Large buyouts attract investors

Large buyouts continue to drive private equity investment activity in Europe during the third quarter of 2002 with €6.3 billion invested in 1,055 companies, up 24 per cent compared to the previous quarter, according to the EVCA Quarterly Activity Indicator published in collaboration with PricewaterhouseCoopers and Thomson Venture Economics. But while fund raising demonstrated more positive figures than Q2, IPOs were reduced to a trickle with little signs of recovery.

The figures reveal that a total of €3.5 billion new funds were raised for the quarter, representing a 72 per cent increase on the €2.1 billion raised in the second quarter. This increase was largely due to a rise in funds raised from independent vehicles. Conversely, the amount raised by captive funds in Q3 at €348 million was 40 per cent lower than in Q2 at €574 million.

“The current climate remained harsh for private equity practitioners in Q3 this year,” said Max Burger-Calderon, EVCA chairman and executive director at Apax Partners. “There were some positive signs: in the higher fund raising, investment opportunity in large buyouts and the best divestment quarter so far this year.” He added that early stage financing continues to be anathema and the biggest challenge remains exit.

Reflecting difficulties in deal completion, the number of investments in Q3 was 23 per cent lower than Q2 at 1,211 investments compared to 1,576 in Q2. Over €4 billion was invested in buyouts in Q3, representing the lion’s share of investment at 69 per cent of the total and showing a 22 per cent increase on Q2 due to some high value deals. There were 182 buyout investments in Europe in Q3, 23 per cent down on the 235 in Q2. As a result, the average amount invested per company at buyout stage rose from €26.1 million in Q2 to €37.8 million.

The highest amount divested at cost was in Q3. A total of €1.5 billion was divested, up from €1.3 billion in Q2 and just over €1 billion in Q1. By number however, figures were down. A total of 502 companies were divested in Q3 compared to 774 in the previous quarter. Trade sales remained the most significant route to exit and accounted for 28.8 per cent of total divestment at cost at €434 million, a five per cent decrease in amount on the previous quarter. At €342 million, write-offs remained significant in Q3, but fell by 18 per cent on the previous quarter. IPOs were few and far between, but even in the prevailing difficult climate between Q1 and Q3, a total of €3.9 billion was divested at cost.

Gillian Middleton, European private equity research manager, commented: “The third quarter has seen some very large buyout investments, which in the present financial climate has caused something of a polarisation in the stage distribution. However, this was not unexpected and this distribution looks likely to remain while exits remain difficult.”