Seven in 10 U.S. Private Companies Plan M&A Activity Over Next Two Years

NEW YORK, July 10, 2007 – Mergers and acquisitions (M&A) continue to be a key growth strategy for the nation’s private companies, with more than 70 percent of CEOs expecting to acquire all or part of another company in the U.S. over the next two years, according to PricewaterhouseCoopers' 10th Annual Global CEO survey, private company edition.

Although public companies are completing cross-border transactions at a faster rate (48 percent), nearly 23 percent—almost one in four—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 U.S. private companies that engage in cross-border M&A are looking for new markets and customers (57 percent), while 13 percent want to obtain new product lines.

“More and more, we see private companies looking to global markets for opportunities to expand their current business, or to outsource certain processes and functions,” said Rich Calzaretta, national practice leader, PricewaterhouseCoopers' Private Company Services practice. “In looking abroad, however, private companies need to assess risks and develop mitigation strategies that will help them navigate the diverse legal and regulatory systems they will encounter.”

Despite bullish projections for revenue growth—57 percent are very confident about growth over the next 12 months—CEOs are relatively cautious about how this growth will be funded. More than 80 percent of respondents plan to finance growth through internally generated cash flows and only 10 percent through private equity.

Challenges

While cultural issues and conflicts represented a top concern for all U.S. companies involved in cross-border transactions, more private companies than public (70 percent compared to 57 percent) cited it as a major obstacle. Overall, U.S. 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 percent of private company respondents cite stakeholder opposition as an obstacle compared to only 11 percent 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. Fifty-three percent 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, and 52 percent believe this level of improvement is needed in assessing risks of doing business there. Post-merger integration is the third area where a majority (52 percent) of private company respondents believe major improvement is required.

Barriers to growth

Despite projections for continued growth, U.S. private company owners anticipate potential barriers, including low-cost competition, which was cited as a key threat by 66 percent of those surveyed.

Private company owners and CEOs are aware that recruiting and retaining talent are prerequisites to improving performance, and 64 percent of surveyed CEOs are either somewhat or extremely concerned about the availability of skilled workers. More than half of private company respondents (53 percent) reported dedicating resources to address this threat. Further compounding the problem for private company owners are rising costs of employee benefit packages and competition from public companies with equity-based compensation programs.

Nearly 58 percent of surveyed CEOs believe that 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 percent of private company CEOs and owners extolling the benefits of cultural and gender diversity at the management level.

Other barriers to growth include high energy prices (64 percent), over-regulation (53 percent), commodity prices (52 percent) and terrorism (50 percent).


PricewaterhouseCoopers’ Private Company Services practice is an integrated team of audit, tax and advisory professionals who focus on the unique needs of private companies and their owners. Within the practice, our professionals concentrate on the needs of manufacturing, retail, wholesale and distribution, construction, and food and beverage companies, as well as on the needs of law firms and other professional service organizations. They are committed to delivering cost-effective, practical solutions and proactive services with the quality clients expect from PricewaterhouseCoopers. For more information about PricewaterhouseCoopers’ Private Company Services practice, visit www.pwc.com/pcs.

PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services for public and private clients. More than 120,000 people in 139 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders.

“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Survey Methodology

For the Fourth Private Company Edition of the Global CEO Survey, we compiled and analyzed the responses of 102 U.S. private company owners and CEOs. Many of them 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.

To get the private company perspective, we separated the responses of private company owners and CEOs from U.S. public and global averages, and highlighted any differences we found noteworthy. In addition, to understand whether small, medium and large U.S. private companies differ from one another, we categorized all responses according to three revenue bands: less than $250 million, $251-$999 million, and more than $1 billion.

The research was coordinated by the PricewaterhouseCoopers International Survey Unit, Belfast, Northern Ireland, in cooperation with project managers and a global advisory board of PricewaterhouseCoopers partners. The leaders of the firm’s Private Company Services practice advised on the survey and analyzed its findings.