Private Equity Firms Focusing On Portfolio Company Performance, RSM McGladrey Survey Finds

Faced with a difficult economy and an anemic dealmaking environment, private equity firms are reducing employee headcounts, strengthening working-capital management, freezing salaries, improving business processes and reducing capital spending in an intensive effort to improve portfolio company performance, according to the survey.

Survey respondents ranked a weak economy, the ability to meet business forecasts, and the potential for defaults on loan covenants as their primary concerns for 2009.

The survey was conducted by RSM McGladrey and McGladrey Capital Markets.  The firms polled approximately 100 senior-level PE firm executives representing a cross-section of fund types, including buyout funds (74 percent), mezzanine funds (13 percent) and venture funds (12 percent).  Fund sizes ranged from less than $100 million in assets to more than $3 billion.

Almost nine out of ten (88 percent) survey respondents said they have implemented workforce reductions in response to the current economic environment, while another 10 percent are actively considering such actions.  Significant majorities are also focusing on working-capital management (83 percent), salary freezes (75 percent), business process improvements (71 percent) and reductions in capital spending (68 percent).  Conversely, relatively few have sought to consolidate vendors or coordinate employee benefits across portfolio companies (16 percent and 14 percent, respectively).

“Private equity firms are increasing communications and becoming even more engaged in the oversight of their portfolio companies.  Much of their focus is on helping portfolio companies acquire new customers, increase business with existing customers and enhance existing products and services,” said Bob Jensen, managing director and leader of RSM McGladrey’s Transaction Support Services practice.

“The survey confirmed what private equity executives have been telling us privately: their attention has largely shifted from acquiring new platform companies to managing the profitability of existing investments,” said Hector J. Cuellar, president of McGladrey Capital Markets.  “This is unlikely to change until the economic outlook improves and acquisition financing becomes more readily available.”

Download the RSM McGladrey/McGladrey Capital Markets LLC 2009 Managing Portfolio Investments Survey.