PricewaterhouseCoopers' Trendsetter Barometer Interviewed CEOs of 312
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 in Size From Approximately $5 Million to
$150 Million in Revenue/Sales
NEW YORK, May 30, 2006 (PRIMEZONE) -- As interest rates continued their steady rise, only 12 percent of fast-growth companies completed new bank loans in the first quarter -- a step down from 13 percent in the last quarter, and closer-yet to the historic low of 10 percent in the second quarter of 2002. Rather than seeking new bank loans, many surveyed companies have been content to rely upon self-financing and lines of credit when making major new investments in their business. But, in contrast, the small group of new borrowers appears open to more choices of financing. More than four in ten are expecting to explore alternative financing sources -- like private placements and angel investors -- over the next 12 months, compared to only 16 percent of those with no new bank loans.
Higher interest rates are encouraging many fast-growth companies to avoid new bank loans. Due to recent increases by the Federal Reserve Board, the mean interest rate paid by "Trendsetter" companies in the first quarter was 7.75 percent -- up 26 basis points from the prior quarter, and a whopping 159 basis points from the 6.16 percent of a year ago.
Cash-flow financing more feasible
Many surveyed businesses are enhancing their margins while passing through higher energy costs. Fast-growth companies' costs increased, on balance, over the prior quarter (up for 40 percent, and down for only 12 percent), sparking price adjustments (upward for 34 percent; lower for eight percent). Overall, gross margins remained healthy (higher for 32 percent; lower for only 17 percent), allowing more flexibility to finance from cash flow.
Jump in credit lines
Credit development rose sharply as 24 percent increased their credit lines, up from 18 percent in the prior quarter. Credit was uplifted 13.7 percent, on average, compared to 8.3 percent in the prior quarter and 9.1 percent a year ago.
"These companies are doing a great job of preparing for their future capital needs," said Tracy Lefteroff, PricewaterhouseCoopers' global managing partner of private equity and venture capital. "They are enhancing their capability for self-financing and large credit purchases."
New borrowers are faster growers.
New borrowers in the first quarter of 2006 expect much stronger revenue growth over the next 12 months than non-borrowers -- 32.0 percent versus 20.8 percent, or 54 percent greater. New borrowers were also well ahead of the curve in prior five-year revenue growth -- 342 percent versus 248 percent for non-borrowers, or 38 percent faster.
More borrowers expect to make major new investments of capital over the next 12 months, 66 percent (up from 38 percent in the prior quarter), investing at twice the rate of non-borrowers (21.7 percent of revenues versus 11.5 percent). Expected budget increases among new borrowers were found to be notably higher for IT, sales promotion, facilities expansion, new products, and advertising.
"New borrowers are expanding so rapidly, they have little choice but to incur the increased cost of new bank loans," said Lefteroff. "For them, access to additional capital is more of a must than an option."
More will explore non-traditional financing.
Forty-two percent of first quarter 2006 borrowers expect to also explore non-traditional financing options over the next 12 months -- up from 34 percent in the prior quarter. In contrast, only 16 percent of non-borrowers expect to consider this route (down from 19 percent). Borrower interest in private placements rose sharply to 29 percent (from 17 percent).
Borrowers Non-Borrowers
Private placements 29% 8%
"Angel" investors 18% 8%
Venture capital 16% 6%
IPO 3% 2%
Net total 42% 16%
"The same sense of extreme urgency that drove new borrowers to banks also underlies their interest in exploring non-traditional financing," added Lefteroff.
PricewaterhouseCoopers' Trendsetter Barometer is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.
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If you have a question about this Trendsetter Barometer survey, please contact Pete Collins, survey director and publisher, at 646-471-4496 or e-mail to: pete.collins@us.pwc.com
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