Seven in 10 US Private Companies Plan M&A Activity over Next Two Years

August 2, 2007

This article is included in these additional categories:

B2B | Business of Marketing

Mergers and acquisitions (M&A) remain a key growth strategy for the nation’s private companies – more than 70% of CEOs expect to acquire all or part of another company in the US over the next two years, according to the PricewaterhouseCoopers 10th Annual Global CEO survey, private company edition.

Some findings from the PwC study:

Overview

  • Although public companies are completing cross-border transactions at a faster rate (48%), nearly 23% of private companies reported that they have completed cross-border transactions in the past year, or are expecting to complete one in the next 12 months.
  • A majority of CEOs and owners of US private companies that engage in cross-border M&A are looking for new markets and customers (57%), while 13% want to obtain new product lines.
  • Projections for revenue growth are bullish: 57% are very confident about growth over the next 12 months
  • However, CEOs are relatively cautious about how growth will be funded: More than 80% of respondents plan to finance growth through internally generated cash flows, and only 10% through private equity.

Challenges

  • While cultural issues and conflicts represented a top concern for all US companies involved in cross-border transactions, more private companies than public (70% vs. 57%) cited it as a major obstacle.
  • Overall, US private company owners and CEOs cite more obstacles to cross-border M&A than do public company CEOs. The most significant difference is with regard to stakeholder opposition: 35% of private company respondents cite stakeholder opposition as an obstacle compared to only 11% of public company CEOs.
  • A majority of private company respondents cited the need to improve their organization’s capabilities in executing cross-border M&As:
    • 53% say significant or a lot of improvement is needed in their organization’s ability to navigate the legal and regulatory systems in the home country of the target company
    • 52% say this level of improvement is needed in assessing risks of doing business there.
    • Post-merger integration is the third area where a majority (52%) of private company respondents believe major improvement is required.

Barriers to growth

  • Despite projections for continued growth, US private company owners anticipate potential barriers, including low-cost competition, which was cited as a key threat by 66% of those surveyed.
  • Private company owners and CEOs are aware that recruiting and retaining talent are prerequisites to improving performance, and 64% of surveyed CEOs are either somewhat or extremely concerned about the availability of skilled workers.
  • More than half of private company respondents (53%) reported dedicating resources to address the issue of skilled-worker availability.
  • Nearly 58% of surveyed CEOs say active engagement in social issues will be a key factor in employee recruitment and retention.
  • Workforce diversity is another key area of focus, with approximately 59% of private company CEOs and owners extolling the benefits of cultural and gender diversity at the management level.
  • Other barriers to growth cited include high energy prices (64%), over-regulation (53%), commodity prices (52%) and terrorism (50%).

About the study: For the Fourth Private Company Edition of the Global CEO Survey, PwC compiled and analyzed the responses of 102 US private company owners and CEOs, many of who also participated in our Tenth Annual Global CEO Survey, for which PricewaterhouseCoopers interviewed 1,084 interviews leaders from public and private companies around the world.

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