To better understand the mindset of today’s private company executive, we collaborated with the Financial Executives Networking Group (FENG) to survey financial executives in the United States about their needs and uses for capital. The 250+ responses have offered some unique insights into how these decision makers are thinking about the private capital markets and about growing their businesses.
Three major themes emerged:
#1: There is a Need for Capital
One of the biggest takeaways from the survey is the overwhelming need for capital. Sixty-nine percent of the respondents indicated that they would be looking for capital in the next 12 months. These capital seekers were particularly concerned about obtaining “enough” capital — either from existing sources or from new sources.
If the financial executives were to secure their desired amount of capital, they would allocate the money to a variety of purposes: operations, expansion into current markets, repaying new investors or lenders, acquiring new business, and R&D. Working capital needs and expansion (both in current and new markets) seem to be the clearest pain points for the respondents.
#2: Buying and/or Selling
When it comes to larger transactions — like buying or selling a business — the conversations have been a little different for these financial executives.
On the acquisition front, 51% of respondents talk openly about acquiring new businesses or expanding in new markets. When asked if they would acquire a competitor, an overwhelming 77% said they would if the conditions were right.
Significantly fewer business owners talk openly about selling their own business. According to respondents, only 29% have had an open discussion among chief stakeholders about the idea of selling the business to a new owner.
As M&A activity in the middle market continues to heat up, it is prudent for many CXOs to begin having these conversations in order to be prepared to respond to increasingly proactive outreach from investment bankers and other advisors. In fact, 45% of respondents indicated they have heard from more investment bankers this year than the year before. In order to avoid wasted opportunities, financial decision makers should begin internal conversations about the opportunities for their company so they are ready when the right relationship or deal comes their way.
The respondents also indicated that, if they were to sell their business, the current price of the business would be the single most important factor when considering the transaction. Second would be other financial considerations, like guarantees or earn outs.
#3: Technology is Impacting Relationship Building
When business owners decide they do want to tap the private capital markets (and 67% said they will in the coming months), the majority rely on existing connections and referrals through their personal network. Another 15% also rely on networking through industry or trade organizations. This suggests that is important to constantly and consistently be building relationships with business owners.
However, there is also indication that business owners are expanding their relationship building techniques to include technology and the internet. Of those that have used technology, 60% have indicated that software and internet tools have made the process of identifying relevant options and opportunities easier. This is a trend we are seeing as more and more business owners look to the internet to learn more about the private capital markets.