The Association for Corporate Growth, McGladrey LLP and Pitchbook recently joined forces to survey principals and senior executives at more than 100 private equity firms that invest heavily in middle market companies.

The survey was designed to provide a window into these firms’ priorities when it comes to driving operational improvement and corporate growth.

This year’s survey is incredibly timely, with the country working hard to come out of one of the worst economic downturns in recent history. Also, a presidential election is beginning that could swing easily based on economic trends. With one of the two nominees (Mitt Romney) coming from the private equity arena (Bain Capital), the impact that private equity companies can have on their portfolio companies and the economy as a whole is of particular interest at this time.

Dara Castle, a partner at McGladrey and ACG National Capital member, shared the following key findings from the survey:

  • Machine for job creation – nearly two-thirds of firms reported increased employment at their portfolio companies. One of the most striking findings from the survey was that about two-thirds (65 percent) of private equity firms reported increasing headcounts at their portfolio companies. These results largely contradict recent, widespread sentiment that private equity firms are job killers.
  • Getting hands-on – firms are taking a more active role in portfolio company management. Firms reported an increase in their focus on management, operations and strategy to drive value creation, as opposed to reliance on leverage and financial engineering.
  • Tech deficiencies hurt bottom line – IT deficiencies pose a challenge to performance improvement. The majority of firms recognize the importance of generating daily and weekly performance metrics to drive and monitor improvement, though deficiencies in portfolio company IT systems continue to be an issue.
  • Coming (back) to America – “on-shoring” is becoming more prevalent as Chinese labor and freight costs rise. As China increases labor and freight costs, survey responses indicate that more companies are returning production to the United States or moving it to closer low-cost countries.
  • Tax uncertainty certainly not a problem – firms will continue to optimize value regardless of tax policy uncertainty. While changes to the carried interest tax rate is more likely to impact fund structure and creation, nearly 40 percent of respondents are currently unsure of whether an increased rate will have a significant impact on investments and operations. Instead of worrying about upcoming tax rates, firms appear to be concentrating their attention on developing tax-efficient structures that provide future benefits.

These are just some of the findings from this year’s survey. To download a digital copy of the report click HERE.