Europe raises €90bn in 2006

European private equity raised €90bn in 2006, almost €20bn more than the previous year’s figure, confirming a record year for firms raising money. The statistics come from the European Venture Capital Association (EVCA) preliminary results for 2006 (produced in conjunction with EVCJ’s parent company, Thomson Financial, and financial consultants PricewaterhouseCoopers), and illustrates just how active buyout specialists were last year and demonstrates than venture is continuing to improve year on year.

Last year €89.8bn was raised, a 25% increase on 2005, and of that total, €70.9bn is expected to be allocated to buyouts, a big jump from 2005’s €57.7bn and an even bigger increase from the €17.8bn raised in 2004. As with any maturing market there is concentration taking place in the private equity industry with more capital managed by a handful of players – there are 10 buyout funds of over €1bn raising an aggregate €42bn in 2006 (or 47% of total 2006 fundraising). These plus €1bn funds include Permira Europe IV, which racked up €11.1bn, Cinven’s fourth fund, which raised €6.5bn, 3i Eurofund V, which garnered €5bn, EQT attracted €4.25bn, Nordic Capital VI, which brought in €1.9bn, TDR Capital II, which made €1.75bn, HgCapital5, which took home €1.4bn, and Altor Equity Partners closed its second fund on €1.15bn.

Fundraising for venture is at €16bn, up by nearly half from €11bn in 2005. This is clear evidence of resurgent interest in this important segment of the market, continuing from the 2005 increase in fundraising for venture. Big raisers in European venture in 2006 included SEP III, which raised €238m, Benchmark Europe III, which accumulated around €415m, and Northzone Ventures V, which closed on €175m, and Life Science Partners raised €150m for its third fund.

The results for fundraising confirm the upward trajectory the industry has experienced for the last two years. The figures for 2004 and previous were all fairly even, and it was 2005’s statistics which really demonstrated the enormous sums of money the industry – buyouts specifically – was now capable of raising. This latest data underlines private equity’s pulling power.

There has been some shift in where this money is coming from. Money from corporate investors has shrunk to just 2%, the lowest proportion in two years. The biggest change has come from the pension funds, which, although making up a similar proportion of total funds raised as 2005, have increased their allocation by over €5bn. Fund-of-funds also invested more – €18.1bn in 2006, 21% of the total, compared with €8.9bn in 2005, 13% of the total. Together, these two types of investor committed almost half of all the money raised in 2006.

Brendan McMahon, private equity leader within the investment management group at PricewaterhouseCoopers, said: “The record funds raised by European based private equity houses demonstrates investors’ confidence in the ability of the industry to deliver long-term and consistent value. Private equity specialists’ unique experience of operating across a wide range of industries and jurisdictions brings valuable insights to management teams seeking to achieve sustainable and long-term growth.”


The preliminary figures also show strong top quarter internal rate of returns (IRR) delivered by both venture (23.5%) and buyout (37.6%) funds, with an overall long-term top quarter IRR of 29.1%. With one year returns for all private equity at 21.3% and a historical 27 year annualised return net of fees at 10.3%, private equity continues to demonstrate that it is a highly attractive asset class.

The short term performance shows total private equity returns over one year of 21.3%, net of management fees and carried interest.

Returns are also increasing steadily over the medium and long term horizons. The three-year investment horizon return has almost doubled in the last 12 months, increasing to 11% from 6.9% in 2005, with buyouts and venture showing returns of 13.2% and 8.7% respectively. Both buyouts and venture capital funds have shown positive ten-year returns of 13.6% for buyouts and 5.5% for venture.

Looking at longer term private equity performance over the last 27 years, figures show that, since inception, private equity has returned 10.3% net of management fees and carried interest, with buyouts and venture capital returning 13.7% and 6.4% respectively, in line with the final 2005 returns.

Gemma Postlethwaite, vice president of Thomson Financial, said: “The European private equity industry is continuing to show strong, consistent returns (at 10.3% long-term average net IRR) which are driving record fundraising as investors continue to increase their allocation by shifting their assets from public equities and fixed income into both buyout and venture capital. Despite the jitters in the stock market in the last few weeks, the strong IPO and M&A activity combined with relatively cheap debt constitute ideal conditions for private equity firms to continue generating strong returns.”


Preliminary 2006 figures show a significant increase in investment activity by European private equity firms, across both the buyout and venture capital segments. Last year saw investment activity rise by 7%, to €50.3bn compared to the final investment figure of €47bn in 2005.

Some 8,500 investments are made in total in 2006 in Europe. The average buyout deal size is €17m underlining the core industry focus on small to medium sized companies.

Buyouts continue to lead the market, accounting for 78% of investment activity by value, with overall amount invested by buyouts rising to €39 billion in 2006 from €34 billion in 2005. While venture investments fall slightly to €11.3 billion from €12.7 billion in 2005, these account for nearly 73% of the total number of deals, making 6,252 investments in 2006, emphasising where the majority of industry activity lies in terms of deals.


Preliminary figures for private equity divestments at cost have seen a decline in 2006 compared to record figures 2005. Preliminary figures show that divestments at cost (not at exit value) have fallen to €21.8bn in 2006, down from €29.8bn in 2005. Against this backdrop, sale to management has increased by an impressive 37.5%, showing that management within private equity owned companies perceives private equity ownership as adding value to the underlying company. Divestment by trade sales accounts for the majority, 25.7%, or €5.6bn of all divestment activity, a drop of 20% compared to 2005. This is followed by repayment of loans and secondary sales, each representing €4.1bn in 2006 (or 19% of the total divested at cost). The level of IPOs remained low in 2006.

Javier Loizaga, chairman of EVCA and CEO and managing partner of Mercapital, said of the results: “2006 has highlighted the growing importance of the European private equity industry, with private equity firms in Europe clearly demonstrating their continuing ability to attract record amounts of capital from institutional investors – both to buyout funds, but more importantly also to venture capital. This increasing commitment to the industry is, to a large extent, driven by performance, and the European private equity industry has, yet again, proved its ability to generate excellent returns for investors. At a time when the global industry is under increased scrutiny, particularly in terms of the way in which private equity firms operate and in their ability to deliver to investors and other stakeholders, performance is and will remain a key indicator.

“Under the current spotlight from policymakers and the public alike, we – as the European industry body – are working hard to contribute to the debate to enhance greater understanding of private equity: why its business model is successful and how we can counter ill-founded criticisms. But we cannot do this alone: we need vocal support from all segments of the industry, particularly from those who benefit from its strong performance.”