The European private equity and venture capital industry showed subdued fundraising and steady investment in 2002, with E27.5bn raised and E27.6bn invested, according to the final findings of the official 2002 EVCA Survey of Pan-European Private Equity and Venture Capital Activity, conducted by PricewaterhouseCoopers.
Fundraising was down 31 per cent from last year, with E27.5bn raised in 2002, compared to E40bn in 2001. Buyout-focused funds had less difficulty in fund raising than venture-stage funds. Buyout funds raised E18.3bn, or 66 per cent of total funds raised in 2002, compared to E8.5bn, or 31 per cent, for venture capital funds. In 2001, the corresponding figures were E23.3bn (58 per cent) for buyout and E15bn (37.6 per cent) for venture capital.
Fund raising for non high-tech expansion investment represented E3.7bn (13.4 per cent of the total amount) in 2002, compared to E4.3bn (10.8 per cent) in 2001. Fund raising for high-tech investment decreased to E4.2bn in 2002, compared to E9.6bn in 2001.
Fund raising by amount in 2002 was highest in the U.K., followed by France, Italy, Germany, and the Netherlands. Of all surveyed countries, fund raising in 2002 increased only in Italy, the Netherlands, Finland, Austria, Greece, the Czech Republic, Iceland and Slovakia.
There was a marked decrease in investment by pension funds in the European private equity industry of -58 per cent in 2002. While fund raising decreased overall, banks overtook pension funds as the most prominent source of capital.
In 2002, E6.8bn (26.3 per cent) was raised from banks, E4.3bn (16.3 per cent) from pension funds, E3.6bn (13.8 per cent) from insurance companies, E3.4bn (13.1 per cent) from fund of funds and E2.9bn (11.1 per cent) from government agencies.
In 2001, E10.2bn (26.8 per cent) was raised from pension funds, E9.2bn (24 per cent) from banks, E4.7bn (12.3 per cent) from insurance companies, E4.6bn (12.2 per cent) from fund of funds and E2.3bn (6 per cent) from government agencies.
The primary origin of European funds was domestic sources, which made up 50 per cent of total funds raised. There was an increase in the proportion of funds raised from other European countries and a decrease in the proportion of funds raised from non-European countries, such as the US.
Funds raised from other European sources amounted to €5.8bn (21.1 per cent) in 2002, compared to E7.4bn (18.4 per cent) in 2001. Funds raised from non-European sources amounted to E7.9bn (28.9 per cent) in 2002, compared to E13.8bn (34.6 per cent) in 2001. Funds raised from US sources amounted to E5.1bn (18.5 per cent) in 2002, compared to E9.6bn (25.1 per cent) in 2001.
In a statement, the EVCA said it welcomed the adoption of the EU Pension Fund Directive 13 May 2003, which includes legislation based on home country supervision of pension schemes and the ‘prudent person’ principle. The directive forces member states to allow for pension funds to be set and for other member state pension funds to be offered cross-border within the EU. It also recommends the removal of quantitative restrictions on pension funds investing in private equity and will further enhance the viability of pension funds as a key source of capital for the European private equity and venture capital industry.
The 2002 figures for investment revealed 2002 was the second highest year for private equity investment in Europe since the peak of E34.9bn in 2000. A total of E27.6bn in funds was invested in 2002, an increase of 14 per cent on the E24.3bn invested in 2001.
The spike in investment was largely generated by the widespread sell-off of non-core assets by major corporations across Europe.
In all, E16.9bn was invested in 1,171 buyout deals, comprising 61.2 per cent of total investment (up from E10.9bn in 995 deals, representing 45 per cent of the total amount invested in 2001).
The average buyout investment size increased to E14.4m in 2002 from €11m in 2001.
On the other hand, the figures indicate a decrease in the amount and number of venture capital deals from 2001 to 2002, and a lower average deal size. This was particularly marked for early stage.
During 2002, E9.8bn was invested in 8,684 venture capital stage deals (including early stage and development), compared to €12.2bn in 9,262 deals in 2001. The average venture capital stage deal size was E1.13m in 2002, compared to E1.32m in 2001.
During 2002, E2.9bn was invested in 4,026 early stage deals. The average early stage deal size was E0.73m in 2002, compared to E0.93m in 2001. Venture investors preferred to commit their available funds to existing portfolio companies rather than risk fresh investments; follow-on financings represented 62.3 per cent of venture capital investment in 2002, compared to 54.2 per cent in 2001. The average follow-on investment size was E1.1m, while the average new investment size was E5.6m.
As in the past 5 years, consumer-related sectors attracted the highest proportion of total European private equity investment. In 2002 however, there was a significant rise in both the amount and the proportion of total investment going to this sector, which reflects the high-value buyout deals undertaken in the consumer field in 2002. In all, E6bn (21.7per cent of total investment) went to consumer-related companies in 2002, compared to E3.8bn (15.5 per cent) in 2001.
Industry sectors attracting increased private equity included biotechnology (E1.1bn in 2002, compared to E844m in 2001), medical/health-related (E1.9bn, compared to E1.6bn in 2001), industrial products and services (E4.7bn in 2002, compared to E2.0bn in 2001) and financial services (E1.1bn in 2002, compared to E627m in 2001).
However, there were marked decreases in the amounts invested in the communications (E2.5bn in 2002, compared to E3.4bn in 2001) and computer-related sectors (E1.5bn in 2002, compared to E3bn in 2001).
Those sectors attracting the most private equity investment in 2002 in terms of amount were firstly consumer-related, followed by industrial products and services, communications, other services, medical/health-related and other manufacturing.
In terms of amount invested, the highest volumes were seen in the U.K., followed by France, Italy and Germany. Italy overtook Germany in 2002 for third highest investment activity. The high volumes of French investment were primarily as a result of intensive buyout activity, which made up 77 per cent of the E5.8bn invested by French practitioners in 2002. Italy followed with E2.6bn, then Germany with a total of E2.5bn investment.
There were difficulties in the exit market in 2002, particularly for IPOs and trade sales. While trade sales were the most important exit route, the cleaning-up of portfolio continued and led to an increased proportion of write-offs in 2002.
A total of E10.7bn was divested at cost in 2002, compared to E12.5bn in 2001. In all, 31 per cent was divested through trade sale (compared to 34 per cent in 2001), only 7 per cent through an IPO (2 per cent in 2001), and 30 per cent through write-off (23 per cent in 2001).
Overall European venture capital returns generated a -30.7 per cent IRR over a 1-year horizon, 0.6 per cent IRR over a 3-year horizon, and 7.9 per cent IRR over a 5-year horizon. Overall European buyout returns generated a -3.2 per cent IRR over a 1-year horizon, 6 per cent IRR over a 3-year horizon, and 12 per cent IRR over a 5-year horizon.