European funds raise €112bn

These latest stats follow on from the preliminary figures published in March, and confirm a stellar year for the industry. Buyouts funds raised €84bn, up from the already massive €58bn in 2005, and venture funds experienced a 60% increase on the previous year’s figures, raising €17bn (up from €11bn), the second highest amount after the record breaking year 2000 which saw VCs accumulate €22bn.

The USA was the main fund source, pumping in 28.8% of the amount raised over 2006, with the UK trailing in second place with a 21.3% share. Significantly below these figures follows France on 7.9%, Sweden on 5.1%, and the Netherlands on 4.9%. In regards to investor type, pension funds continued to lead the way, comprising 27.1% (compared to 24.8% in 2005), with fund-of-funds committing a record €20bn, or 18% of the total.

Private equity also invested €71bn across 7,500 European companies in 2006, with almost 90% of said companies employing less than 500 members of staff. Buyout firms invested €50bn last year, up from the €32bn of 2005, with mega buyouts seeing the biggest increase with €19bn invested in 31 companies, and mid-market funds parting with almost €19bn in 343 companies. Venture investments increased to €17.3bn from €12.7bn in 2005, accounting for 74.2% of the total number of companies. Start-ups more than doubled with €5.7bn invested in 1,905 companies and expansion capital more stable reaching €11.4bn in 3,335 companies.

The UK remains in pole position as a destination for investment, with 33% of European money heading to UK companies, followed by France with 15.2% and Germany with 10.2%. In terms of business sectors, consumer-related and non industrial or financial services businesses proved the most popular last year, absorbing over 30% of investment, followed by communications businesses, though the largest number of investments was made in the computer-related and medical and healthcare sectors.

Former EVCA chairman Javier Loizaga said: “The record figures speak for themselves in highlighting the continued success of the industry at all levels and its attractions to investors, especially pension funds. Buyouts and in particular mega-buyouts are doing extremely well. But while the larger end of the industry often dominates the headlines, we cannot emphasise the reach of the industry strongly enough: 90% of the companies financed by private equity employ fewer than 500 people. The marked growth of mid-market buyouts and of the start-up and expansion segments of venture clearly demonstrate that private equity in Europe continues to focus strongly on building young companies and developing mid-market businesses.”

Returns figures remain in a healthy state with strong one year and long-term annualised net returns of 36.1% and 10.8%, respectively, with top quarter private equity funds returning a hefty 23.3%. Both venture and buyout produced strong top quarter internal rate of returns (IRR) of 17.4% and 31.0% respectively. Gemma Postlethwaite, vice president, Thomson Financial, said: “The European private equity industry is continuing to show solid, consistent returns at 10.8% net of fees on average, which motivates investors to increase their allocation to the asset class, explaining the record fundraising activity we are seeing. Favourable conditions for debt financing, IPO and M&A are also providing ideal conditions for the industry to sustain those returns in the medium-term.”

Over 4,400 companies were sold in 2006 by private equity firms, with 23% of the €31bn divested coming from trade buyers. Loan repayments made up 17.1% of divestments, secondary buyouts 16.1% and IPOs 16.2%. Write offs reached a record low for the industry, comprising just 11.1% of the total number of companies divested. Almost 60% of the money divested – €19.8bn – was by UK based funds, with France (11.4%, €3.8bn) and Germany (6%, €2bn) in second place.