Big brand names appeal to buyside

New research shows that large funds with targets above E1bn accounted for 70 per cent of capital raised for European buyouts in last year’s subdued fundraising environment.

Investors keen to invest in European buyout funds in 2002 committed most of their money to very large offerings run by well-established general partner groups with fundraising targets of at least E1bn.

According to new research published by Initiative Europe in association with Campbell Lutyens, the London-based private equity placement agent and corporate finance adviser, ‘mega-funds’ accounted for 70 per cent of all buyout capital raised in Europe last year.

In total the survey found that European buyout and generalist private equity funds raised some E20.4bn. Venture funds contributed another E3.6bn. The combined total of E24bn was 37 per cent below the level recorded in 2001, and 42 per cent less than what had been raised in 2000.

The findings confirm that large buyout funds run by well-known general partner groups have strong appeal among investors participating in European private equity. Among the large funds that contributed to last year’s result where the Third Cinven Fund, which raised E4.4bn, the Candover 2001 Fund (E2.7bn), PAI LBO Fund III (E1.8bn) and Bridgepoint European Private Equity Fund II (E2bn).

According to Andrew Sealey, a director at Campbell Lutyens, the success enjoyed by some of the strongest brand names in the industry is a reflection of investors’ ongoing 'flight to quality [that] will leave little for the weaker offerings. We are likely to see some fundraisings falling well short of target and some being postponed or cancelled during the next 12 months.'

Whether there is enough investor appetite even for brand name GPs that are currently raising money for new buyout funds remains to be seen. 2003 is already shaping up to be a significant test of buyside interest in billion-plus vehicles. Among the leading buyout groups currently in the market are Terra Firma Capital Partners, Industri Kapital, Doughty Hanson, 3i and Permira.

Most of these groups have recently acknowledged that the current market environment was presenting a tough challenge to their fundraising campaigns.

Initiative Europe's fundraising data for last year is somewhat higher than what has been estimated by other research groups. The European Venture Capital Association (EVCA), in conjunction with PricewaterhouseCoopers, reported in March that European private equity raised just under E20bn in 2002, 50 per cent less than in 2001.