Opinions differ about the effects of the credit crunch and economic downturn on mid-market private equity. As with many things, it all depends on who you talk to. One thing is for sure, though: As a recent survey from London-based placement agent Acanthus Advisers demonstrates, limited partners are keeping the faith in the ability of European mid-market GPs to continue delivering the goods.
According to Acanthus, last year saw a small decrease in the amount of capital raised by funds worth between €100 million ($158 million) and €1 billion from €24.0 billon to €23.5 billion (see chart below). However, this figure remained well above the average level since 2000. The surprise for those fearing the worst in light of liquidity- and economy-related strife is that Acanthus forecasts a fundraising total for 2008 which, at €26.2 billion, would comfortably surpass even the 2006 total.
Acanthus says it sees a number of reasons to be bullish about fundraising prospects this year “in spite”, it notes,“of some predictions to the contrary”. It says UK and French fundraisers had a quieter time in 2007 than 2006, but anticipates a rebound in these countries. It also highlights 15 groups raising more than €5 billion in total in Italy – which would produce that country's highest-ever annual total. In addition, it notes “at least” ten special situations funds in the market to raise over €2.3 billion.
In the event of economic downturn, Acanthus believes “the mid-market should be ideally placed to benefit, with lower entry multiples and more distressed opportunities”. The firm does note, however, that a slower investment pace may delay the launch of some funds into next year.
EVANS' MERLIN FUNDS ROLLED INTO EXCALIBUR
Sir Christopher Evans, the founder of biotech firm Merlin Biosciences, has incorporated that firm into his new venture Excalibur. Excalibur will manage Merlin's three funds totalling €450 million ($715 million). The first two funds were early stage biotechnology focussed, while the firm has diversified to a more generalised medical focus in its third fund. The firm expects to return 50 percent of the money to investors from the third fund this year, as it reaches its fifth year. Evans told sister website PrivateEquityOnline.com he was confident the fund could make a two to three times return for investors. Excalibur will invest generally across the medical sector in speciality pharmaceuticals, diagnostics, healthcare services, and medical devices. Evans said it is still very difficult to profit from early-stage biotech investing in Europe, in contrast to the US.
ADVENT CLOSES ON E 6.6BN FOR MID-MARKET
Global mid-market buyout firm Advent International has raised a €6.6 billion ($10.4 billion) fund, exceeding its target of €5 billion, according to Bruce Barclay, a managing director at the firm. Advent held its first close on €5.5 billion in March this year having set out on the fundraising trail in November. Changing market conditions have thrust mid-market firms into the spotlight, with Advent arguing that it differentiates itself from many of its competitors because most of its returns are driven by EBITDA growth. Barclay said 81 percent of the returns its 2001 fund made came from increasing profits. “I think this puts us in the top decile of funds making our money this way.” Advent had interest worth more than €10 billion, but the fund was scaled back with existing limited partners given priority. The fund size was restricted because the firm believed it would be difficult to invest a larger amount in the mid-market today.
WENDEL IN PROFITS BOOST
French listed investment firm Wendel Investissement's profits were up on last year by 141 percent to €879 million ($1.39 billion) for the full year 2007. The firm's profits from its portfolio companies stood at €408 million, while its non-recurring income was €486 million. This total could have been substantially larger had the firm not incurred €1.6 billion of costs in relation to its stake-building in building materials group Saint-Gobain. The group has taken out €400 million in protection on this investment, covering 40 percent of its investment in the company until 2012. But Wendel profited from the flotation of safety consultancy Bureau Veritas in October, which generated €1.2 billion for Wendel. The firm remains a 65 percent shareholder in the company having only partially exited its stake upon its initial public offering. Bureau Veritas also provided €188 million in income for Wendel, a 20 percent increase on the previous year.
DEUTSCHE PLANNING CLIMATE CHANGE FUND
Deutsche Bank's $800 billion (€506 billion) asset management division has been developing a private equity fund exclusively devoted to investments in climate change technology. The fund, part of a broader climate change initiative launched last year, is in its preliminary stages, according to a spokesman from the asset manager's New York office . Deutsche Bank Asset Management (DeAm) declined to comment on any specific fund details, including size, industry targets, fundraising sources, or whether the fund would come under the management of the division's private equity arm, RREEF. Chief executive Kevin Parker revealed the fund's existence in an interview with the Financial Times. Parker's revelation represents just one aspect of DeAm's growing interest in green investments.
UK DRIVES 2007 EUROPE DEAL RECORD
2007 was a record year for European private equity, according to data provider CMBOR, despite the dramatic events in the worldwide credit markets putting an end to mega-deals in August. The €171 billion ($270 billion) deal volume across the continent pipped the previous year's record €170 billion driven by €66.9 billion of deals in the UK, up from €39.8 billion the previous year. These figures were swelled by Europe's largest ever buyout, Kohlberg Kravis Roberts' take-private of FTSE 100 company Alliance Boots for £11.1 billion (€14.1 billion; $22.2 billion). Strip out the UK and deal volume in Europe fell almost 20 percent. The amount of debt in buyouts also reached a record 53.2 per cent in 2007, despite the collapse in the debt markets in the second half of the year.
ADVENT RAISES E1BN CEE FUND
Advent International has closed its fourth Central and Eastern European fund on €1 billion ($1.6 billion) at its hard cap. The fund is triple Advent's previous fund in 2005, which raised €330 million. Joanna James, an Advent managing partner, said the fund was modestly oversubscribed above the hard cap and significantly oversubscribed above target.