capital markets survey: growth capital edition

CAPITAL MARKE TS SURVE Y

Growth Capital Edition

LCG Capital Advisors, LLCTampa, FL

www.lcgadvisors.com

Issued: March 2014

Survey Overview & Participants 03

Key Insights 04

Survey Results - Deal Trends 05

Survey Results - Management Issues 06

Survey Results - Economic Outlook 07

Potential Responses & Action Items 08

About LCG Advisors 09

Content

02Proprietary Capital Markets Data | March 2014 www.lcgadvisors.com

LCG Advisors Capital Markets Research

In order to gather exclusive data not found in conventional media outlets, LCG Advisors surveyed market participants from industry-leading firms that specialize in mezzanine lending, SBIC funds, specialty lenders, and private equity firms focused on minority and growth capital investments. With feedback from 27 firms, their responses represent the trends of the leading and most active growth capital providers from all parts of the country and covering all market sectors. The survey results represent the entire sector spectrum and are not

skewed toward any particular industry. Collectively, these firms have a strong footprint in all major U.S. markets and have in excess of $50B of invested capital across 40 different asset portfolios. Survey questions were structured in a way to gain the deepest insight into deal trends, external factors, and business attributes that may impede deal execution and outlooks on the future macroeconomic environment. The following details the data collected and LCG Advisor’s findings.

This Edition: Growth Capital Providers

In an effort to provide its clients with the most relevant, up-to-date transaction advisory services, LCG Advisors devotes significant resources to conduct capital markets research on an ongoing basis.

Throughout the year, LCG researches specific segments of the capital markets to obtain feedback on activity levels and outlooks. This edition of the LCG Capital Markets Research focuses on the growth capital markets.

Survey Overview & Participants


As opposed to market factors that are mostly beyond control

of the individual, management issues can be almost entirely

prevented and controlled through preparation and preparedness.

Supply of deployable capital has dramatically increased from 2013.

The appetite for deals remains strong among mezzanine lenders and hedge funds when compared to 2013.

Executed deal multiples and leverage ratios are trending upward due to a flat-line supply of investment opportunities coupled with high level demand from financing firms.

Results indicated for each firm that there is a strong likelihood issues with a client’s management team will inhibit at least one deal from being executed this year.

Management teams can significantly increase their ability to access capital by improving their working knowledge of strategic planning, accounting and finance, and sales and marketing.

Key insights can be extracted when analyzing the survey data:

Key Insights


Robust economic growth in 2013 has led to increased capital availability and a spike in mergers and acquisitions. LCG sought to identify key drivers behind deal activity in addition to trends in financing rates and execution multiples. The following questions indicated the most noteworthy results:

37.0%

33.3%

22.2%

7.4%

Availability of Capital To Deploy Relative

to 2013

Slightly Less About the SameSignificantly MoreSlightly More

Q: How would you characterize your firm’s availability of capital to deploy (dry powder) relative to last year?

Survey Results - Deal Trends

Q: To what extent has your deal criteria broadened over the past year in an effort to deploy more capital?

Extent Deal CriteriaBroadened Over The

Past Year

14.8%

40.7%

44.4%

Not At AllSignificantly

Slightly

Q: How would you rate your firm’s appetite for deals (1 being lowest, 10 being highest appetite)?

Appetite For and Availabilityof Quality Deals

8.5210

9

8

7

6

5

4

3

2

1

0

5.81

8.59

6.03

Today A Year Ago

Appetite Quality Deals

Q: Over the last year, what trends have you seen in executed deal multiples?

IncreasedEBITDA

Multiples

DecreasedEBITDA

Multiples

DecreasedRevenueMultiples

DecreasedDebt

Ratios

IncreasedRevenueMultiples

IncreasedDebt

Ratios

100%

80%

60%

40%

20%

0%

92.0%

36.0%

0% 0% 0%

68.0%

Trends in Deal Multiples and rations


Q: How would you characterize the performance of the management teams of the companies you have been seeing in the market today?

Needs ImprovementAbove Average

Acceptable/Satisfactory Yes No

11%

89%

Q: What are the key areas where these management teams need to improve? (select up to 30)

Key Areas Where Management Teams Need to Improve

Plann

ing &

Strat

egy

Sales

& M

arketi

ng

Operat

ions

Acco

untin

g & Fi

nanc

e

Genera

l Man

agem

ent

Human

Res

ource

s

100%

80%

60%

40%

20%

0%

66.7%

18.5%

40.7%

63.0%

11.1%18.5%

Factors driving deal activity help indicate desirable characteristics for investors, however, often overlooked are the factors that are discouraging investment. Survey results indicated a series of undesirable traits with a consistent focus on management quality and execution.

Survey Results - Management Issues

Performance Rating for ManagementTeams in Market Today

11.1%

43.4%

44.4%

Have You Walked Away From A Deal Citing Largest Concern As Management

Q: In the last year, has your firm declined a deal opportunity citing the largest concern as management (experience, focus, vision, etc.)?


Survey Results - Economic Outlook

Macroeconomic trends combined with specific industry trends have a significant impact on deal activity. As deal makers react to those economic factors, certain sectors and factors can become more affected than others. Survey questions were designed to discover the strongest economic influences and outlooks driving and discouraging deal activity.

Q: What is your outlook on the US economy over the next 1-2 years?

Very PessimisticNeutral

Pessimistic

Q: Which do you believe are the biggest threats in this country to the growth of middle-market businesses? (Make up to 2 selections)

Largest Areas of Economic Concern

Plann

ing &

Strat

egy

Govern

ment R

egula

tion

Forei

gn Af

fairs

- Othe

r

Consu

mer Con

fiden

ce

Econ

omic

Growth

Issue

s

Terro

r Thr

eats

100%

80%

60%

40%

20%

0%

Outlook on U.S. Economy,1-2 Years

3.7%

11.1%

40.7%

44.4%

Optimistic

19.2%

46.2%

7.7%

38.5%

76.9%

3.8%


Companies that can be successful and drive growth despite challenges from poor economic conditions and increased government regulation will be most attractive to investors.

Before considering whether a transaction is the best option, careful consideration must be given to evaluate the current state of operations:

A successful transaction begins with diligent planning and preparation.

Considerable efforts must be focused on the time period leading up to a transaction in order to best position a management team and/or owners for success.

Timing and expertise make the difference. Knowing the market and key players saves time and increases returns.

If expectations are not in line with reality, significant time and investment losses can occur.

Proper planning and preparation can allow a management team to navigate the challenges of a transaction process while staying the course of business operations without missing a beat.

Potential Responses & Action Items


LCG Advisors is a leading, nationally-recognized transaction advisory services firm specializing in corporate finance, mergers & acquisitions, loan and investment due diligence, risk mitigation, and private capital solutions for entrepreneurs and executives.

Our professionals serve as trusted advisors to the world’s largest financial institutions and today’s growing businesses. With over 40 professionals across the country with unique and diverse backgrounds, LCG Advisors serves a wide variety of client needs through the full business life cycle.

Business Advisory Services Due Diligence

In 2013, LCG Advisors completed over 800 credit advisory engagements and provided transaction advisory services to dozens of industry leaders. Our depth of experience and knowledge of the transaction process allows our clients to achieve their goals.

For more information on LCG Advisors, please visit www.lcgadvisors.com

Growth Capital & Equity Placements

Mergers & Acquisitions

Strategic Advisory

Private Capital Solutions & Wealth Management

Transaction Preparation

Quality of Earnings Examinations

Collateral Field Examinations

Risk Assessments

Valuation Services

Acquisition Due Diligence

About LCG Advisors


HeadquartersFifth Third Center201 E. Kennedy Blvd., Suite 325Tampa, FL 33602813.226.2800

www.lcgadvisors.com

capital markets survey: growth capital edition

Economy & Finance