CURRENT GROWTH PERSPECTIVES
According to the KPMG LLP (KPMG) Private Markets Group’s recent survey of 226 U.S.-based private company executives, which gauges the current perspectives and three-year plans of one of the most impactful sectors of the U.S. business landscape, strategic growth is a top priority for today’s private company CEO.
The findings reveal that 58 percent of private company CEOs are more confident about their growth prospects over the next three years, and 72 percent expect their headcounts will increase.
Yet despite their general bullishness, 56 percent of private company CEOs characterize their overall growth strategy as “conservative.”
According to Brian Hughes, national leader of KPMG’s Private Markets Group, that is because while economic resilience, at home and abroad, is looking more and more likely each day, private companies are still operating in an era of uncertainty, characterized by regulatory pressures, changing customer dynamics and demographics, technological complexity and unrelenting globalization.
“Private companies tend to be more optimistic and more flexible than public companies, as they are not constrained by quarterly earnings and can operate with greater independence and a higher risk appetite,” says Hughes.
“Still, they have the external world to be concerned about,” he adds. “Overlay budget constraints with the slow-moving recovery in the United States, uncertainty in foreign markets including Europe and Asia, and capital gridlock in Washington including ambiguity about business tax reform, and it makes sense that private companies are highly confident but also guarded when it comes to growth.”
For many private companies, the time is ripe to seize growth opportunities. As business leaders plan for the future they should consider looking at growth through a number of lenses.
Geographic expansion, especially in untapped emerging markets, may offer ideal opportunities for immediate penetration. New product development will be critical as new entrants in the market disrupt companies and industries with new business models.
Public markets are also growing more robust alongside the overall recovery of the stock market, making it an ideal time for well positioned private companies to consider going public. Driven by Alibaba Group’s massive $25 billion offering, the U.S. IPO market has seen $92.5 billion in total volume in 2014, the highest since the technology bubble of 2000, according to Dealogic. Citigroup analysts project an IPO market of similar size in 2015.1
Our survey results reflect the projected impact of these growth lenses on private companies in the next three years. We found that 69 percent of private company CEOs are committed to innovating more relevant products and services, and 30 percent are planning more investment in new overseas markets. We are also likely to see an uptick in merger and acquisition activity among private companies in the next three years.
These growth strategies have the potential to create a bright future for private companies if leaders embrace best practices in global expansion, innovation and transactions.
For example, private companies that are entering new domestic or international markets should do so only after they have considered all of the potential financial, regulatory, operational, cultural and geopolitical challenges that could arise— including the tax implications.
Additionally, private companies should use their innovation budgets wisely and find inexpensive ways to generate new ideas, such as collaborating with third parties and connecting with customers through social media.