Click here for printer friendly page

Trends: March 2003

UK ranks top private equity market in Europe for tax and legal environment, European fundraising slows but investment creeps up, exit conditions bleakest for decades, French private equity investment figures up…

US venture investment in life sciences falls again but increases share of total
US venture capital investments in life sciences fell for the second consecutive year in 2002 but have continued to increase their share of total venture investment, according to the MoneyTree survey from PricewaterhouseCoopers, Thomson Venture Economics, and the National Venture Capital Association. This apparent contradiction reflects the even more difficult conditions faced by other market sectors. Venture capital investments in biotechnology and medical device companies totalled $4.7bn last year, a significant fall from  $5.3bn in 2001 and $7bn in 2000. Life science's share of total investment in 2002 rose to 22 per cent, the highest proportion in seven years. Tracy Lefteroff of PricewaterhouseCoopers explained that investment in life sciences has been comparatively immune to the dramatic boom and bust fluctuations that have characterised other areas of the venture capital market, most notably technology sectors.
AltAssets 26.3.03

EVCA says private equity investment crept higher in 2002 but fundraising slowed
Private equity investment activity across Europe rose 12 per cent in 2002 but fundraising nearly halved, according to preliminary figures published by the European Venture Association and PricewaterhouseCoopers. The data simply confirms the dramatic rebalancing that is still ongoing across the industry after the implosion of the technology bubble in 2000 precipitated a more general downturn in financial markets. EVCA said private equity firms raised E19.4bn in 2002, compared with E38.2bn. The figure is the lowest since 1996, when just E8bn was raised, but broadly in line with fundraising in 1997 and 1998. The peak of E48bn in 2000 is unlikely to be matched for some years to come. Buy-out firms increased their share of total fundraising in 2002, signalling both the ongoing swing away from venture capital and a growing enthusiasm for the buy-out sector among increasingly risk-averse institutional investors. Buy-out firms accounted for 63 per cent of the total in 2002, compared with 56 per cent in 2001. Venture's share dropped to 32 per cent from 39 per cent the previous year.
AltAssets 13.3.03

Corporate venture capital goals not clearly defines, says report
Venture capital arms of corporations do not have a clear enough strategy when making their investments, according to a study conducted by Mackewicz & Partner. The German consultancy found that 80 per cent of corporate venturers had too many goals, which resulted in confusion and meant that few if any of the objectives were actually met. These goals included: financial gains, access to new technologies and processes, supporting sales of their products, and making use of their non-core research and development. The consultancy said that corporations needed to structure their venture arms according to their objectives - those aiming to spin out companies from within the organisation should not have the same set up as those investing in start-up companies, for example. Despite these problems, the report was broadly positive about the future for corporate venturing and pointed to the fact that 13 per cent of early-stage investment in Europe was provided by corporate VC in 2001.
Real Deals 27.3.03

European mezzanine investment increases by 120 per cent in H2 2002
Mezzanine investment in Europe more than doubled in the second half of last year, compared with the first half, providing some proof of the market's relative buoyancy in the region. As much as E2.2bn was invested in the second half of 2002. This represented an increase of 120 per cent on H1 2002, when E1bn was invested, according to the Mezzanine Management Monitor. Total mezzanine investment levels in 2002 remained below those of 2001, with E3.2bn invested compared to 2001's total of E4.2bn, reflecting the smaller size of transactions throughout the industry. In terms of geographical breakdown, the UK market share of mezzanine investment fell to 35 per cent in 2002, compared to 52 per cent in 2001. Mezzanine investment in France, in contrast, more than doubled its share of the market from 15 per cent in 2001 to 36 per cent in 2002. This was partly because two of 2002's largest deals took place in France, the E1.6bn buy-out of Télédiffusion de France and the E4.3bn buy-out of Legrand.
AltAssets 21.3.03

Myners influences pension funds to consider private equity
Many UK pension funds are seriously considering investing in private equity as a result of the Myners Review, according to a survey released by JP Morgan Asset Management. The review, conducted in 2001, examined the institutional investment industry and recommended that pension funds consider private equity as part of a diversified portfolio. The survey included 171 of the UK's largest UK pension funds and found that 30 per cent had revisited their attitudes to private equity investing as a result of Myners. The survey also found that 44 per cent of schemes already invested in the asset class.
eFinancial News 11.3.03

EVCA unveils rankings of EU tax and legal environments with UK at the top
The tax and legal environment in the UK is the most supportive in Europe for the private equity industry, according to research produced by the European Private Equity and Venture Capital Association (EVCA). The report ranks conditions in all 15 EU member states as part of an exercise to accelerate regulatory homogenisation. EVCA's benchmarking tool measures a series of variables for each country and then produces a composite score to determine the supportiveness of each local environment. The scoring runs from one to three, where one is optimal. The UK topped the table with a score of 1.20, followed by Ireland with 1.58 and Luxembourg on 1.67. Germany, Denmark and Austria were at the bottom, with scores of 2.41, 2.48 and 2.53 respectively.
AltAssets 31.3.03

French venture capital investment turns upwards in H2 2002
Evidence of the relative buoyancy of the French venture capital activity: after four consecutive semesters recording decline, the second half of 2002 brought a marginal increase in investment levels, according to L'Indicateur Chausson Finance. There was a six per cent increase in H2 2002 with E271m invested compared with E254m in H1 2002. But the gentle increase in investment was mainly to the benefit of existing portfolio companies and the proportion of capital committed to start-ups continued its downward path, Chausson Finance said. New investments accounted for 38 per cent of total financings, compared with 42 per cent in the previous year, and 63 per cent in H2 2000. In terms of sector differences, healthcare and life sciences was the most popular for the first time, with E97m of investments. Healthcare was the only sector to have increased investment value.
AltAssets 5.3 03

French private equity investment activity rose seven per cent in 2002
The French private equity industry defied the gravitational forces being suffered elsewhere with a seven per cent increase in investment activity in 2002, according to figures from industry association AFIC. Its members invested a total of E3.524bn, compared with E3.287bn in 2001. AFIC said the total for 2002 was closer to E5.8bn if a handful of large deals financed by non-members, like KKR's Legrand acquisition, were included in the total. The latest figures, although some way beneath the peak in 2000 of E5.304bn, clearly illustrate the significant growth in the French industry over the past few years. It has now overtaken Germany as the largest private equity market in continental Europe. Buy-outs accounted for more than 60 per cent of the AFIC total in 2002, and more than 75 per cent if the non-AFIC transactions were included. That represented a small increase on their share in 2001.
AltAssets 12.3.03

Private equity firms expect to be more active in media sector in 2003
UK private equity investors specialising in the media sector expect to be more active in 2003, according to new research from KPMG. B2B publishing is seen to be the most promising of the media sub-sectors. Calum Chace of KPMG said that the reason for last year's lack of deals was mostly to do with the difficulty of forecasting revenues and on vendors' unrealistic price expectations. In addition most private equity investors believe that the UK government's Communications Bill will make it easier to do deals within the media sector.
AltAssets 4.3.03

VC exit outlook worsens…
The environment for exits of venture capital-backed companies looks bleaker than a year ago, a report by Ionic Advisors has found. Its survey of 50 early-stage firms revealed that more than three-quarters of respondents believed company valuations were set to remain the same or creep lower than last year. This contrasts with sentiment last year when over 75 per cent said that valuations would pick up over the course of 2003.
eFinancial News 3.3.03

…as UK IPO market shows worst performance for 20 years
The health of the UK IPO market is the weakest for almost a generation, according to new figures from KPMG Corporate Finance. There were no company listings on the main market in the first quarter and just two investment trusts floated with a combined value of £14.45m. Exit conditions for private equity-backed investments have been difficult since the public markets began their steep descent in spring 2000 and there is no sign of improvement. The combination of the complete absence of an IPO market and a scarcity of trade buyers has left secondary buy-outs as almost the only source of liquidity. AIM, the London Stock Exchange's junior market for smaller businesses, managed only a slightly more encouraging first quarter performance. There were five listings with a combined value of £5.3m.
AltAssets 31.3.03

3i European Barometer shows marginal increase in confidence for private companies
Private equity-backed companies in Europe are a little more confident about the general economic outlook than at the end of 2002, according to the latest 3i Barometer, which measures private companies' confidence in business, political and economic climates. The index, which sank to an all-time low of negative 114 in October 2002, crept up to negative 73 in January 2003. Confidence was at its lowest in the UK and in Germany, reflecting concern about the feeble state of the global economy and concerns over war with Iraq. In the UK the index dropped all the way to negative 107, its lowest level since the end of 2001.
AltAssets 6.3.03