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
Figure46.SkillsThatAreImportantforSeniorManagementtoHave................................................................37
Figure47.IssuesFacingPrivatelyHeldBusinesses.............................................................................................38
Figure48.TotalNumberofInvestmentsMadeintheLastSixMonths...............................................................39
Figure49.NumberofFollowonInvestmentsMadeintheLastSixMonths........................................................39
Figure50.NumberofTotalInvestmentsPlannedoverNext12Months.............................................................40
Figure51.NumberofFollowonInvestmentsPlannedoverNext12Months......................................................40
Figure52.TypeofBusinessforInvestmentsPlannedoverNext12Months........................................................40
Figure53.GeographicLocationofPlannedInvestmentoverNext12Months....................................................42
Figure54.GeographicalLimitforInvestment....................................................................................................42
Figure55.UsageofValuationApproaches.........................................................................................................42
Figure56.ItemsRequiredtoCloseOneDeal.....................................................................................................43
Figure57.ExitPlansforPortfolioCompanies.....................................................................................................43
Figure58.WouldSeniorManagersandChiefExecutivesBenefitfromAdditionalLeadershipandSkillsTraining?
................................................................................................................................................................43
Figure59.SkillsThatAreImportantforSeniorManagementtoHave................................................................44
Figure60.IssuesFacingPrivatelyHeldBusinesses.............................................................................................45
Figure61.TotalNumberofInvestmentsMadeintheLastSixMonths...............................................................46
Figure62.NumberofFollowonInvestmentsMadeintheLastSixMonths........................................................46
Figure63.NumberofTotalInvestmentsPlannedoverNext12Months.............................................................47
Figure64.NumberofFollowonInvestmentsPlannedoverNext12Months......................................................47
Figure65.TypeofBusinessforInvestmentsPlannedoverNext12Months........................................................47
Figure66.GeographicLocationofPlannedInvestmentoverNext12Months....................................................49
Figure67.UsageofValuationApproaches.........................................................................................................49
Figure68.ItemsRequiredtoCloseOneDeal.....................................................................................................49
Figure69.ExitPlansforPortfolioCompanies.....................................................................................................50
Figure70.WouldSeniorManagersandChiefExecutivesBenefitfromAdditionalLeadershipandSkillsTraining?
................................................................................................................................................................50
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|86
PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
Figure71.SkillsThatAreImportantforSeniorManagementtoHave................................................................50
Figure72.IssuesFacingPrivatelyHeldBusinesses.............................................................................................52
Figure73.TypicalInvestmentSize.....................................................................................................................54
Figure74.TypeofBusinessforInvestmentsPlannedoverNext12Months........................................................55
Figure75.TotalNumberofInvestmentsMadeintheLastSixMonths...............................................................55
Figure76.NumberofFollowonInvestmentsMadeintheLastSixMonths........................................................55
Figure77.NumberofTotalInvestmentsPlannedoverNext12Months.............................................................55
Figure78.NumberofFollowonInvestmentsPlannedoverNext12Months......................................................56
Figure79.UsageofValuationApproaches.........................................................................................................57
Figure80.UsageofMultiples............................................................................................................................57
Figure81.ItemsRequiredtoCloseOneDeal.....................................................................................................58
Figure82.ExitPlansforPortfolioCompanies.....................................................................................................58
Figure83.WouldSeniorManagersandChiefExecutivesBenefitfromAdditionalLeadershipandSkillsTraining?
................................................................................................................................................................59
Figure84.SkillsThatAreImportantforSeniorManagementtoHave................................................................60
Figure85.IssuesFacingPrivatelyHeldBusinesses.............................................................................................61
Figure86.SBIC(smallbusinessinvestment)Firms.............................................................................................63
Figure87.TypicalInvestmentSize.....................................................................................................................63
Figure88.TypeofBusinessforInvestmentsPlannedoverNext12Months........................................................64
Figure89.TotalNumberofInvestmentsMadeintheLastSixMonths...............................................................64
Figure90.NumberofFollowonInvestmentsMadeintheLastSixMonths........................................................65
Figure91.NumberofTotalInvestmentsPlannedoverNext12Months.............................................................65
Figure92.NumberofFollowonInvestmentsPlannedoverNext12Months......................................................65
Figure93.BorrowerMotivationtoSecureMezzanineFunding(pastsixmonths)...............................................67
Figure94.ItemsRequiredtoCloseOneDeal.....................................................................................................67
Figure95.WouldSeniorManagersandChiefExecutivesBenefitfromAdditionalLeadershipandSkillsTraining?
................................................................................................................................................................68
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|87
PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
Figure96.SkillsThatAreImportantforSeniorManagementtoHave................................................................68
Figure97.IssuesFacingPrivatelyHeldBusinesses.............................................................................................70
Figure98.DescriptionofLendingEntity.............................................................................................................71
Figure99.ParticipationinGovernmentLoanPrograms.....................................................................................71
Figure100.TypicalInvestmentSize...................................................................................................................72
Figure101.BorrowerMotivationtoSecureFinancing(pastsixmonths)............................................................73
Figure102.ReasonforDeclinedLoans...............................................................................................................75
Figure105.FeelingIncreasedPressurefromRegulatorstoAvoidMakingRiskyLoans........................................75
Figure103.WouldSeniorManagersandChiefExecutivesBenefitfromAdditionalLeadershipandSkillsTraining?
................................................................................................................................................................75
Figure104.SkillsThatAreImportantforSeniorManagementtoHave...............................................................76
Figure106.IssuesFacingPrivatelyHeldBusinesses...........................................................................................76
Figure107.IndustriesServedbyAssetBasedLenders.......................................................................................79
Figure108.TypicalEBITDASizesforCompaniesBooked....................................................................................79
Figure109.ValuationStandardsUsedtoEstimateLTVRatio.............................................................................80
Figure110.AssetBasedLoansDeclineRate......................................................................................................80
2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|88
ExpEriEncE LEarning at
C-LeveL
there is an ExcLusivE club in one of the worlds
most beautiful locations where some of the nations
business leaders come together to learn.
Certificate in Financial Management for the Family Office, March 19-21, 2012
Managing and Building Wealth Through Effective Financial Management, Oversight, and
Making Informed Investment Decisions
Gain evaluation skills necessary to oversee and manage the financial and budgetary aspects as you learn
to make informed and suitable investment decisions.
Developed by Dr. John Paglia in association with his ground-breaking research in the Pepperdine
Private Capitals Market Project, this program provides the in-depth critical analysis and evaluation skills
necessary for success within the private capital markets.
A highly experiential, hands-on workshop dedicated to creating leaders who consistently and systematically
produce innovative solutions to the challenges facing businesses today. The certificate is ideal for
business leaders and executives seeking to become Intrapreneurs.