PCA Index Survey Responses First Three Quarters 2012, Trends€¦ · $5M ‐ $100M PCA Index PCD...

11

PCA Index Survey ResponsesFirst Three Quarters 2012, Trends

John K. Paglia, Ph.D., CFA, CPAAssociate Professor of Finance

Director, Pepperdine Private Capital Markets Project © 2012 Pepperdine University. All rights reserved. Pepperdine Private Capital Access Index (“PCA Index”) is a trademark ofPepperdine University. PCA Index content is the intellectual property of Pepperdine University or its third party contentproviders. Any copying, republication or redistribution of PCA Index content, including but not limited to caching, framing orsimilar means, is expressly prohibited without the prior written consent of Pepperdine University. Pepperdine University shallnot be liable for any errors, omissions or delays in PCA Index content, or for any actions taken in reliance thereon.

22

This research was made possible with the support of Dun & Bradstreet Credibility Corp., the leading provider of credit

building and credibility solutions for businesses.

DUN & BRADSTREET CREDIBILITY CORP.Jeffrey Stibel, Chair and Chief Executive Officer

Judy Hackett, Chief Marketing OfficerAaron Stibel, Senior Vice President, Technology

Erik Simon, Director, Marketing and CommunicationsBrenda Gary, Senior Marketing Director

Bernice Brennan, Manager, Creative Services & Marketing Communications Trenice Taylor, Marketing Manager

33

ACKNOWLEDGEMENTS

I’d also like to thank the following people at The Graziadio School of Business and Management for their contributions:

Dean Linda LivingstoneAssociate Dean David M. Smith

Mike Sims, Executive Officer, CERDouglass Gore, Director of Public Relations

Mark Chun, Director, Center for Applied ResearchBill Bleuel, Professor of Decision Sciences

Irina Shaykhutdinova, Research AnalystCraig Everett, Assistant Professor of Finance

and consultant, Simon James, Ph.D.

44

I. About the Private Capital Access (PCA) Index……...….…5

II. Demand for external financing……………………..….….14

III. Accessibility/success rate of raising new capital……...…21

IV. Satisfaction rates for various capital sources………..…..28

V. Expected demand for external financing……………..…..34

VI. Expected capital access (success) rates……………..….39

VII. Hiring/growth outlooks and financing failure impacts…45

Outline

55

The Pepperdine Private Capital Access Index (PCA) is a quarterly

indicator produced by the Graziadio School of Business and

Management at Pepperdine University, and with the support of Dun &

Bradstreet Credibility Corp. The index is designed to measure the

demand for, activity, and health of the private capital markets. The

purpose of the PCA Index is to gauge the demand of small and

medium-sized businesses for financing needs, the level of accessibility

of private capital, and the transparency and efficiency of private

financing markets.

I. About the Private Capital Access (PCA) Index 

66

• 25 questions• Invite to participate distributed to sample from Dun

& Bradstreet Credibility Corp.’s business database

• 5,977 completed responses in Q1, 2012

• 4,686 completed responses in Q2, 2012

• 3,426 completed responses in Q3, 2012

About the Private Capital Access (PCA) Index Survey 

77

Total Market PCA Index PCD Index 2012‐Q1 27.8 37.0 2012‐Q2 2012‐Q3

27.0 27.3

36.5 35.1

Change 0.3 ‐0.6 Pct. Change 1.1% ‐1.6%

Private Capital Access (PCA) and Private Capital Demand (PCD) Index Results – Whole Sample

A value of less than fifty for an index represents a low level of access or demand. 

The Q3 PCD Index number for the entire sample is 35.1, reflecting weakness in demand for external loans and other financing. 

The PCA numbers reflect continued and increased difficulty securing loans and other business financing sources. 

88

Private Capital Access (PCA) and Private Capital Demand (PCD) Index Results – Whole Sample

2012‐Q1 2012‐Q2 2012‐Q3PCA Index 27.8 27.0 27.3PCD Index 37.0 36.5 35.1

0

1020

3040

5060

70

8090

100

99

<$ 5M Revs PCA Index PCD Index2012‐Q1 26.6 38.8 2012‐Q2 2013‐Q3

26.0 26.3

38.0 36.5

Change 0.3 ‐1.5 Pct. Change 1.2% ‐3.9%

Small Business PCA and PCD Index Results(< $5M in Revenues) 

The Q3 PCD Index number for small businesses is 36.5, reflecting weakness in demand for external loans and other financing. 

The PCA numbers reflect continued and increased difficulty securing loans and other business financing sources. 

1010

Small Business PCA and PCD Index Results(< $5M in Revenues) 

2012‐Q1 2012‐Q2 2012‐Q3PCA Index 26.6 26.0 26.3PCD Index 38.8 38.0 36.5

0

10

20

30

40

50

60

70

80

90

100

1111

$5M ‐ $100M PCA Index PCD Index2012‐Q1 34.7 32.3 2012‐Q2 2013‐Q3

33.5 32.7

33.1 31.5

Change ‐0.8 ‐1.6 Pct. Change ‐2.4% ‐4.8%

Lower Middle Market PCA and PCD Indices($5M – $100M in Revenues)

The Q3 PCD Index number for lower middle market companies is 31.5, reflecting weakness in demand for external loans and other financing. 

When compared to the small business indicators, lower middle market companies demonstrate lower demand (31.5 vs. 36.5) and higher access (32.7 vs. 26.3). 

1212

Lower Middle Market PCA and PCD Index Results

($5M – $100M in Revenues)

2012‐Q1 2012‐Q2 2012‐Q3PCA Index 34.7 33.5 32.7PCD Index 32.3 33.1 31.5

0102030405060708090100

1313

Annual Revenue Growth Expectations by Revenue Size: Q3 vs. Q2

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Q2 Q3

7.3%5.8%

7.1%5.7%

7.8%6.7%

Whole sample < $5 million $5 ‐$100 million

1414

II. Demand for external financing 

1515

What is the Demand for Financing in 2012?(% with any need reported)

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Planned growthor expansion,including

acquisitions(not yetrealized)

Working capitalfluctuations

Growth due toincreaseddemand(alreadyrealized)

Financeworseningoperatingconditions

Refinanceexisting loansor equity

Withdrawwealth forowners

Q1 66.1% 65.3% 56.0% 40.9% 38.4% 27.5%Q2 63.4% 61.2% 52.8% 40.9% 37.2% 26.2%Q3 60.8% 57.4% 48.7% 38.8% 37.9% 24.7%

Demand declining across all categories

1616

Strength of Demand for Financing (among those indicating demand)

Scale 1‐4: slight, moderate, high, extremely high need

0.0

1.0

2.0

3.0

4.0

Planned growthor expansion,including

acquisitions (notyet realized)

Working capitalfluctuations

Growth due toincreaseddemand(alreadyrealized)

Financeworseningoperatingconditions

Refinanceexisting loans or

equity

Withdrawwealth forowners

Q1 2.5 2.2 2.1 2.2 2.4 1.9Q2 2.5 2.2 2.2 2.2 2.4 2.0Q3 2.4 2.2 2.1 2.2 2.5 2.0

1717

Respondents Indicating High and Extremely High Demand for Financing 

(among those indicating demand)

0%10%20%30%40%50%60%70%80%90%100%

Planned growthor expansion,including

acquisitions (notyet realized)

Working capitalfluctuations

Growth due toincreaseddemand(alreadyrealized)

Financeworseningoperatingconditions

Refinanceexisting loans or

equity

Withdrawwealth forowners

Q1 47.3% 36.8% 34.2% 35.2% 42.4% 25.0%Q2 47.9% 37.8% 35.5% 39.1% 46.5% 29.8%Q3 46.9% 36.8% 32.7% 36.7% 47.9% 28.7%

1818

Percentage Indicating “Yes” to “Is the current business financing environment restricting…”

0%

20%

40%

60%

80%

100%

Growth opportunities for your business? Your ability to hire new employees?

61%51%

61%

52%

61%

51%

Q1 Q2 Q3

1919

A Stress on Cash Flow?Accounts Receivable Payment Period Trends

0%

20%

40%

60%

80%

100%

Accelerated (receivingpayments from customersfaster than three months

ago)

Slowed (receiving paymentsfrom customers slower than

three months ago)

Stayed the same

8%

36%

56%

6%

38%

56%

7%

38%

54%

Q1 Q2 Q3

2020

How Many Businesses Attempted to Raise Outside Financing in 2012 (by Quarter)?

0%

20%

40%

60%

80%

100%

Q1 Q2 Q3

32% 33% 32%

2121

III. Accessibility/success rate

2222

Is it Difficult or Easy to Raise New External Financing?

Equity financing Debt financing

0%

20%

40%

60%

80%

100%

Difficult Neitherdifficult nor

easy

Easy

Q1 74% 14% 12%Q2 75% 14% 11%Q3 72% 13% 15%

0%

20%

40%

60%

80%

100%

Difficult Neitherdifficult nor

easy

Easy

Q1 74% 12% 14%Q2 75% 11% 14%Q3 73% 12% 15%

2323

Financing Success Rates by Type and Business Size for Prior Three Months

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Friendsandfamily

Grants(SBIR,STTR,etc.)

Crowdfunding

Tradecredit

Creditcard ‐pers.

Loan ‐pers.

Creditcard ‐biz.

Lease Bankloan ‐biz.

CDFI/Creditunion

Assetbasedlender

Factor Angelcapital

Vent.capital

Privateequitygroup

Mezz.lender

Hedgefund

Q1 71% 24% 7% 64% 62% 48% 59% 59% 45% 14% 20% 31% 20% 8% 17% 9% 2%

Q2 68% 21% 12% 59% 62% 47% 59% 54% 44% 13% 28% 32% 16% 9% 15% 9% 13%

Q3 67% 28% 13% 63% 66% 51% 61% 59% 42% 21% 32% 39% 21% 12% 29% 14% 7%

Bank loans and personal credit cards have lower success rates Success rates rising for 

the majority of other capital providers

2424

Main Purpose for Raising or Attempting to Raise Financing

0%

20%

40%

60%

80%

100%

Growth orexpansion

(incl. acquis.)

Workingcapital

fluctuations

Refinancingexisting loansor equity

Replacingequipment or

facilitiesunrelated togrowth orexpansion

Financeworseningoperationsconditions

Withdrawwealth forowners

Other

Q1 42% 29% 12% 6% 6% 1% 5%Q2 42% 26% 12% 8% 6% 1% 6%Q3 40% 23% 15% 9% 6% 2% 5%

2525

Reasons for Businesses Not Attempting to Raise External Financing (Multiple Selections)

0%10%20%30%40%50%60%70%80%90%100%

Enoughcash flow

Sufficientfinancingin place

Weakeconomy

Businesswould berejected

Lack ofexpertise

Notenoughtime

Loss ofcontrol /flexibility

Waiting forcheaperfinancing

Ceaseoperation /liquidate

Other

Q1 45% 25% 23% 22% 13% 12% 6% 8% 2% 7%Q2 45% 26% 23% 20% 13% 10% 6% 7% 1% 9%Q3 47% 25% 24% 19% 9% 9% 5% 7% 2% 8%

2626

Percentage of Owners Who Transferred Personal Assets to Business Over Prior Three 

Months

0%10%20%30%40%50%60%70%80%90%

100%

Yes No Unsure

42%57%

1%

42%

57%

1%

41%

58%

1%

Q1 Q2 Q3

2727

Types of Personal Assets Transferred to Business During Prior Three Months

(Multiple Selections)

0%10%20%30%40%50%60%70%80%90%100%

Personalsavings /

investments

Personal creditcard purchases

Personal loan Cash from thesale of personal

assets

Home equityloan

Other

Q1 68% 39% 34% 17% 12% 4%Q2 73% 44% 18% 19% 11% 4%Q3 73% 43% 19% 20% 10% 4%

2828

IV. Satisfaction rates

2929

Pricing and Contract Terms Satisfaction Rates (for those with a successful raise)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Friendsandfamily

Grants(SBIR,STTR,etc.)

Crowdfunding

Tradecredit

Creditcard ‐pers.

Loan ‐pers.

Creditcard ‐biz.

Lease Bankloan ‐biz.

CDFI/Creditunion

Assetbasedlender

Factor Angelcapital

Vent.capital

Privateequitygroup

Mezz.lender

Hedgefund

Q1 89% 89% 70% 83% 45% 69% 61% 78% 82% 85% 71% 50% 80% 67% 64% 58% 67%Q2 89% 84% 80% 78% 47% 69% 58% 89% 86% 80% 72% 60% 77% 64% 85% 58% 75%Q3 87% 97% 65% 88% 46% 67% 58% 85% 86% 80% 73% 60% 85% 60% 79% 40% 75%

3030

General Financing Process Satisfaction Rates (for those with a successful raise)

0%10%20%30%40%50%60%70%80%90%100%

Friendsandfamily

Grants(SBIR,STTR,etc.)

Crowdfunding

Tradecredit

Creditcard ‐pers.

Loan ‐pers.

Creditcard ‐biz.

Lease Bankloan ‐biz.

CDFI/Creditunion

Assetbasedlender

Factor Angelcapital

Vent.capital

Privateequitygroup

Mezz.lender

Hedgefund

Q1 74% 70% 80% 80% 59% 62% 73% 79% 71% 76% 67% 65% 65% 63% 74% 67% 50%Q2 70% 78% 82% 79% 56% 57% 66% 79% 75% 68% 61% 65% 65% 54% 77% 38% 78%Q3 74% 79% 90% 78% 55% 57% 73% 86% 76% 76% 63% 69% 68% 58% 75% 78% 100%

3131

General Financing Process Satisfaction Rates (for those with a unsuccessful raise)

0%10%20%30%40%50%60%70%80%90%100%

Friendsandfamily

Grants(SBIR,STTR,etc.)

Crowdfunding

Tradecredit

Creditcard ‐pers.

Loan ‐pers.

Creditcard ‐biz.

Lease Bankloan ‐biz.

CDFI/Creditunion

Assetbasedlender

Factor Angelcapital

Vent.capital

Privateequitygroup

Mezz.lender

Hedgefund

Q1 30% 11% 7% 23% 13% 14% 17% 14% 8% 10% 8% 9% 17% 15% 14% 11% 8%Q2 22% 7% 10% 16% 18% 11% 12% 14% 9% 10% 8% 9% 15% 13% 14% 5% 4%Q3 26% 6% 12% 17% 22% 12% 15% 17% 10% 6% 12% 16% 17% 20% 20% 14% 11%

3232

Percentage of Those Satisfied with the Amount of Time Elapsed from Point of First Contact until 

Funds Were Received (for those successful raises)

0%10%20%30%40%50%60%70%80%90%100%

Friendsandfamily

Grants(SBIR,STTR,etc.)

Crowdfunding

Tradecredit

Creditcard ‐pers.

Loan ‐pers.

Creditcard ‐biz.

Lease Bankloan ‐biz.

CDFI/Creditunion

Assetbasedlender

Factor Angelcapital

Vent.capital

Privateequitygroup

Mezz.lender

Hedgefund

Q1 78% 58% 44% 79% 71% 65% 81% 82% 71% 70% 61% 67% 59% 53% 55% 67% 67%Q2 78% 64% 64% 82% 68% 62% 72% 79% 70% 66% 58% 70% 61% 36% 56% 25% 67%Q3 84% 56% 78% 83% 71% 62% 80% 82% 68% 67% 62% 68% 64% 58% 65% 60% 100%

3333

Percentage of Those Unsuccessful Who Feel the General Category of Financing is a Still a Good 

Fit for Their Business

0%10%20%30%40%50%60%70%80%90%100%

Friendsandfamily

Grants(SBIR,STTR,etc.)

Crowdfunding

Tradecredit

Creditcard ‐pers.

Loan ‐pers.

Creditcard ‐biz.

Lease Bankloan ‐biz.

CDFI/Creditunion

Assetbasedlender

Factor Angelcapital

Vent.capital

Privateequitygroup

Mezz.lender

Hedgefund

Q1 31% 57% 32% 58% 47% 49% 59% 64% 62% 57% 49% 35% 57% 55% 57% 44% 32%Q2 34% 55% 32% 56% 32% 48% 54% 51% 64% 58% 54% 33% 58% 49% 59% 39% 39%Q3 31% 57% 32% 58% 47% 49% 59% 64% 62% 57% 49% 35% 57% 55% 57% 44% 32%

3434

V. Expected demand for external financing

3535

Are Businesses Planning to Raise Financing in the Next Six Months? 

0%

20%

40%

60%

80%

100%

Yes No Unsure

31%

47%

22%32%

47%

20%

31%

49%

20%

Q1 Q2 Q3

3636

Percentage of Respondents Indicating Demand for New Financing in the Next Six Months 

0%

20%

40%

60%

80%

100%

Planned futuregrowth orexpansion

Expectedworking capitalfluctuations

Growth due toexpectedincreaseddemand

Expectedworseningoperatingconditions

Refinanceexisting loans or

equity

Withdrawwealth forowners

Q1 63% 61% 59% 35% 36% 25%Q2 61% 57% 54% 35% 35% 24%Q3 59% 55% 51% 34% 36% 23%

Expected demand declining across all 

categories

3737

Strength of Expected Demand for New External Financing in the Next Six Months 

(Scale 1‐4: Slight, Moderate, High, Extremely High)

0.00.51.01.52.02.53.03.54.0

Planned futuregrowth orexpansion

Expectedworking capitalfluctuations

Growth due toexpectedincreaseddemand

Expectedworseningoperatingconditions

Refinanceexisting loans or

equity

Withdrawwealth forowners

Q1 2.4 2.2 2.2 1.9 2.4 1.9Q2 2.5 2.2 2.3 2.1 2.3 2.0Q3 2.4 2.2 2.2 2.0 2.4 2.0

3838

Respondents Indicating High or Extremely High Expected Demand for New External Financing in 

the Next Six Months

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Planned futuregrowth orexpansion

Expectedworking capitalfluctuations

Growth due toexpectedincreaseddemand

Expectedworseningoperatingconditions

Refinanceexisting loansor equity

Withdrawwealth forowners

Q1 45.9% 37.1% 38.6% 27.5% 43.6% 24.2%Q2 46.7% 37.2% 39.4% 33.6% 42.8% 29.0%Q3 46.1% 35.4% 38.9% 28.8% 45.4% 27.1%

3939

VI. Expected access rates

4040

Do You Expect It Would Be Easy or Difficult to Raise New Financing in the Next Six Months?

Equity financing Debt financing

0%

20%

40%

60%

80%

100%

Difficult Neitherdifficultnor easy

Easy

Q1 71% 12% 17%Q2 71% 13% 16%Q3 69% 12% 19%

0%

20%

40%

60%

80%

100%

Difficult Neitherdifficult nor

easy

Easy

Q1 69% 11% 20%Q2 70% 12% 18%Q3 67% 12% 21%

4141

What are Expected Sources of Financing in Next Six Months?

0%10%20%30%40%50%60%70%80%90%

100%

Friendsandfamily

Grants(SBIR,STTR,etc.)

Crowdfunding

Tradecredit

Creditcard ‐pers.

Loan ‐pers.

Creditcard ‐biz.

Lease Bankloan ‐biz.

CDFI/Creditunion

Assetbasedlender

Factor Angelcapital

Vent.capital

Privateequitygroup

Mezz.lender

Hedgefund

Q1 32% 32% 35% 11% 23% 33% 41% 32% 65% 36% 35% 13% 27% 24% 28% 14% 8%Q2 32% 29% 35% 10% 22% 32% 40% 33% 68% 36% 35% 17% 30% 26% 28% 14% 8%Q3 32% 31% 32% 11% 23% 32% 39% 31% 66% 35% 35% 13% 25% 22% 26% 16% 9%

Avg. 4.8 sources per business!

Bank loans and credit cards most likely to be sought

4242

Main Purpose for Raising Expected Financing

0%

20%

40%

60%

80%

100%

Growth orexpansion

(incl.acquisition)

Workingcapital

fluctuations

Refinancingexisting loansor equity

Replacingequipment or

facilitiesunrelated togrowth orexpansion

Financeworseningoperationsconditions

Withdrawwealth forowners

Other

Q1 58% 21% 9% 5% 3% 1% 3%Q2 58% 18% 8% 7% 4% 1% 4%Q3 57% 17% 11% 6% 4% 2% 4%

4343

Level of Confidence for Successful Financing(Scale 0‐4: none; some; moderately; very; completely)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Friendsandfamily

Grants(SBIR,STTR,etc.)

Crowdfunding

Tradecredit

Creditcard ‐pers.

Loan ‐pers.

Creditcard ‐biz.

Lease Bankloan ‐biz.

CDFI/Creditunion

Assetbasedlender

Factor Angelcapital

Vent.capital

Privateequitygroup

Mezz.lender

Hedgefund

Q1 1.9 1.5 2.1 1.3 2.0 1.7 1.9 2.1 1.6 1.2 1.4 2.0 1.4 1.3 1.4 1.4 1.4Q2 2.0 1.5 2.1 1.5 1.9 1.8 2.0 2.2 1.6 1.2 1.4 1.8 1.5 1.4 1.5 1.3 1.3Q3 2.0 1.6 2.1 1.3 1.9 1.6 1.7 2.2 1.5 1.2 1.5 1.8 1.4 1.4 1.6 1.3 1.3

Confidence is getting lower for senior lenders

4444

Reasons for Not Planning on Raising Financing 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Enoughcash flow

Sufficientfinancingin place

Weakeconomy

Businesswould berejected

Lack ofexpertise

Notenoughtime

Loss ofcontrol /flexibility

Waiting forcheaperfinancing

Ceaseoperation /liquidate

Other

Q1 61% 37% 19% 13% 6% 6% 5% 4% 2% 5%Q2 59% 33% 22% 13% 5% 6% 5% 4% 2% 6%Q3 61% 32% 22% 12% 4% 5% 4% 4% 3% 5%

4545

VII. Hiring / growth outlooks and financing failure impacts

4646

Number of Employees Planned to Be Hired in the Next Six Months

0%

5%

10%

15%

20%

25%

30%

35%

40%

0 1‐2 3‐5 6‐10 11‐15 16‐20 21‐30 31‐40 41‐50 51‐75 76‐100 101‐200

Morethan200

Q1 31% 34% 19% 8% 3% 2% 1% 1% 1% 0% 0% 0% 0%Q2 38% 32% 15% 7% 2% 1% 1% 1% 1% 0% 1% 0% 0%Q3 38% 33% 15% 7% 2% 1% 1% 1% 1% 1% 0% 0% 0%

4747

What are the Impacts of an Unsuccessful Financing Event?

0%10%20%30%40%50%60%70%80%90%100%

Slower businessgrowth

Hire fewer newemployees than

planned

Reduce numberof employees

(layoffs)

Sell businessassets or shut

down

No expectedimpacts ongrowth,

business size, orhiring plans

Whole sample 71% 54% 23% 22% 13%< $5 million 72% 55% 24% 22% 11%$5 million ‐$100 million 70% 57% 25% 14% 18%

4848

About Pepperdine Private Capital Markets ProjectThe Pepperdine Private Capital Markets Project at the Graziadio School of Business and Management is the first simultaneous, comprehensive, and on-going investigation of the major private capital market segments. The research seeks to understand the true cost of private capital across market types and the investment expectations of privately-held business owners; providing lenders, investors and the businesses that depend on them with critical data to make optimal investment and financing decisions, and better determine where the opportunities to create lasting economic value may be realized. Download reports and find more information at http://bschool.pepperdine.edu/privatecapital.

About Pepperdine University’s Graziadio School of Business and Management Founded on the core values of integrity, stewardship, courage, and compassion, Pepperdine University’s Graziadio (GRAT-ZEE-ah-DEE-oh) School of Business and Management has been developing values-centered leaders and advancing responsible business practice since 1969. Student-focused, experience-driven, and globally-oriented, the Graziadio School offers fully accredited top-ranked MBA, Masters of Science, and bachelor’s completion business programs. More information found at http://bschool.pepperdine.edu/newsroom/.

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THANK YOU!

John K. Paglia, Ph.D., CFA, CPAAssociate Professor of Finance

Director, Pepperdine Private Capital Markets Projecthttp://bschool.pepperdine.edu/privatecapital

john.paglia@pepperdine.edu805.379.5809