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U.S. Private Equity Firms Generally Optomistic About Future

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Private equity firms in the U.S. are optimistic about 2013, and are ready to boost their spending budgets on more mergers and acquisitions, according to the 2013 McGladrey Private Equity Survey. The survey included 125 private equity firms. The results concluded that 77 percent of these firms are optimistic about their own economic futures. Only 20 percent had a neutral outlook (neither positive nor negative), and a mere three percent were not optimistic about their own economic futures.

Their outlook on the global economy, however, was not nearly as positive. Only half of respondents stated they are confident about the global economy. They cited a number of external factors for this lack of confidence, including market conditions, rising energy costs, the international economy, increasingly difficult regulatory compliance, rising taxes, and rising health care costs.

As these private equity firms vamp up their budgets for more mergers and acquisitions, a surprising trend is arising. Their portfolio companies show an apparent lack of due diligence in terms of IT infrastructure, which is so critical for a successful business today. Acquiring a company which is severely lacking in terms of IT infrastructure can derail the entire investment profit.

According to the survey, one-third of private equity firms “usually” find portfolio companies with outdated business applications and limited or inadequate IT infrastructure. Some lack critical Web apps and e-commerce capabilities. About half of the private equity firms surveyed find these problems “sometimes.” According to analysts for McGladrey, these results indicate how critical it is for private equity firms to review the investment’s IT infrastructure before the acquisition.

McGladrey is a middle market consulting service specializing in assurance and taxes. The survey is conducted annually between mid-January and mid-February. The results are based on the 125 U.S. private equity companies who responded to the survey.

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