PRINT THIS PAGE 2006: another landmark year for European private equity14/03/2007. Source: EVCA, Thomson Financial, PricewaterhouseCoopers. 
A strong performance in 2006 has driven an increased allocation towards private equity, says the EVCA, while their figures set new European fundraising and investment records as well as confirming a boost for venture capital. Preliminary figures for private equity performance and activity for 2006 are due to be presented at the European Private Equity and Venture Capital Association's Investors' Forum in Geneva today.
Their preliminary figures show:
- Strong top quarter internal rate of returns (IRR) are delivered by both venture (23.5%) and buyout (37.6%) funds, with an overall long-term top quarter IRR of 29.1%;
- With one-year returns for all private equity at 21.3% and a historical 27-year annualised return net of fees at 10.3%, private equity is a highly attractive asset class;
- Fundraising: European private equity firms raise a new record €90 billion in 2006, up 25% on 2005, which was already a record year;
- Sources of money show consistent commitment in terms of the proportion of money from pension funds at 26% of the total (compared to 25% in 2005), while fund of funds have contributed a record amount in 2006, €18 billion, representing 21% of the total, doubling its previous year's share;
- Of the total €90 billion funds raised, €71 billion (compared with €58 billion in 2005) is allocated to buyouts, representing the lion's share in value;
- €16 billion of funds raised is allocated to venture capital, a rise of almost 50% on the €11 billion raised in 2005. This is the second highest amount raised for venture after the €22 billion all-time record of 2000;
- Investments: of the total €50.3 billion equity capital invested in 2006, (up from €47 billion in 2005), 78% relates to buyouts by value. However, based on the number of investments, VC deals take up a 73% share.
- Some 8,500 investments were made in Europe, where the average buyout deal size is €17 million underlining the core industry focus on small to medium-sized companies.
Following record activity levels in 2005, 2006 was another landmark year for the European private equity industry, with preliminary figures showing increased fundraising and investment activity. These record figures are a clear indication that strong performance - with stable returns over the long term - is driving fundraising and investment in the Private Equity sector. While buyouts represent the main proportion of the European fundraising by value, there is evidence that the venture capital segment is making a comeback, with €16 billion raised for VC investments, €5 billion more than in 2005.
Commenting on the figures released today, Javier Loizaga, Chairman of EVCA and CEO and Managing Partner of Mercapital, said, "2006 has highlighted the growing importance of the European private equity industry, with private equity firms in Europe clearly demonstrating their continuing ability to attract record amounts of capital from institutional investors - both to buyout funds, but more importantly also to venture capital. This increasing commitment to the industry is, to a large extent, driven by performance, and the European private equity industry has, yet again, proved its ability to generate excellent returns for investors. At a time when the global industry is under increased scrutiny, particularly in terms of the way in which private equity firms operate and in their ability to deliver to investors and other stakeholders, performance is and will remain a key indicator.
Under the current spotlight from policymakers and the public alike, we - as the European industry body - are working hard to contribute to the debate to enhance greater understanding of private equity: why its business model is successful and how we can counter ill-founded criticisms. But we cannot do this alone: we need vocal support from all segments of the industry, particularly from those who benefit from its strong performance."
Gemma Postlethwaite, Vice President, Thomson Financial, added, "The European private equity industry is continuing to show strong, consistent returns (at 10.3% long-term average net IRR) which are driving record fundraising as investors continue to increase their allocation by shifting their assets from public equities and fixed income into both buyout and venture capital. Despite the jitters in the stock market in the last few weeks, the strong IPO and M&A activity combined with relatively cheap debt constitute ideal conditions for private equity firms to continue generating strong returns."
Brendan McMahon, Private Equity Leader within the Investment Management group at PricewaterhouseCoopers LLP, had this to say, "The record funds raised by European based private equity houses demonstrate investors' confidence in the ability of the industry to deliver long-term and consistent value. Private equity specialists' unique experience of operating across a wide range of industries and jurisdictions brings valuable insights to management teams seeking to achieve sustainable and long-term growth."
2006 Preliminary Private Equity activity data was compiled on behalf of EVCA by Thomson Financial and PricewaterhouseCoopers, and final figures will be published at EVCA's Symposium in Rome in June 2007. Thomson Financial compiled the 2006 Private Equity performance benchmark data.
Preliminary performance figures for 2006 from Thomson Financial reveal another strong year for European private equity. Top quarter funds continue to provide extremely strong returns to their investors with an impressive 29.1% delivered by all private equity. Top quarter venture funds return a robust 23.5% with the top quarter buyout funds returning an impressive 37.6%. These returns of the best performing funds are consistently higher than those of 2005.
The short-term performance shows total private equity returns over one year of 21.3%, net of management fees and carried interest.
Returns are also increasing steadily over the medium and long-term horizons. The 3-year investment horizon return has almost doubled in the last 12 months, increasing to 11% from 6.9% in 2005, with buyouts and venture showing returns of 13.2% and 8.7% respectively. Both buyouts and venture capital funds have shown positive ten-year returns of 13.6% for buyouts and 5.5% for venture.
Looking at longer term private equity performance over the last 27 years, figures show that, since inception, private equity has returned 10.3% net of management fees and carried interest, with buyouts and venture capital returning 13.7% and 6.4% respectively, in line with the final 2005 returns.
PRIVATE EQUITY ACTIVITY
Against the backdrop of the strong performance highlighted above, the private equity industry in Europe has remained buoyant in 2006, showing strong activity across fundraising and investment, and continuing the upward trend it has shown over the past two years.
Of the €90 billion record breaking level of funds raised in 2006 (25% up on 2005), the majority is allocated to buyouts at €71 billion, an increase of nearly 25% compared to the €58 billion raised for buyouts in 2005. As with any maturing market there is concentration taking place in the private equity industry with more capital managed by a handful of players - there are 10 buyout funds of over €1 billion raising an aggregate €42 billion in 2006 (or 47% of total 2006 fundraising).
Fundraising for venture is at €16 billion up by nearly half from €11 billion in 2005. This is clear evidence of resurgent interest in this important segment of the market, continuing from the 2005 increase in fundraising for venture.
Sources of funds show continued commitment from pension funds with 26% of capital coming from this source. While historically pension funds and banks have provided around half of the capital raised, in 2006 the combination of capital from pension funds, fund of funds and banks represents 66% or €56 billion of the €90 billion raised. This year for the first time fund of funds become the second largest source of capital.
INVESTMENTS
Preliminary 2006 figures show a significant increase in investment activity by European private equity firms, across both the buyout and venture capital segments. 2006 has seen investment activity rise by 7%, to €50.3 billion compared to the final investment figure of €47 billion in 2005.
Some 8,500 investments are made in total in 2006 in Europe. The average buyout deal size is €17 million underlining the core industry focus on small to medium-sized companies.
Buyouts continue to lead the market, accounting for 78% of investment activity by value, with overall amount invested by buyouts rising to €39 billion in 2006 from €34 billion in 2005.
While venture investments fall slightly to €11.3 billion from €12.7 billion in 2005, these account for nearly 73% of the total number of deals, making 6,252 investments in 2006, emphasising where the majority of industry activity lies in terms of deals.
DIVESTMENTS
Preliminary figures for private equity divestments at cost have seen a decline in 2006 compared to record figures 2005. Preliminary figures show that divestments at cost (not at exit value) have fallen to €21.8 billion in 2006, down from €29.8 billion in 2005. Against this backcloth, sale to management has increased by an impressive 37.5%, showing that management within private equity owned companies perceives private equity ownership as adding value to the underlying company.
Divestment by trade sales accounts for the majority, 25.7%, or €5.6 billion of all divestment activity, a drop of 20% compared to 2005. This is followed by repayment of loans and secondary sales, each representing €4.1 billion in 2006 (or 19% of the total divested at cost). The level of IPOs remains low in 2006.
The European Venture Capital Association's mission is to promote globally and to facilitate the development of the European private equity and venture capital industry through active lobbying and development initiatives. It seeks to help create an entrepreneurial environment in Europe and promote European private equity and venture capital to institutional investors worldwide. For more information, please visit www.evca.com
PricewaterhouseCoopers (http://www.pwcglobal.com) is the world's largest professional services organisation. Drawing on the knowledge and skills of more than 150,000 people in 150 countries, we help our clients solve complex business problems and measurably enhance their ability to build value, manage risk and improve performance in an Internet-enabled world.
Thomson Venture Economics, a Thomson Financial company, is the foremost information provider for equity professionals worldwide. For more information about Venture Economics, visit www.ventureeconomics.com
|
