Relatively healthy public capital markets are keeping a lid on private placement activity.
Private placements have traditionally been a less active, less prestigious cousin of the public debt and equity markets. Although they bring fewer regulatory hassles and less posttransaction price volatility than public offerings, private deals remain primarily a capital-raising alternative for corporations when mainstream stock and bond investors sour on buying new securities.
Respondents to this month’s CFO Forum confirm this conventional wisdom. Just 28.6 percent of CFOs report that their companies have raised capital in a private placement in the past 12 months. The vast majority of those that did - nearly three quarters - did so only once. And all those CFOs whose companies completed a private deal offered bonds or some other interest-bearing security, such as preferred shares, rather than common stock.
More telling, all of the companies that raised private capital set out to do a private deal from the start, rather than resort to private investors in response to an unreceptive public market. This is likely because the public markets, though certainly choppy of late, remain open. Corporations have raised $868.8 billion in the public bond market so far this year, not far off the healthy tally of $875.5 billion recorded through this point in 1999, according to CommScan.
It’s no surprise, then, that only 23.2 percent of CFOs say their companies are likely to engage in a private placement in the next 12 months. Of course, conditions could change. Among those who do not expect to do a private placement in the coming year, 63.6 percent will at least consider that option. In addition, a solid majority - 63.6 percent - of all CFOs report that their companies have raised capital in a private transaction at least once during the past five years.
Has your company, in the past 12 months, raised capital through the private placement of debt, equity or hybrid securities?
Yes 28.6%
No 71.4
How many times?
Once 72.2%
Twice 16.7
Three times 11.1
More than three times 0.0
If yes, what kind of transaction(s) did you engage in?
Equity 0.0%
Debt 66.7
Preferred stock 33.3
Convertible debt 0.0
Convertible
preferred 11.1
Other 5.6
If yes, were any of these Rule 144A private placements, as opposed to traditional private deals?
Yes 33.3%
No 66.7
If you have raised capital through a private placement in the past 12 months, was it because you intended to do a private deal from the start or because you preferred a public deal but markets were unreceptive?
Set out to do private
deal from start 100.0%
Wanted to raise money
in public capital
markets, but
couldn’t 0.0
If you set out to do a private deal from the start, please explain why.
Raised capital as part
of strategic alliance
with one other
company or a select
few other
companies 6.7%
Large institutional
investor(s) needed
sizable quantity of
equity or debt and
wanted to avoid a
public market
impact 6.7
Wanted to avoid
administrative
expense of a
public deal 26.7
Believed sophisticated
private investors
would understand
our business and
circumstances 46.7
Other 26.7
How often has your company tapped private sources of capital in the past five years?
Never 36.4%
One to three times 54.5
Four to six times 5.5
Seven to ten times 1.8
More than ten times 1.8
If you have not raised capital through a private placement in the past 12 months, have you considered one?
Yes 26.8%
No 73.2
Taking into consideration the current state of the capital markets, do you expect your company to raise capital in a private placement in the next 12 months?
Yes 23.2%
No 76.8
If no, will you at least consider a private placement as an option?
Yes 63.6%
No 36.4
Has your company used a Web-based road show to help sell a private placement?
Yes 5.3%
No 94.7
If you haven’t, would your company consider a Web-based road show?
Yes 70.0%
No 30.0
