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UK PE allocations and performance

In 2001 UK private equity firms raised a record GBP12.2 billion. Investment and performance figures released by the British Venture Capital Association (BVCA) for 2001 show an all time high in the number of companies receiving funding, despite a decline in the total amount invested. See table 1.

Performance

According to the BVCA Performance Measurement Survey 2001, conducted by PricewaterhouseCoopers, private equity returns remain above those produced by comparable sectors over three, five and ten years.

Net returns for private equity funds raised between 1980 and 2001 measured to the end of last year were; -7.1 per cent (one year); 13 per cent per annum (three year); 15.7 per cent per annum (five year); 17.4 per cent per annum (ten year).

Larger MBO funds and non-technology focused funds produced the best results with early stage funds performing worst, although still better than the techMARK index. Contrary to suspicions aired by some at the EVCA International Conference in Geneva in March this year, the survey found large buyout funds (investing over GBP50 million of equity in buyouts) outperformed all other funds last year.

Good news for fund raisers

Despite complaints from the industry about the difficult fund raising environment, UK private equity funds had a good year: GBP12.2 billion was raised in 2001 (36 per cent increase on 2000).

UK pension funds committed GBP1.6 billion, equivalent to 13 per cent of this figure, which was nearly twice the amount they allocated to the asset class in 2000.

Banks, government agencies, academic institutions, foreign insurance companies and foreign fund-of-funds increased their investment in UK private equity.

The proportion of capital raised outside the UK rose from 64 per cent in 2000 to 71 per cent. More than half of the capital raised is destined for deals larger than GBP100 million and 71 per cent is planned for investment in buyouts. The ascendancy of mega-funds continues with three funds representing half of the money raised last year.

Investments

Of the 150 BVCA members surveyed the following was recorded: a total of GBP6.16 billion was invested in 1,597 deals (a 25 per cent decline on 2000 figures).

The number of UK companies financed was 1,307 (up 10 per cent on 2000) but the number of investments in European companies fell.

Average size of financing fell from GBP3.9 million in 2000 to GBP5.4 million in 2001.

The number of early stage investments dropped from 256 to 218 but the number of start-ups financed rose 24 per cent from 153 to 190.

Secondary purchase investments more than doubled to GBP234 million and deals to refinance bank debt increased almost six times to GBP63 million in 23 transactions, compared to GBP11 million in six deals in 2000.

MBO investments continued to decline from GBP4.3 billion in 1999, GBP3.3 billion in 2000 to GBP2.5 billion in 2001, although the number of companies receiving a share of this rose.

Divestments by sector

Technology companies continue to lead the field both in number of deals (690 or 53 per cent of completed deals) and amount invested (GBP1.66 billion or 35 per cent of the total invested).

Despite a decrease compared to 2000 the software sector remains the most popular in terms of the number of investments, securing 270 deals. The number of investments in medical instruments, pharmaceuticals and healthcare increased three times with over 12 times the amount committed in 2000. Of companies receiving investments 40 per cent were in London and the south east, which captured 52 per cent of the total amount invested.

Divestments increase

Divestments were up from 967 in 2000 to 1,442 in 2001. The amount realised increased 27 per cent to GBP2.67 billion. The trade sales of 261 companies accounted for divestments exceeding GBP1 billion, while write-offs cost GBP826 million.