Financing for Emerging Growth Companies

Financing for Emerging Growth Companies

Insights from the Pepperdine Private Capital Markets Project Surveys

John K. Paglia, Ph.D., CFA, CPAAssociate Professor of Finance

Senior Researcher, Pepperdine Private Capital Markets Project

Thank You!

Fall 2009 Spring 2010 Fall 2010 Spring 2011 Forecast

Confi-dence

0.013 -0.177 0.181 0.36 0.44

Growth Ops

0.441 0.406 0.524 0.61 0.73-30%

-10%

10%

30%

50%

70%

Business Owner Confidence and Growth (Net Increases)

% D

iffer

entia

l

$1M EBITDA

$5M EBITDA

$10M EBITDA

$15M EBITDA

$25M EBITDA

$50M EBITDA

Deal Mul-tiples

4.4 5.2 5.3 5.9 6.4 7.5

Se-nior Leverage

1.25 1.4 2.5 2.5 3 3

Total Leverage

3 3 3.5 3.7 4.2 5

0.5

2.5

4.5

6.5

Valuation and Leverage MultiplesM

ultip

le o

f EBI

TDA

Fall 2009 Spring 2010 Fall 2010 Spring 2011 Forecast

Employ-ees

-0.149 -0.057 0.093 0.26 0.49

CAPEX NaN -0.089 0.032 0.14 0.42

-10%

10%

30%

50%

Employees and CAPEX (Net Increases)

% D

iffer

entia

l

• Expected increase in organic revenues over the next year is approximately 20%

• Nearly 95% of business owners report having the enthusiasm to execute growth strategies

• Yet just 53% report having the necessary financial resources to successfully execute growth strategies

Businesses Need Capital to Grow

What are Top Issues Facing Privately-Held Businesses Today?

38%

12%37%

1%

2%

4% 2% 3%

Access to capital

Government regulations and taxes

Economic uncertainty (Domestic)

Inflation

Ability to find qualified employees

International economic un-certainty

Competitiveness with foreign trade partners

Other

What types of capital are available and

how does one access them?

• Bank Debt• Asset Based Loans• Factoring Lines• Equipment Leasing• Mezzanine Funds• Private Investors

Borrowing Options

• Angel Investors• Venture Capital• Private Equity• Private Investors

Equity Options

Fall 2009 Spring 2010 Fall 2010 Spring 2011 Forecast

Capital Ac-cess

-0.259 -0.226 -0.027 0.04 0.32

-30%

-10%

10%

30%

Business Owner Access to Capital (Net Increases)

% D

iffer

entia

l

Despite continued economic uncertainty,– Increasing capital availability– Increasing leverage multiples– Increasing deal multiples– Increasing confidence in growth

prospects

The Road Ahead

John K. Paglia, Ph.D., CFA, CPAAssociate Professor of Finance

Senior Researcher, Pepperdine Private Capital Markets Project

bschool.pepperdine.edu/privatecapitaljohn.paglia@pepperdine.edu

Thank You!