When it comes to attracting private equity investment, it is the state of Texas that stands out. The Lone Star state easily beat second place California by attracting a total of $87 billion of private equity money last year compared to $54 billion for California according to data published by the industry association Private Equity Growth Capital Council. The year 2013 was the third straight year Texas ranked at the top of private equity investments. While PE investments in US companies rose 27 percent last year to $443 billion, Pennsylvania with investment of $44.4 billion moved up three places from its 2012 ranking to third in 2013 ahead of New York which attracted $31.5 billion and Florida which netted $18.9 billion.
Texas Tax Incentive A Major Attraction
A major attraction for private equities to allocate capital to Texas-based companies is the attractive tax structure in the state. Michael Cox, a director at Southern Methodist University Cox School of Business in Dallas says Texas offers the best tax incentive among all states in the US with no levy on individual or corporate income.
The biggest private equity deal for Texas in 2013 was the $25 billion purchase of computer maker Dell. Second largest was the $6.9 billion purchase of IT services and cloud computing company BMC Software by a private equity consortium led by Bain Capital and Golden Gate Capital. Other big deals include the $6 billion sale of Dallas-based luxury retail chain Neiman Marcus Group to Ares Management, and the $3.75 billion deal by private equity firm Riverstone Holdings to buy the Gulf of Mexico shelf assets of Houston energy company Apache Corp.
In all, the year 2013 saw private equities investing $87.4 billion in 282 companies in Texas. In comparison, private equity investments in California totaled $54 billion in 306 companies. California took the number one position for the number of companies receiving private equity investment in 2013, while Texas was second followed by New York with 162 and Florida with 136 companies.
Information Technology Top Sector For PE investment
The Private Equity Growth Capital Council study also reveals that in terms of sectors, information technology and consumer-based industries together accounted for over half of private equity investment last year. While private equity investment in IT jumped to 28 percent from 18 percent a year ago, investments in consumer products and services increased to 25 percent from 19 percent. However private equity investments in the energy sector dropped to 10 percent from 17 percent.
Bronwyn Bailey, vice president of research with Private Equity Growth Capital Council says the higher allocation to information technology companies is a result of the IT industry entering the maturing phase which provides long term visibility for private equity firms to commit large investments.
Relevance To Job Market
The overall increase of 27 percent in private equity investment in US companies last year is a reflection of the improving market conditions for private equity industry. According to data provider Preqin, private equity firms globally are sitting on a record amount of un-invested capital, also known as dry powder, of $1.141 trillion at the start of June driving by strong capital inflows. Such large influx of capital is good news for the industry and could positively impact the job market.
