PricewaterhouseCoopers' Trendsetter Barometer interviewed
CEOs of 339 privately-held product and service companies
identified in the media as the fastest growing U.S.
businesses over the last five years. Surveyed companies
range from approximately $5-150 million in revenues.
Interviewing for 4Q05 was completed January 24, 2006.
NEW YORK, February 21, 2006 (PRIMEZONE) -- All but a handful of the nation's fastest growing private companies continued to shun new bank financing in the fourth quarter, as interest rates edged ever higher. Instead, most appeared content to self-finance their expansion, thanks to healthy, improving gross margins. The few that did visit their banker apparently were growing so fast, they could not satisfy all their capital needs.
Staying away in droves: 87 percent of fast-growth companies did not complete a new bank loan in the fourth quarter, up from 83 percent in the third. And 82 percent did not increase their credit availability. Rising interest rates-an average quarter-to-quarter increase of 75 basis points;176 points over the past year-coincided.
Where to source expansion capital? Improving gross margins are making cash flow financing an attractive option. In the quarter, 37 percent reported higher-and only 16 percent lower-margins, for a net of 21 percent increasing-up from a net of 10 percent in the prior quarter. Pricing power played a role:
-- 40 percent had rising costs, and 13 percent had lower costs,
for a net of 27 percent with an increase.
-- Chasing higher costs, 32 percent increased their own prices,
and only six percent lowered them, for a net of 26 percent
increasing-up from a net of 17 percent in the prior quarter.
"One might expect that bank financing would play a big role for these companies of extraordinary potential, but why go there and incur the cost if there are other options?" said Tracy Lefteroff, PricewaterhouseCoopers' global managing partner of private equity and venture capital. "Today, most are able to self-finance their expansion, thanks to their healthy gross margins. But how long this can continue, given escalating energy costs, is anybody's guess."
Few in number, but exceptional: Only 13 percent of fast-growth companies-a near low-did complete a new bank loan in the fourth quarter-down from 17 percent in the prior quarter. And just 18 percent increased their credit line, similar to the prior quarter.
These companies with bank involvement are a special breed:
-- They are 45 percent larger, averaging $43.3 million in
revenues, versus $29.9 million for non-borrowers.
-- Despite their larger size, they expect nearly 30 percent
stronger revenue growth over the next 12 months: 27.8
percent versus 21.4 percent respectively.
-- More of them plan to make major new investments of capital
in the year ahead: 60 percent versus 44 percent. And
considerably more expect increased budgets for new products,
IT, advertising, sales promotion, and R&D.
-- Thirty-four percent also expect to explore non-traditional
financing options over the next 12 months-- up from 31
percent in the prior quarter. In contrast, only 16 percent
of non-borrowers expect to consider this avenue, off from
19 percent.
Borrowers Non-Borrowers
Private placement 17% 9%
"Angel" investors 17% 8%
Venture capital 15% 7%
IPO 4% 1%
-- Net Total 34% 16%
"These mega-growth companies are using a combination of bank and self financing. Their rapid expansion requires both," said Lefteroff. "They are wise to keep their options open by exploring non-traditional financing as well."
PricewaterhouseCoopers' "Trendsetter Barometer" is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.
Additional information is available from Pete Collins, survey director and publisher, at 646-471-4496, or pete.collins@us.pwc.com.
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