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Trends: December 2001

UK buy-out values fall, nearly half of all hedge funds fail within five years, dotcom deathrate doubles, 2002 to see pick up in LBOs...

UK buy-out values fall for the first time since 1993
The value of buy-outs in the UK this year is on course to fall well short of last year's level, the first annual decline since 1993, according to research from the Centre for Management Buy-out Research. The figures confirm the abrupt slowdown in activity this year compared to last year's exuberance. CMBOR said the total deal value for 2001 is reported at just £17.9bn, compared with £23.9bn in 2000. There were 46 deals completed this year.
AltAssets 17.12.01

Canadian private equity still lagging far behind US
Canada's private equity industry is worth approximately C$36bn, according to a survey commissioned by Goodman & Carr and conducted by Macdonald & Associates. The industry has undergone a steady growth since its infancy in the 1980, but it is still dwarfed by its neighbour, the US, whose industry is worth close to US$1,000bn. Institutional investors, such as pension funds and insurance companies are still reticent about investing in the asset class, the survey said. Unsurprisingly under these circumstances, the largest contribution is made by high net worth individuals, followed by pension funds at 30 per cent and corporates at 25 per cent. Over half of capital invested in the Canadian industry is in venture capital and there are more than 150 groups focusing on this stage in the country. Mezzanine accounts for around 11 per cent and buy-out the remainder.
PrivateEquityOnline 14.12.01

Over 40 per cent of hedge funds collapse within five years, says survey
More than 40 per cent of hedge funds fail to survive for as long as five years, according to new research produced by the University of Reading. It found the attrition rate was increasing, with only 87.7 per cent lasting a full year compared with 93.8 per cent five years ago. Only 59.5 per cent of the hedge funds that were around five years ago were still operating, according to the research, Welcome to the Dark Side: Hedge Fund Attrition and Survivorship Bias Over the Period 1994-2001.
AltAssets 12.12.01

Dotcom death rate doubles in 2001
Internet company shutdowns more than doubled in 2001 over the figures for 2000, said internet research group Webmergers.com. The number of dotbombs rose to at least 537 last year said a report by the group. This compares with 225 in 2000. The rate of internet closures steadied towards the end of 2001, with the total for December less than half that for the same month in 2000.
eFinancialNews 27.12.01

Cinven report predicts rise in private equity funding for European M&A activity
Private equity firms will increase their participation in the European merger and acquisition market over the next six months, according to a survey of investment banks conducted by buy-out specialist Cinven. It found that 71 per cent of managing directors at the surveyed investment banks expected an increase in private equity activity in the M&A market. That expectation was strongest in the UK, where 77 per cent of MDs predicted an increase, compared with 73 per cent in Germany and 62 per cent in France. More than half of all respondents, 51 per cent, said they thought that asset values would fall significantly in the next six months, which would produce more opportunities for private equity firms. A small majority also expected a further deterioration in the macro economic climate over the next six months. Pessimism was most pronounced in the UK, where 61 per cent predicted a decline, followed by Germany, 59 per cent, and France 48 per cent.
AltAssets 11.12.01

Positive outlook for European public to private activity
The number of public-to-private transactions is expected to increase in the next twelve months, especially in Germany, said a report published by Hawk Point Partners in conjunction with Mergermarket. The report is based on a survey into future expectations for public-to-privates in Europe among 250 key decision-makers in the UK, France and Germany.
PrivateEquityOnline 13.12.01

LBOs to pick up in second half of 2002
After a slow start to 2002, debt providers believe that the leveraged buy-out market will pick up again in the second half of the year, said a report by Ernst & Young. The survey of European and US banks based in the UK found that 11 September had shaken market confidence badly, making senior debt lenders nervous. It also found that vendor price expectations were still too high - by up to 25 per cent - but that these would lower over the next six months and provide a good source of new deals.
eFinancialNews 27.12.01

KPMG reports big fall in global M&A activity
Global mergers and acquisition activity fell a stunning 52 per cent in 2001 to $1,595bn from $3,292bn in 2000, according to KPMG corporate finance. Even more dispiriting than the fall itself, KPMG said the slowdown had been even more pronounced in the second half of the year and there was no sign of a quick recovery. The slowdown in the UK was particularly marked, falling 72 per cent to $221bn from $797bn. The biggest fall in the second half of the year was registered in the normally robust mid-market. Global activity dropped 46 per cent to $163bn from $300bn. The damage was spread fairly evenly across most sectors. There were big falls in manufacturing, information and financial services.
AltAssets 10.12.01

VCs turn attention to later stage finance
Venture capitalists have been focusing on later stage deals over the last six months, according to research conducted by VentureWire, concentrating on companies looking to expand operations. The research emphasises the fact that this expansion capital is going into companies outside VCs portfolios rather than into existing investments. Unsurprisingly, biotechnology was the most popular sector for expansion capital, with over 100 deals completed during the period. More than $15bn went into venture capital deals across the world in the six months, accounting for over half of all private equity transactions.
PrivateEquityOnline 17.12.01

Corporate venturing still strong, despite general slowdown
While many have predicted the large-scale withdrawal of corporate venturers amid the general economic gloom, a recent Accenture survey suggests that the vast majority of corporate venture capitalists are sticking to their guns. As many as 85 per cent of US executives have no plans to close their corporate venturing operations, according to the survey. However, it also found that corporations were unwilling to allow business units to invest on their own in uncertain economic times. It said that 55 per cent would invest via joint ventures; just 17 per cent said they would invest through independent venture units.
SiliconValley.com 12.12.01

European allocation to private equity rise, says survey
European institutional investors plan to increase their allocation to private equity over the next few years, according to the latest edition of the Goldman Sachs/Frank Russell report on alternative investment. The survey said that European respondents expected their strategic allocation to reach 4.3 per cent by 2003 from the present level of around 3.6 per cent. Total assets committed to private equity by the survey's respondents have increased to $246bn this year from $169bn in 1999. There was a big increase in the UK and continental Europe to $23bn from $14bn but there were more institutions surveyed this time around. In fact, the UK was singled out as experiencing a significant increase in interest in private equity.
AltAssets 20.12.01

Confidence still falling among Europe's VC-backed firms
Confidence about the business outlook is still falling among Europe's venture-backed firms, according to the latest 3i barometer. The survey's index fell to a new, all-time low of negative 109, suggesting that the region's economy is heading for a painful and protracted slowdown. The sharpest fall in confidence was in France but the misery was spread pretty generally across the map. The German index hit a record low and the gloom has finally caught up with the formerly optimistic Italians. Firms were a bit more upbeat about the prospects for profitability and turnover but the majority still expected to cut back on investment in the coming quarters.
AltAssets 7.12.01

Europe is becoming more entrepreneurial, says US group
Some European countries are making genuine progress towards liberalising their traditionally sclerotic economies to make them more fertile for entrepreneurs, according to the US National Commission on Entrepreneurship. The NCOE's evaluation runs counter to the prevailing view that Europe lags a long way behind the US in the way that it promotes entrepreneurship and is generally a fairly unsympathetic business environment for young businesses and start-ups. The UK and France, in particular, have some policy ideas that would be worth trying out in the US, it said in its latest newsletter.
AltAssets 6.12.01