European PE outstrips US

The figure is even more impressive number when compared to the 2% increase in distributions experienced in the US private equity market which saw US$54.6bn (€42.8bn) returned. Globally the asset class saw distributions increase by 8% year to year.

It continues to outperform the public markets, in 2005 by as much as 20% in the US and 9% in Europe, largely driven by the buoyant buyout market. The combination of a strong performance versus other asset classes and a further increase in distributions to investors has led to the five year high of new commitments by LPs.

One particular highlight of the SCM Exit Report is the increasing size of exits. While the number of exits increased moderately by 15%, the value increased substantially by 66%. Trade sales remain the most valuable type of divestments, representing by value 36% of all global private equity exits. Recaps accounted for 25% by value, a 177% increase on 2004. In fact, Europe is experiencing something of a recap boom: in terms of volume their made up 30% of all exits in Europe, just behind the 32% represented by trade sales. In the US recaps were just 13% of the total number of realisation, with trade sales making up 48%.

Proportionally, secondary sales declined in 2005, with a 16% share in the volume of exits. Write-offs declined by 62% in volume and account only for 1% of total exit amounts.

The report returns some negative results about the IPO as an exit route for European venture funds with trade sales making up 84% of the number of all divestments and IPOs 8%. This contrasts with the US where the public route amounted to 46% in volume; only 28% of VC exits in the US came through sale to trade buyers.

This year has, according to preliminary data, started off well with exits increasing by 12% in volume in Q1 2006 compared to the same period last year, with trade sales and recaps the main drivers, although SCM predicts the latter will decrease in significance as interest rates rise over the course of the year.

The report is the result of a survey of 171 venture capital and private equity funds from vintage years 1990–2005 managed by 41 GPs to whom SCM maintains close relationships.