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Western Europe: February 2003

Spanish private equity investment levels drop 20 per cent in 2002, Vision Capital acquires majority of Morgan Grenfell portfolio investments, Merrill Lynch closes European private placement business …

Continental European buy-out market value leaps to E38.7bn in 2002
The continuing slump in global financial markets seems not to have affected European private equity players, according to new figures from the Centre for Management Buy-Out Research, sponsored by Deloitte & Touche and Barclays Private Equity. Deals recorded last year within the buy-out sector totalled a record E38.7bn - 20 per cent higher than deal value recorded in 2001. Larger deals drove up the total valuations, with 60 per cent of the buy-out market value coming from just four per cent by number of deals worth more than E500m.
AltAssets 5.2.03

Deutsche Bank confirms sale of its late-stage private equity portfolio for E1.5bn
Deutsche Bank has confirmed the final sale of its late-stage private equity portfolio through a management buy-out for E1.5bn. It ranks as the largest ever secondary sale of direct investments. Ted Virtue, chairman and CEO of DB Capital Partners, and Graham Clempson, European managing partner, were confirmed as the leaders of the buy-out. The acquisition vehicle, MidOcean Partners, was financed by a group of investors, including NIB Capital Private Equity, Ontario Teachers' Merchant Bank, CPP Investment Board, HarbourVest Partners, Paul Capital Partners, Bregal, Northwestern Mutual, the Yucaipa Companies and Presidential Life. Deutsche is to retain 20 per cent of the portfolio.
AltAssets 21.2.03

Lack of investment will cause problems for UK small companies, says BVCA
The steady decline in the public markets in recent months and corresponding failure of venture capital trusts to raise money looks set to cause problems for small, entrepreneurial companies based in the UK, according to the BVCA in a warning to UK Chancellor Gordon Brown. Venture capital trusts raised just £125m in 2002, a drastic fall-off from the £450m raised in 2001. The BVCA said in its letter to the Chancellor that it feared fundraising would fall further this year and would have a major impact on the broader economy.
AltAssets 14.2.03

UK private equity firms predict increase in investment levels in 2003, says Deloitte & Touche
Private equity firms in the UK are expecting a more positive experience in 2003 compared to 2002, according to new research from Deloitte & Touche. Some 68 per cent of private equity firms anticipate that 2003 will be a better year for private equity than last year, while 61 per cent also expect an increase in deal volume in the next six months. Some 55 per cent of private equity firms expect prices to fall even further.
AltAssets 24.2.03

Spanish private equity investment falls more than 20 per cent in 2002
The Spanish private equity market, which has recently been attracting attention as one of the more interesting of the European markets, suffered a setback in 2002. Investment levels fell 22 per cent, bringing them to below E1bn for the first time since 1999, according to new research by the Spanish venture capital association. The research, conducted by José Martí Pellón, found that the first half of 2002 was the worst, with H2 investment levels 76.6 per cent higher than H1. ASCRI attributed the lack of activity to the aftermath of 11 September 2001, when the global economy slowed dramatically.
AltAssets 26.2.03

Zurich Financial Services halves commitment to Capital Z fund of funds II
Switzerland-based Zurich Financial Services has slashed the size of its captive fund of funds, Capital Z Investments II, from $1.5bn to $750m in a bid to reduce its overall exposure to private equity. Capital Z will still have around $500m for new deals: the firm has so far invested just $250m in one hedge fund and three private equity funds. Zurich Financial has also indicated that it will halt future calls on its commitment to New York-based fund of funds DB Capital Partners.
The Private Equity Analyst February 2003

UK Coal Pension Trustees plans to increase private equity allocation to five per cent
UK Coal Pension Trustees services, the investment trust for the Mineworkers Pension Scheme and the British Coal Staff Superannuation Scheme, plans to commit up to five per cent of its invested assets, from the current 2.5-3 per cent. The two schemes, with £24bn of assets, will commit around £100m to private equity in 2003.
Global Money Management 25.2.03

Lombard Odier Darier Hentsch to outsource its life sciences portfolio investments
Swiss banking group Lombard Odier Darier Hentsch is to outsource the management of its private equity investments in the life sciences sector. Ultreia Capital will manage the portfolio, which is valued at around E135m and includes the private equity section of the LODH Immunology Fund, a diversified portfolio of 39 investments in private biotech companies.
EVCJ February 2003

European venture investment drops 58 per cent in 2002
Further evidence of the drastic slowdown suffered by the private equity industry in 2002: European venture-backed companies raised just E4.4bn in 2002, a 58 per cent fall from 2001 when venture investment in Europe totalled E10.5bn, according to new figures released by Ernst & Young and VentureOne. But the fourth quarter did provide some evidence of a mild upturn in activity. After five consecutive quarters of steady decline, E878m was invested in 223 transactions in Q4 2002, only one per cent behind the third quarter's total. In terms of stage allocations, 2002 saw just 35 per cent of venture investment going to seed and first-round companies, a significant drop from the 46 per cent allocation of 2001.
AltAssets 13.2.03

Private Equity Holding announces more write-downs, Swiss Life withdraws its credit facility
Listed Swiss private equity fund Private Equity Holding has announced that it has made permanent write-downs of CHF96m over the nine months between 1 April 2002 to 31 December 2002, CHF38m of which was recorded in the last quarter. Its fair value per share has declined to CHF154.60 from CHF213.52. The firm blamed currency effects, difficulties with portfolio companies and ‘corrections of the valuations in response to the prevailing weak market conditions'. The fund, managed by Swiss Life Private Equity Partners and once one of the largest in Europe, has been hit hard by the bursting of the internet bubble in 2000.
AltAssets 10.2.03

Vision Capital acquires majority of Morgan Grenfell portfolio investments
Deutsche Bank-owned Morgan Grenfell Private Equity is selling the majority of its investments to UK-based Vision Capital for a reported $100m. The new partnerships are to be financed by Goldman Sachs' GS Vintage Fund, a fund that targets ‘synthetic secondaries' (the acquisition of portfolios of direct private equity investments). Graham Clempson, CEO of MGPE said that he was pleased to be able to realise value for investors in a difficult market.
AltAssets 21.2.03

Management team crucial to MBO success, says SJ Berwin
The importance of a quality management team to the success of MBOs has been confirmed by the publication of a survey of senior European venture and buy-out investors. Commissioned by European law firm SJ Berwin, the survey has found that 69 per cent of investors across Europe agreed that the key factor in the failure of MBO deals was the failure of the management team to deliver.
AltAssets 11.2.03

European fundraising experiences 37 per cent slump year on year
Further evidence of the decline in private equity fundraising in 2002: just E24bn was raised for private equity investment in 2002, a 37 per cent fall from that recorded in 2002, and a 42 per cent fall from that raised in 2000, says Initiative Europe. Venture capital fundraising experienced a particularly serious decline. Funds raised to target venture capital opportunities accounted for just nine per cent of all capital secured in 2002, a fall of 22 per cent from 2001. Buy-out and generalist funds accounted for around 85 per cent of total funds raised, and Initiative Europe calculated that the average size of such a fund was around E650m.
AltAssets 17.2.03

Merrill Lynch closes European venture capital private placement business
Banking group Merrill Lynch has closed its European venture capital private placement business, and has stopped raising funds for high-growth, early-stage businesses in Europe as well as decreasing its involvement in them in the US.
Financial News 10-16 February 2003

AXA Private Equity pays E170m for secondary CDC Ixis' fund investments
AXA Private Equity has paid E170m to CDC Ixis Private Equity for a portfolio of buy-out and venture portfolios. It was one of the largest deals to have surfaced this year, albeit a long way short of the E1.5bn sale of some of Deutsche Bank's portfolio of direct investments. CDC Ixis, the private equity division of French bank Caisse des Dépôts et Consignations, revealed plans to scale back its exposure to the asset class last year in advance of the introduction of the Basle II capital adequacy requirements.
AltAssets 24.2.03

The Carlyle Group in talks with Italian bank to raise E1bn fund
US-based private equity firm The Carlyle Group is understood to be in talks with Italian investment bank Mediobanco, over the possibility of raising a E1bn private equity fund. The news follows an announcement by Mediobanco that it planned to expand its private equity interests significantly.
Financial Times 7.2.03

Swiss-based HBM BioVentures and NMT New Medical Technologies to merge
Swiss biotech firms HBM BioVentures and NMT New Medical Technologies are to merge, forming a company with assets of around E550m. The firms' investors believe that the merger will enable them to be able to invest globally.
EVCJ February 2003

40 per cent of UK institutional investors plan to increase allocations to private equity 
UK institutional investors remain committed to private equity despite falling return expectations, according to new research from AltAssets for the British Venture Capital Association. Some 40 per cent of a representative sample of UK institutional investors said they expected to increase their allocation to the asset class over the next two years. The average among the 32 respondents will rise from around three per cent to four per cent over the period, the survey found.
AltAssets 24.2.03

Formation of Nova Capital is announced
Two ex-Granville Baird executives and one former senior partner of Executive Interim Management have set up a new UK-based private equity firm named Nova Capital. Former chairman of Granville Baird Lord Hodgson will be non-executive chairman of the firm, with former CEO of Granville Baird David Williams and Michael Kelly, former senior partner of Executive Interim Management will act as managing partners. The firm will target the burgeoning secondaries market and will provide management expertise rather than funding. The firm's first acquisition is Lica Development Capital, a £70m portfolio of ten investments.
EVCJ February 2003

EVCA warns of problems for private equity through Basle accord
The European Venture Capital Association has predicted that the private equity industry in Europe could be ‘seriously compromised' if the Basle II accord is passed. The new capital adequacy programme will force banks to set aside capital based on their exposure to operational risk, and the EVCA said that this would go against the positive potential of exposure to private equity. The accord, if passed, will be implemented by 2006. The EVCA would like to see an assessment of capital risk that will calculate the risk factors of portfolio companies, of each fund and of its fund manager.
Financial News 20.2.03

MPC Capital launches fifth fund of funds
German asset management firm MPC Capital has announced the launch of its fifth fund of funds, MPC Global Equity V. The firm hopes to raise around E50m from high net worth individuals by the end of 2003. The fund will participate in eight to 12 funds, with more emphasis on buy-outs. Up to 15 per cent of the total raised will be available for opportunistic direct co-investments.
EVCJ February 2003

Clayton, Dubilier & Rice shelves plans to open German office
Clayton, Dubilier & Rice has decided to postpone plans to open an office in Germany following its inability to find an operational partner to work alongside its financial partner, Benedikt von Schröder. Von Schröder has since left the firm.
Financial News 14.2.03

UBS Capital reports 38 per cent reduction in private equity investment year on year
The private equity arm of Swiss bank UBS Warburg, UBS Capital, has announced yet more writedowns and further declines on investments. The firm's private equity investments, including fund investments, stood at CHF3.1bn on 31 December 2002, a 38 per cent decline from the CHF5bn reported the previous year. The fair value, or market value, of UBS Capital's portfolio was CHF3.8bn at the end of Q4 2002, compared to CHF4.4bn at the end of Q3. The firm also reported a pre-tax loss of CHF362m for the quarter, CHF75m more than that posted in the fourth quarter of 2001.
AltAssets 18.2.03

Finnish 2002 private equity investment grows 12 per cent on year
The continuing struggle for survival amongst private equity players may have softened slightly for those based in Finland. Investment levels increased by 12 per cent to E380m and Finnish private equity and venture capital firms raised E779m in 2002, almost double that raised in 2001. The majority of invested capital went to new portfolio companies, with E252m put into initial investments, representing 66 per cent of the total invested.
AltAssets 13.2.03

Spanish private equity industry could double over next five years, says Loizaga 
The Spanish private equity market could double in size over the next few years but the emphasis is likely to remain on growth and expansion capital rather than buy-outs, according to Javier Loizaga of Mercapital. Loizaga was doubtful that the increasing number of firms crowding into the Spanish private equity market could be supported by deal flow, at least as long as their strategy remained focused on buy-outs. There are around 35 private equity houses presently active in Spain, he said, 17 of which were not present there four years ago. The dominant focus of these new players appears to be buy-outs, despite the fact that in 2001 buy-outs represented just 27 per cent of all private equity activity in Spain.
AltAssets 6.2.03

UK-based Beer Enterprise Fund to fill gap left by venture capital firms
A group of angel investors has launched a new fund named the Beer Enterprise Fund to fill the gap left by venture capital firms who have shied away from investing in seed and early-stage companies. Investment in seed financing opportunities fell to just E27m in the third quarter of 2002. The investment team for the Beer Enterprise Fund hopes to raise around £50m.
Financial News 14.2.03