PE Firms Looking for Opportunities, C-Level Talent in Demand
Productivity gains from private equity involvement in companies since 1980 have boosted the U.S. economy by $4 billion to $15 billion per year and are expected to be even greater in the current recession, according to one of the most exhaustive studies conducted by the non-profit World Economic Forum (WEF). The WEF study, which involved thousands of companies, entitled “The Global Economic Impact of Private Equity 2009,” finds that private equity-owned firms are generally better managed than counterparts and have strong operational management practices.
Meanwhile, industry experts say they expect to see more M&A transactions in which private equity firms are unloading distressed companies and strategic buyers are purchasing the companies at a discount and restructuring them. As a result, executive search firm, A.E. Feldman, says strong due diligence will be vital. A.E. Feldman adds that right now private equity firms are looking for C-level executives (CEO, CFO, COO) who can identify target acquisitions. The industries specified include healthcare, specialty chemicals, precision engineered components, physical therapy centers and insurance.
Among the chief findings of the WEF’s study:
• Private equity-owned firms have strong operational management practices.
• Firms acquired by private equity groups experience productivity growth in the two-year period after the transaction that is on average two percentage points more than at controls (of the same age, size and industry), i.e. the typical firm’s productivity increases by 7% in the two-year period, while the private equity-backed firm’s productivity increases 9%.
• About 72% of the outperformance differential reflects more effective management of existing facilities, including gains from accelerated reallocation of activity among the continuing establishments of target firms.
• Both targets and controls tend to share productivity gains with workers in the form of higher wages, although the relationship between productivity gains and wage increases is slightly stronger at targets.
The WEF also says firms acquired by private equity groups experience higher productivity growth than firms of the same age, size and industry. Additionally, the positive productivity growth differential at target firms is larger in times of financial stress.
These certainly are times of financial stress, and experts say PE firms are looking to identify acquisition targets. In an interview, Steven Ellis Partner at law firm Proskauer Rose and Co-head of the firm’s Distressed Debt Group, told Metropolitan Corporate Counsel, “There is very little liquidity in the senior bank market. Companies looking to find financing have to go to our clients, the non-traditional lenders and the private equity community. Many private equity firms are looking for distressed opportunities.”
David Joseph, Partner at Stradley Ronon Stevens & Young, echoes Ellis’ view. In a separate interview with Metropolitan Corporate Counsel, Joseph says, “Working with troubled companies to help them restructure their balance sheet, recapitalize and replace high-cost debt with equity or longer-term, lower-cost debt is a booming business these days. We regularly handle a fair amount of this type of work, but it has really picked up during this economic crisis.”
One recent example is PharmaNet Development Group, a clinical development services provider, which agreed to be bought by private-equity investment firm JLL Partners Inc for a cash price of $5.00 a share, according to Reuters. The tender offer by JLL is expected to close by the end of the first quarter of 2009. The report quotes analyst Jeff Nelson of Ladenburg Thalmann & Co as stated in a note to clients, “This acquisition averts the risk from the potential cancellation of PharmaNet’s credit facility on Feb. 15, and delays potential solvency issues when the $144 million in convertible debt comes due on Aug. 15.” Reuters adds that back in September, the company predicted a loss for fiscal 2008, reversing a prior estimate of a profit, citing delay and cancellation of certain ongoing clinical development projects in the late-stage segment and a lower-than-expected sample volume of business in the early-stage segment.
Looking ahead, Joseph sees no end to this trend. “I expect that in the near future we will begin to see more and more M&A transactions in which private equity firms are unloading distressed companies and strategic buyers are purchasing the companies at a discount and restructuring them,” he says.
Strong due diligence, however, will be paramount, considering the distressed nature of these companies. As a result, executive search firm, A.E. Feldman, says private equity firms are looking for C-level executives (CEO, CFO, COO) who can identify target acquisitions. The industries specified include healthcare, specialty chemicals, precision engineered components, physical therapy centers and insurance.
Are you a C-Level Executive or working in Private Equity? If you want to grow your career or your company’s bottom line, contact A.E. Feldman’s President, Mitch Feldman, today.
