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Buyouts fuel Q2 investment activity

While a challenging economic climate is creating problems for venture capital, it is providing opportunities for buyout houses, according to the latest EVCA quarterly activity indicator published in association with Thomson Venture Economic, publisher of European Venture Capital Journal, and PricewaterhouseCoopers. The findings also reveal that the climate for fund raising has become much tougher.

During the second quarter of 2002, the total of new funds raised was down by 70 per cent from €5.3 billion in Q1 to €1.6 billion. This drop is related to a significant decrease in funds raised by independent firms. In Q1, €4.9 billion was raised from independent sources compared to €1 billion in Q2.

The total amount invested was up by 39 per cent in Q2. Private equity firms invested almost €5 billion compared to €3.6 billion in Q1. During the same period, the number of companies receiving private equity investment increased by 2 per cent to 1,260 compared to 1,236 in Q1. The pronounced increase in amount invested can be explained by several large buyouts. These large buyouts contributed to a 75 per cent surge in the amount invested.

The amount invested in seed companies decreased on the previous quarter by 5 per cent to €36 million invested in 47 companies compared to €38 million invested in 36 companies.

The start-up stage again felt the most significant impact of the difficult economic conditions. Both amount invested and number of companies posted a decrease for the quarter with €304.3 million invested in 344 start-up companies compared to €412.1 million invested in 437 companies the previous quarter. The average amount invested per investee company dropped between the first two quarters of 2002 from €943,000 in Q1 to €885,000 in Q2.

The amount divested at cost during Q2 increased by 28 per cent from €1 billion in Q1 to €1.3 billion. A total of 774 companies were divested during the second quarter, compared to 490 companies a quarter previously. Although the amount divested at cost increased substantially as a consequence of write-offs, in excluding this exit route from the findings, the total amount divested in Q2 2002 illustrates a 6 per cent increase on the previous quarter. This growth can be interpreted as a sustained ability of the VC to find exit solutions in directions other than public offerings, while the IPO window remains closed.

Max Burger-Calderon, EVCA chairman and executive director at Apax Partners, said: “While the second quarter of 2002 continues to paint a difficult picture for venture capital, we see that private equity is finding opportunity, both by looking to buyout investment and exit alternatives to the public market and also by sustaining support of entrepreneurs.”