Global private equity hints at recovery

Global private equity and venture capital investment in 2003 is on course to beat the total recorded last year, having reached $57bn at the six-month stage.

Preliminary figures from the fourth Global Private Equity report by 3i and PricewaterhouseCoopers show global investment forging ahead, while fundraising has declined markedly.

Buyouts are at the forefront of global activity, accounting for $42bn of investment in the first half of 2003 and 74 per cent of all investments during the period. This compares with just under $7bn invested in ‘expansion’ deals and less than $3bn in seed and early-stage transactions. The $57bn total means 2003 could surpass the total of $102bn recorded in 2002.

Despite the poor environment for early-stage investment (technology saw a 31 per cent fall in investment between 2001 and 2002), there are some sign of optimism. Says Rod Perry, an executive director of technology at 3i: “In Europe, early-stage investment continued to fall in the first half of 2003, and may have bottomed out at the end of the second quarter. And, as in the US, September saw an upsurge in new opportunities across the UK, France, Germany and the Nordic countries.”        

But Keith Arundale, European venture capital leader in PwC’s global technology industry group, strikes a less positive note: “Figures for the second quarter of 2003 suggest that the decline in early-stage investment may be levelling off in the US, while continuing to fall in Europe. This may be a positive sign, especially if Europe follows suit. But for investment in early stage technology to stabilise and even recover, what we really need is an upsurge in corporate IT spending and a reopening of the IPO exit route – and there is precious little sign at the moment of either of these happening.”        

The first half of 2003 showed a big difference between the Western European and Asian markets. In Western Europe, the six months showed a 10 per cent fall in activity compared with the previous half-year – although there are signs that confidence is improving. Meanwhile Asia Pacific saw a 42 per cent increase in buyout activity to $2.8bn, led by an upsurge of deals in Japan.     

The survey reveals the harsh extent of the downturn in fundraising. From a high of $250bn in 2000 total global fundraising fell to $164bn in 2001, and then $88bn last year. This year could see a further halving of the total, which had reached just $24bn at the six-month stage.