PE Portfolios Take Center Stage
Buyout groups pursue strong measures to improve the bottom line of their portfolio companies.
July 3, 2009
Private equity firms are taking strong measures to improve the operations and performance of their portfolio companies, according to McGladrey Capital Markets.
The results of a private equity survey, announced on Friday, found that a large number of buyout firms -- 88% of respondents -- executed layoffs at their portfolio companies. In addition, 75% ordered salary freezes, while 71% were focused on improving business processes and 68% sought to reduce capital spending.
Choppy debt capital markets and the economic downturn are driving private equity firms to focus on improving the bottom line of portfolio companies. As a result, many aren't seeking to take their businesses public or sell them.
"If the performance isn’t there you’re not going to be selling any portfolio companies," said Hector Cuellar, president of McGladrey Capital Markets. "Given the overall economic environment, private equity firms are trying to focus on operations."
Indeed. Less than 20% of roughly 100 respondents polled expected to sell a portfolio company, division or product line in 2009.
In the meantime, financial buyers are also focused on working capital issues at portfolio companies. Investors, for example, are concerned about bill collections, credit monitoring and inventory management, among other areas.
Despite the challenges facing private equity sponsors, Cuellar is optimistic about the outlook for the deal business. "There is still a lot of capital to deploy. While the environment will be difficult, credit conditions will ease over time and things will get better."
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