The Pulse of Private Equity, Spring 2012 – Survey of Private Equity Executives


We are again pleased to bring you The Pulse of Private Equity, now in its fourth edition. EisnerAmper has been tracking the views and opinions of senior private equity fund executives in the U.S. since 2009.

EisnerAmper analysis and commentary supplement these findings to bring you an update on market trends twice a year. The Pulse of Private Equity Research Surveys provide a rolling outlook for future private equity activity that in some instances is now revealing trends.

The Report contains data on transaction and deal flow, competitive bidding, debt financing, fund activities and the fund executives' level of portfolio company interaction. It outlines employment projections, as well as niche market interests for investment. The executives surveyed also provided additional insight into their portfolio companies' activities, and hence a view into private equity business development strategies. The report focuses on the private equity executives' outlook for the first half of 2012 (1H 2012). This outlook is compared to earlier periods dating back to early 2009.

While the executive summary outlines the results, we invite you to read the entire Report for additional insight. Emerging or now-established trends are noted along with our observations from the research and we reference supporting market data. Our intent is for the Report to be of assistance when thinking about the private equity market as well as serving as a benchmark of your firm's level of activity vs. the respondents. We hope you find this Report useful and that you'll share your thoughts and ideas with us.

Executive Summary: Key Survey Findings

EisnerAmper Intelligent Data (EisnerAmper ID) surveys private equity executives twice a year to obtain their views of their firms' fund activity. Survey respondents shared their insight on the outlook for market trends for the first half of 2012 (1H 2012). Our findings can be summarized as follows: 

  • There are signs that PE Firms are More Upbeat About the Potential for Transactions. Private equity firms' projected activity for new acquisitions is up and their outlook for fundraising is more sanguine. Sales or dispositions are projected to be higher for the first half of 2012, though not significantly. While competitive bidding activity remains low there is evidence that some PE firms are anticipating an uptick in deal flow.
  • Is Dry Powder Going Stale? Vintage PE funds are approaching an inflection point where they will either invest funds or give up their ability to call capital. The result is a sales arena where the LPs have significantly more sway. While not specifically tied to results from this Survey, we can predict increased levels of fund raising, in a somewhat more competitive environment, for the foreseeable future.
  • Who Would Think LPs Could Further Increase Their Scrutiny of GPs? Each quarter has brought increased scrutiny by limited partners on their fund executive teams. Private equity executives see an increased interest by LPs in fund teams, management fees and fair value. We report for the first time a large percentage of GPs feel that their LPs have significant interest in transparency and fund management's ability to execute.
  • Private Equity's Focus on Financial Management, Operational Management and Strategic Planning Remains High. With PE firms focused on adding value to their portfolio companies, they are adding more financial and operational resources including professional staff; and using the efforts and time of fund executives more than ever before. Funds are adding value to the holdings by addressing their corporate strategies, revenue growth and human capital, as well as financial management.
  • Employment Growth Projected. The private equity executives continue to show an appetite for hiring now vs. 2011. The hiring trend now includes more financial and operational professionals in addition to their primary hiring of research/analysis and compliance professionals.

About the Research

This Report is part of an ongoing survey series and is designed to take the pulse of the private equity market in relation to earlier periods coupled with an outlook for the first half of 2012 (1H 2012). Private equity executives were asked to comment on their firms' anticipated activities for 1H 2012 compared to earlier periods. The 113 respondents were primarily general partners as well as managing, executive and other directors (53 percent). The other respondents were a cross-section of principals, CFOs, COOs and vice presidents, among other senior positions. Respondents were from a representative cross section of funds (as shown in Figure 1) which varied in size (as shown in Figure 2). Surveys were completed from October 2011 to January 2012. 100 percent of the respondents were from the U.S. with the Connecticut/New York/ New Jersey/Pennsylvania corridor representing 61 percent of the responses. The survey results were analyzed by EisnerAmper LLP, and are presented with EisnerAmper's observations of the private equity market, plus references to other third party data. While EisnerAmper believes the information to be from reliable sources, it should not be relied upon as or considered to be investment advice.

EisnerAmper ID uses proprietary market research conducted by EisnerAmper and leading market research firms, along with analysis from EisnerAmper's partners, principals and directors to produce insightful articles, events and data designed to educate and stimulate discussion on the issues of most interest to business leaders today.

Figure 1: Breakdown of Survey Respondents by Type of Fund 


Figure 2: Breakdown of Survey Respondents by Assets Under Management 


The Pulse of Private Equity 

Since this report was last issued in October 2011, the global and national markets were roiled with the impact of the sovereign debt crisis in Greece, the crisis in Syria, the embargo of Iran and the resulting spike in oil prices. Improving labor statistics and corporate earnings, however, buoyed the U.S. stock market during this same period. The primary elections and the lead-up to the U.S. presidential election dominated the national news. Several major U.S. banks announced they had passed their "stress tests" and promoted stronger earnings. These factors coupled with the imminent U.S. Supreme Court hearings on the Affordable Health Care legislation are all contributing to a situation in the financial services industry that is slightly less volatile, still wary but poised to grow as money seems to want to get back to work.

In this fourth edition of The Pulse of Private Equity, EisnerAmper is providing a 1H 2012 outlook together with comparisons to the research for periods dating back to Q1 2009. This, together with third party data on historical trends in private equity, will provide readers with insight, knowledge and an outlook for the private equity market. The survey results continue to be a good indicator of the overall business of private equity—a business that has undergone significant change during the great recession. Unlike other surveys on private equity that review the industry from the PE executive's perspective combined with service providers and consultants, The Pulse of Private Equity is singularly focused on the views of just PE executives. This report explores key topics for private equity, hence creating a snapshot of what lies just around the corner. The areas explored include:

  • Transactions and Exits
  • Dry Powder
  • Debt Financing Availability
  • Employment
  • Sector Investment
  • Time and Activities
  • Portfolio Company Activities
  • Limited Partners
  • EisnerAmper Observations

"It's fair to say that the "pulse" of private equity quickened since our last report and it will be useful for readers to benchmark these results against their own experiences. From 2009 to today the private equity executives who have provided us with their views and opinions have been accurate barometers of how the PE industry is behaving and where it is trending."  

Peter Cogan
Partner, Co-Chair Financial Services
EisnerAmper LLP

Transactions and Exits 

In a sign of optimism, and as a change from the last report that projected the same or fewer closings for acquisitions, respondents are now predicting more closing to occur in 1H 2012. See Figure 3.

Figure 3: Expectations for Closing Acquisitions 


Sales or exits are expected to rise or at least remain the same during the first half of 2012. Figure 4 presents their expectations for closing sales or exits. Slightly more than 40 percent of the executives surveyed see more sales or exits in the 1H 2012, a continuing pattern over the past several reports.

Figure 4: Expectations for Closing Sales or Exits 


Since 2010 the private equity executives surveyed have consistently reported reduced levels of competitive bidding activity for both acquisitions and dispositions. This is one of the trends with the least amount of variation over the past year and in the outlook. See Figures 5A and 5B.

"Many PE funds are now completing the final steps in the new registration process with the SEC, yet even when regulation and compliance are coupled with tax uncertainty and carried interest legislation they do not seem to be impeding fund activity around sales and exits."  

Michael Laveman
Partner, Financial Services
EisnerAmper LLP

Figure 5A: Anticipated Competitive Bidding Activity: Acquisitions 


Figure 5B: Anticipated Competitive Bidding Activity: Dispositions 


The majority of transactions continue to be with other private equity firms or with public companies. 98 percent of the respondents expected the same or more of their sales of holdings to be with other private equity firms and 94 percent with public companies. 92 percent of them expected the same amount or more of their new acquisitions to originate from other private equity firms and 95 percent from public companies. Figure 6 presents the respondents planned activities vs. late 2011.

Figure 6: Types of Firms Involved with Transactions — 1H 2012 vs. 2H 2011 


Debt Financing Availability Respondents reported in 2H 2011 that debt financing was either not increasing or remaining the same and this remains the case for 1H 2012. See Figure 7. Compared to the beginning of 2011, only 35 percent anticipate an increased availability for the remainder of 2012 and beyond.

"Private equity activity is certainly not immune from the effects of global upheaval and market volatility. Last year's deal flow reflects this uncertainty. Our expectation is that deal flow will show a rebound in 2012 as debt issues in Europe subside and investors come to grips with the new regulatory environment."  

Chris Loiacono
Partner, Co-Chair Tax Advisory Services
EisnerAmper LLP

Figure 7: Availability of Debt Financing 


Dry Powder  

There was (and remains) a large amount of dry powder for buyouts. Dry powder is the committed but uncalled capital for buyouts which is estimated at approximately one-half trillion dollars. The total dry powder for buyouts, distressed assets, real estate, venture, distressed private equity and mezzanine is estimated to be approximately one trillion dollars. The amount of dry powder at private equity firms continues to be vast, aging but decreasing. Pitchbook's Annual Private Equity Breakdown 2012 cites a figure of $425 billion in buyout dry powder and, echoing other optimistic economic forecasts, they predict private equity firms will work to invest their dry powder as deal flow picks back up again in 2012. Prequin's Q3 2011 Private Equity report states that dry powder available across the whole private equity industry continues to decrease by fund type since its high point of well over $1 trillion in 2008, as follows:

$395 billion
Venture Capital
$170 billion
Real Estate
$140 billion
Distressed Assets
$50 billion
Mezzanine Finance
$40 billion
$180 billion
$975 billion

Source: Prequin  

When we asked the private equity executives how much capital from their most recent fund remained to be called, 50 percent of the respondents reported over 25 percent of the capital remained to be called, which was slightly down from 53 percent in 2H 2011. See Figure 8.  60 percent of respondents said their funds were over three years old, with 24 percent saying their funds were more than five years old. See Figure 9. This is stale powder and funds will be faced with the need to put it to work or risk it becoming "uncallable." Only 14 percent of the respondents expected to put more than 50 percent of their dry powder to work in 2011; a number which dropped even lower to 9 percent who expected to put more than 50 percent to work in 2012. The dramatic rebound seen in this report shows that almost a quarter (24 percent) now say they expect to put more than 50 percent to work in 2012. See Figure 10. PitchBook concludes that with 4,200 "mature" portfolio companies ready exploring exits and with 409 private equity funds currently fund raising, "it is hard not to be already optimistic about what 2012 will look like."

Figure 8: How Much Capital from Your Most Recent Fund Remains To Be Called? 

  % of
0% remains to be called 17%
1-25% remains to be called 33%
26-50% remains to be called 22%
51-75% remains to be called 11%
76-100% remains to be called 17%


Figure 9: What Is the Age of the Fund You Are Referencing? 

Less than one year
1-3 years
Over 3 years and under 5 years
Over 5 years


Figure 10: How Much of this Dry Powder Do You Expect to Put to Work? 



The employment projections by the respondents for 1H 2012 showed a steady or increasing hiring environment, with a meaningful 37 percent of private equity respondents planning to increase their staffing and 56 percent keeping the staffing the same. See Figure 11.

Figure 11: Employment Projections 


Respondents were asked about the type of professionals they have been hiring and plan to hire. See Figure 12. Half or more of all respondents said they planned to hire financial and operational professionals in 2012, while a third stated they'd also be hiring in the research/analysis area as well. Only slightly more than a quarter selected compliance as an area where they'd be hiring, which may be surprising given the imminent compliance demands of Dodd-Frank.

Figure 12: Types of Professionals Hired in 1H 2012 


Sector Investment 

The survey respondents identified target segments that are of the most interest for investment in 2012. See Figure 13. The interest continues to be highest in relatively stable and safe industries including manufacturing and distribution, business services and other B2B, and healthcare. The ranking by private equity executives for theirtarget sectors for investment in 1H 2012 closely mirrored the list for 2H 2011 in their rankings. The percent of interest in investing by segment went up for manufacturing and distribution, life sciences/biotech, real estate/housing and retail. Although the percentage of interest in investment went down for healthcare, IT, green and clean tech; and especially for business services and other B2B (55 percent to 43 percent), these segments remain strong. For example, the pursuit of electronic medical records continues to drive much investment.

Figure 13: Target Sectors for Investment* 

Percent of Respondents Showing Interest 

1H 2012: 

2H 2011: 

Manufacturing & Distribution
Business Services & other B2B
Information Technology
Consumer Products
Financial Services
Life Sciences/Biotech
Green or Clean Tech
Real Estate/Housing

*More than 1 sector were typically chosen 

The PitchBook Annual Private Equity Breakdown 2011 cites the percent of deals by industry for Q3 2011 and Q4 2011, as outlined in Figure 14.

Figure 14: Completed Private Equity Deals by Industry 


The history of private equity deal flow shows the downward trend since 2006 with a positive diversion in 2007. While the end of 2010 presented a change in this trend with a strong fourth quarter, PitchBook reports so far this year a reversal in this increase as the decline continues. See Figure 15.

Figure 15: U.S. Private Equity Deal Flow by Quarter 


Time and Activities 

Since 2009, The Pulse of Private Equity has been exploring the amount of time that private equity fund professionals spend on fund activities. Figure 16 reviews their activity concentrations from 2009 through 1H 2012. Revealing a trend toward new activity as opposed to working with existing portfolio companies, respondents estimated they were spending more time looking for or working on new transactions than a period ago (82 percent vs. 76 percent). This is a significant uptick and possibly predictive of a renewed optimism in the market that goes along with a demonstrated move back into fundraising (53 percent vs. 44 percent). Those reporting they were spending time looking for or working on portfolio sales or liquidity events decreased in 1H 2012, after spiking upward in 2H 2011.

"While the number of deal closings dropped by 20% in the second half of 2011 compared to the first half, the total capital invested remained nearly constant, reflecting higher average deal sizes and less leverage employed. The middle market remains the most active segment of new private equity investment."  

Joel Barth
Principal, Leader, Corporate Finance
EisnerAmper LLP

Figure 16: 2009 - 2012: How Much Time Do You Expect Your PE Team to Spend on These Activities? 


Portfolio Company Activities 

We asked private equity executives to comment further on the types of activities their teams are most involved within their portfolio companies' operations. See Figure 17. While team involvement with strategic planning increased slightly to 29 percent (from 24 percent) there were marked increases in the involvement of team activities with regard to financial management (18 percent to 39 percent) and operational management/improvement (10 percent to 38 percent) indicating a continuing trend that shows how much effort is being put toward solidifying portfolio companies in preparation for sale. Revenue growth/sales/marketing/business development was essentially flat (15 percent to 17 percent); while work with a company's board of directors increased from 9 percent to 16 percent. Human capital, fund raising and exit strategies were all basically unchanged. Respondents could select mergers and acquisitions this time and 13 percent chose that as an area where they were most involved with their portfolio companies.

Figure 17: In Which Areas Are You Most Involved with Your Portfolio Companies? 

% of Responses* 
Financial Management
Operations Management/Improvement
Strategic Planning
Revenue Growth/Sales/Marketing/Business Development
Board of Directors
Mergers and Acquisitions
Human Capital
Exit Strategies

*Some respondents provided numerous responses. 


Fundraising activity has remained relatively unchanged since 2009 with the uptick reported in Q2 2011 dropping back down in Q3 2011. See Figure 18. Remember, though, as shown earlier in Figure 16, respondents reported a renewed emphasis on fundraising so it is possible that the quarterly fundraising totals for 2012 will show a rebound.

Figure 18: Quarterly Fundraising Q1 2007 - Q2 2011 


According to Preqin Private Equity Quarterly for Q3 2011, for all types of funds reported, 19 were for buyout and venture capital funds, raising aggregate commitments of $4.4 billion and $3.3 billion respectively.

"As the US economy continues to recover from recent recessionary conditions and as middle class economies are established in the BRIC countries, opportunities in the manufacturing and distribution sector continue to interest private equity funds. With the aging of the baby boomer generation and life expectancies on the rise, potential advancements in life sciences, biotech and healthcare are gaining the attention of many private equity sponsors." 

Alan Wink
Director, Capital Markets
EisnerAmper LLP

Limited Partners 

Private equity executives were asked to give their view on the importance their limited partners placed on fund operations which is summarized in Figure 19. The PE executives who participate in The Pulse of Private Equity Survey have shown over time an increase in their view of the LPs' concern for due diligence, fund terms, management fees and fair value. Of particular note is the increase in the importance GPs say their limited partners place on due diligence related to the manager – from 87 percent to 93 percent, more in line with what they reported in 1H 2011. Figure 19 shows the increase in their perception of LPs' concerns in most areas noted from 2009 through the beginning of 2012. In particular, they have identified a significant uptick in the concerns about:

  • Management and incentive fees, and other expenses
  • Other fund terms (e.g., lockups, commitments)
  • Fair value investment valuation process

Figure 19: PE Executives View on LPs' Areas of Interest 

Rated as Moderate to High Level 
  Q1 2009* Q1 2010 Q1 2011 1H 2011 2H 2011 1H 2012
Fund management's ability
to execute**
Due diligence related to
the manager
Due diligence process related
to the investments
Management and incentive
fees and other expenses
Other fund terms
(e.g., lockups, commitments)
Fair value investment valuation

*Per respondents to EisnerAmper The Pulse of Private Equity Survey 2010  **First time offered as a selection


The large increases in these areas between 1H 2011 and 1H 2012 are significant. For the first time this survey allowed respondents to select two other LP areas of interest with 92 percent citing transparency and 96 percent saying fund management's ability to execute. It is fair to say that the investment environment is clearly influenced by the concerns and demands of the limited partner.

"Private equity executives continue to dedicate a significant amount of their time to the operational effectiveness and competitive standing of their holdings. The effort to strengthen portfolio companies in advance of a disposition is one we've seen through our survey results over the past several years, and the trend shows no sign of abating. Yet, we now see fund managers extending their scope of oversight into many other areas of involvement – truly becoming activist managers. Whether it is an M&A strategy or increased attention to the composition of their boards or how they are training their personnel, PE executives are immersed in the "dayto- day" 

Howard Cohen
EisnerAmper LLP


Several observations for private equity fund management emerge from the data. We encourage you to consider these observations in relation to your own.

  1. Benchmark your activity. Review the data and compare it to your firm's outlook to identify similarities and differences from the respondents. Benchmarking is a useful methodology for comparing your firm's activity level to a peer sample. Fundraising activity is expected to increase significantly, so how does your firm shape up in this regard?
  2. The results show an optimistic viewpoint for new acquisitions and exits, arguing that the remainder of 2012 will also show increased activity. The end (at least for now) of the debt shocks in Europe, the stronger underpinning of the euro and a rebounding equity market are bringing private equity expectations back to 2010 levels.
  3. The emphasis placed on portfolio company business process re-engineering shows no sign of abating. Strategic planning, financial and operational management, revenue growth and business development are daily activities for the private equity fund and portfolio management team and their advisors. Funds are investing in their portfolio companies to ensure future reliable profit streams. Look for increased competition in hiring as the trend to build up operational and financial management competencies continues to grow. Watch too for an uptick in hiring of compliance expertise to handle the anticipated demands of the Dodd-Frank Act.
  4. Transparency is indispensable and it is all about the limited partner. LPs continue to increase their watch on private equity investments and the fund managers. They will continue to demand more on all fronts. Transparency in all aspects of the fund's operations is essential. With the looming SEC registration of private capital providers, compliance may play a larger role in this move toward transparency.
  5. We may be on the cusp of a recovery in private equity activity and this will have an effect on all fund strategies. If a rising tide lifts all boats perhaps there are steps that funds can take now to ensure their boats are floating higher, faster. Remaining competitive in a marketplace influenced by savvy limited partners and more vigilant regulators will be the challenge of 2012.
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