Both funds raised and funds invested dipped last year after 2000’s record figures but 2001 still registered as the second best year for the European private equity industry, according to the EVCA Annual Survey of Pan-European Private Equity and Venture Capital Activity, carried out by Pricewaterhouse Coopers.
In 2001 EURO38.2 billion was raised by European private equity funds, a significant drop (20 per cent) compared to the EURO48 billion raised in 2000 but still up 50 per cent on the EURO25.4 billion raised in 1999. Of this total EURO22 billion is earmarked for investing in buyouts and EURO15 billion is destined for early stage companies. The EURO24.3 billion invested last year in 8104 companies represents a drop of 31 per cent from 2000’s total but is in line with 1999’s investment figure. According to Keith Arundale, director of business development and venture capital at PwC Global Technology Industry Group, there now exists a EURO45 billion overhang of capital in the European market.
Edoardo Bugnone, EVCA chairman said: “2001 was a year of reorganisation and stabilisation of private equity portfolios in which valuations decreased from the excessive levels of prior years to more reasonable ones.” He added that the process of cleaning up portfolios was not yet finished. “The forthcoming year is set to offer solid opportunity to those teams who will be able to capitalise on the experience gained from the downturn of the preceding couple of years, to take advantage of renewed market opportunities offered by the continued restructuring of the European corporate world and more reasonable entry valuations,” he said. He also said European figures for 2001 compared favourably with US fund raising and investment figures, citing a dramatic drop in funds raised (from $200 billion in 2000 to $90 billion) and a 60 per cent drop in investments.
Pension funds continue to be the most important source of funds, providing 26 per cent (a 2 per cent increase on last year) of the total funds raised. Max Burger, chairman of the EVCA Investor Relations Committee and EVCA chairman-elect, said: “The sustained significance of pension funds in financing the European private equity industry in 2001 is noteworthy progress…To assure sustained positive developments in this direction, care should be taken that regulatory changes do not inadvertently harm the environment for future growth in pension fund’s allocations.” Bugnone highlighted the fact that Europe still has a long way to go to reach the level of pension funds in the US, which contribute roughly half of the money raised by the private equity industry.
Funds based in the UK raised EURO20.5 billion last year, just over half (54 per cent) of the total raised in Europe and an all-time record, thanks to a handful of large pan-European firms based there. French and German funds raised EURO5.5 billion and EURO3.7 billion respectively. The proportion of funds raised from non-European countries increased from 27 per cent to 34 per cent in 2001, although the amount remained stable at EURO12.8 billion.
In terms of private equity investment as a percentage of GDP, Sweden leads Europe with 0.9 per cent, followed by the UK (which dropped to 0.6 per cent), the Netherlands (0.4 per cent) and Hungary at 0.3 per cent, the European average. France, Germany, Spain and Italy are all at 0.2 per cent.
Investments and divestments
Investment in early stage companies was sustained last year, with venture capital commitments reaching EURO12.2 billion. By number, companies receiving early stage capital represent 40.8 per cent or 3306 businesses. The average investment size for VC investments was EURO1.3 billion, compared to EURO1.7 million last year. Buyouts increased their share of the total invested from 41 per cent in 2000 to 45 per cent last year. Although this is a positive development it is still some way off the 53 per cent share of the total invested in 1999.
Compared to last year high-tech investments were down 37 per cent, to EURO6.8 billion. Within this bracket computer-related companies came top by number with 2578 companies financed, while the communications sector led by amount invested. Investment in biotech decreased from EURO1.1 billion invested in 547 companies in 2000 to EURO844 million invested in 448 companies last year.
Although UK-based private equity houses were less dominant than in previous years, they still invested the most out of the European countries at EURO7 billion, compared to German (EURO4.4 billion) and French firms (EURO3.3 billion). In 2001 Germany replaced France for the highest number of investments, with nearly 2000 German companies receiving finance last year. Smaller European economies increased their share of the market as the UK, Germany, France and Italy invested 69 per cent of the total committed, down from 74 per cent in 2000. For example, Hungary saw a 180 per cent increase in the amount invested.
The amount divested, measured at cost, increased from EURO9.1 billion to EURO12.5 billion, although Bugnone estimated actual returns could be around EURO20 billion. Last year was a record year for divestments, even if write-offs, which were up 23 per cent from EURO0.7 billion in 2000 to EURO2.8 billion, are not included. Trade sales accounted for EURO4.2 billion of the total, up from EURO3 billion last year. Divestments by IPO decreased from 249 worth EURO0.6 billion in 2000 to just 47 deals last year at EURO0.3 billion.