Corporate venturing down

Corporate venturing activity in 2004 registered a decrease in investment amounts and divestments compared to 2003, according to the fifth annual Corporate Venturing Survey published by the European Private Equity & Venture Capital Association (EVCA.) The decline in the invested amount was triggered by a decrease in the deal size and not by any reduction in activity levels.

Corporate venturing investments in Europe decreased by 21% to €372m in 2004 from €470m in 2003. This was close to the amount recorded in 2002 of €337m. The total number of deals decreased only marginally (by 3%) to 307 in 2004 compared to 315 in 2003.

Expansion received the largest amount of investment in 2004 with 52% of the total in 2004. Start-up businesses attracted 29%, buyouts reached 17% and seed capital and replacement capital represented 1% each of the total amount invested in 2004.

The four most targeted sectors were biotechnology, consumer, computer (software), and communications; together they attracted 50% of the total amount invested. Biotechnology was the favoured sector in 2004 with €53m in investments compared to €31m in 2003 when it ranked sixth.

The top three targeted countries by amount were the UK, France and Italy with 54% of the total. The UK ranked first with €68m invested in the country in 38 deals. This position was triggered by the high average deal size of the expansion deals and a few large deals in the transportation sector.

By number of deals, France, Germany and the UK represented 63% of the total. France ranked first with 82 deals totalling €67m, with start-ups as the main investment stage and computer software as the most targeted sector.

Divestment at cost amounted to €307m in 2004, representing a 133% increase from €132m in 2003. The pattern of divestment altered significantly, with sales to a private equity house becoming the most common exit route and representing 42% of the total amount divested. Trade sales were also a preferred exit channel, with high levels in both amount (30%) and number of deals (21%) in 2004. Write-offs only reached 7% of the total value of divestments, but by number of deals remained significant accounting for 32% of the total number of divestments.

The increase in sales to private equity houses was mainly driven by corporate venturers scaling down or closing their venture business and selling their portfolio companies to secondary private equity funds. When eliminating the impact of these secondary sales, the overall divestments represented €215m in 2004, 63% higher than the amount divested in 2003.

Commenting on the survey’s findings, Mirela Ene, in charge of research at EVCA, said:

“The results indicate that there is stabilisation in the corporate venturing activity levels in the last three years. While there is movement in the market with players either setting up new corporate venturing programmes or divesting the existing ones, the core of corporate venturers takes a long-term approach to the programmes and seem to be more driven by financial objectives.”