Private equity investment falls 28% during 2008
- Final data shows shift towards growth financingBrussels, 8 June 2009
Final 2008 figures for European private equity investment and fundraising activity released by EVCA today confirm an increase in growth capital and equity-centric buyout investments, as the economic downturn precipitates a fall in the overall value of deals.
European private equity investment fell 28% in 2008 to €54bn, largely driven by a decrease in large and mega buyouts, which decreased around 40% by both number and value of investments. The value of small and mid-market deals fell by 30%, while the number of companies financed dipped by a fifth.
In terms of quarterly trends, investment levels recovered from a slow start to the year with robust second and third quarters, before a significant drop in the final quarter of 2008.
Meanwhile, early-stage venture capital investment remained undeterred by the economic slowdown, with a 15% increase in the number and 7% in value of seed-stage and start-up companies receiving finance.
Growth capital investment almost doubled in size during 2008, to more than €7bn of equity investment, driven by a greater participation from buyout players. More than 20% of buyout & growth equity was invested into SMEs last year, compared with less than 12% in 2007.
SMEs attracted a growing majority share of the total number of private equity investments, accounting for 81% of deals, up from 77% in 2007. In total, more than 5,400 European companies received private equity funding during 2008.
While the overall level of investment fell, 2008 remains the third-best investment year on record for the European industry (after the boom years of 2006 and 2007). The amount invested by European private equity players in the past three years is equal to the amount invested during the previous seven years combined.
In addition, for mid-market and large buyouts, the average private equity contribution to total transaction values was nearly 40% in 2008. In the boom years of 2006-2007, mega deals saw an average ratio of equity to transaction value of around 20%; this increased to 32% in 2008.
Investment in the region by non-European private equity firms remained static by number, but fell 43% by amount.
Divestment slowdown
Exits have slowed significantly since the start of the economic downturn, with European private equity firms exiting from more than 2,000 companies, representing €13.9bn at cost. This is close to the 2003 exit level and down by half from 2007 levels.
Fundraising resilience
- » Despite the financial crisis, overall fundraising levels were sustained, with €79bn raised by European private equity firms during 2008, compared with €81bn in 2007.
- In terms of quarterly trends, capital commitments increased at the beginning of 2008 following a weak end to 2007. The second and third quarters of 2008 were particularly strong, before a drop off in the final quarter ofthe year.
- » Capital commitments from capital markets and banks dried up considerably, with both halving their commitment levels compared with previous years.
- » The number of venture capital funds closed increased to 44, compared with 35 in 2007, with a slight dip by value from €3.1bn in 2007 to €2.9bn in 2008.
- » Non-European investors’ contributions surpassed the 40% threshold (45.5% compared to 37.6% as a five-year average). Meanwhile domestic contributions dropped under the 40% mark (30.4% in 2008 compared with 40.1% as a five-year average.)
Javier Echarri, EVCA secretary general said: “The economic downturn has adversely affected private equity investment levels during 2008, particularly for larger deals. However, the statistics reveal the continued importance of private equity investment across the whole spectrum of European company finance.
“Divestment figures show that private equity firms are spending longer with portfolio companies to ensure they are appropriately positioned to face the economic downturn, and refinancing them where necessary.
“On the investment side, the trend towards the provision of growth capital is welcome in otherwise capital constrained circumstances for Europe’s businesses. In particular the resilience of early-stage venture capital market is encouraging news for long term health of Europe’s young innovative companies.”
Ends
Contact:
Ross Butler, EVCA,
Tel: +32 2 290 02 30
+32 477 52 15 53,
Ross Butler
Notes to editors:
The figures were compiled by PEREP-Analytics, an independent and non-commercial data gathering body endorsed by 17 national European associations and EVCA.
The 2008 coverage rate for the data released is 91% by capital under management for the private equity firms with an office in Europe.
European Private Equity & Venture Capital Association
EVCA is the voice of European private equity and venture capital. We promote and protect the interests of close to 1,300 members, thereby ensuring they can conduct their business effectively
EVCA engages policymakers and promotes the industry among key stakeholders, including institutional investors, entrepreneurs and employee representatives. EVCA develops professional standards and research reports, as well as holding professional training and networking events.
EVCA covers the whole range of private equity, from early-stage venture capital to the largest buyouts.
For more information, please visit www.evca.eu.
PEREP_Analytics is a fully functional, centralized non-commercial pan-European private equity database. All National and Regional Associations in Europe have been invited to join the European Private Equity and Venture Capital Association (EVCA) in this exercise. The vision is to turn PEREP_Analytics™ into the framework of a Private Equity Research Exchange Platform among cooperating national and regional associations and the EVCA where a triple-win scenario can be secured for members, national private equity associations and EVCA. Full confidentiality of the underlying data is preserved by the associations involved in the exercise. No further third parties have access to the data. (www.perepanalyics.eu)
Quantitative and qualitative data will be collected for bridging:
- » the needs of all stakeholders of market approach statistics
- » the need for accurate, consistent and timely data
- » the need for timely specific ad hoc analyses and social and economic impact research
- » the intrinsic private equity market evolution where cross-border transactions are becoming the norm rather than the exception
- » the general needs of private equity statistics by international organizations, governments, investors, other stakeholders
Figures are updated on a continuous basis and are thus subject to change.
Annex1
Source: PEREP_Analytics / EVCA
Annex2
Source: PEREP_Analytics / EVCA
Annex3
Source: PEREP_Analytics / EVCA
Notes:
* Prior to 2007, later stage venture was called “expansion”
** Prior to 2007, growth capital was part of “expansion”
Annex4
Note: The difference between the “equity value” and “transaction value” consists of the participation of syndicate members other than private equity firms ( i.e. corporates, individuals, financial institutions) and leverage (debt provided by banks or other providers)
Annex5
Source: PEREP_Analytics / EVCA
Terminology and definitions
Seed : Financing provided to research, assess and develop an initial concept before a business has reached the start-up phase.
Start-up: Financing provided to companies for product development and initial marketing. Companies may be in the process of being set up or may have been in business for a short time, but have not sold their product commercially.
Other early stage: Financing to companies that have completed the product development stage and require further funds to initiate commercial manufacturing and sales. They will not yet be generating a profit.
Later stage venture: Financing provided for the expansion of an operating company, which may or may not be breaking even or trading profitably. Late stage venture tends to be financing into companies already backed by VCs, therefore they would be C or D rounds of financing.
Growth: It is a type of private equity investment, most often a minority investment but not necessarily, in
relatively mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a significant acquisition without a change of control of the business. As round of financing, growth capital tends to be first private equity backing of the company. Additionally, all investments made by buyout funds into venture type of stages should be defined as growth capital.
Rescue/Turnaround: Financing made available to an existing business, which has experienced trading difficulties, with a view to re-establishing prosperity.
Secondary purchase/Replacement capital: Minority stake purchase of existing shares in a company from another private equity investment organisation or from another shareholder or shareholders.
Buyout: a transaction in which a majority stake of a business, business unit or company is acquired from the current shareholders.
Mapping the above stages into the main 2 stages – venture deals and buyout deals – leads to the following classification:
• Venture deals: Seed, start-up, later-stage venture
• Buyout & growth deals: Growth, rescue/turnaround, replacement capital, buyouts
The split of buyouts by equity value and transaction value is based on below deal size thresholds:
Buyout segment |
Equity value (€million) |
Transaction value (€million) |
Small |
< 15 |
< 50 |
Mid-market |
15 ≤ X < 150 |
50 ≤ X < 500 |
Large |
150 ≤ X <300 |
500 ≤ X < 1,000 |
Mega |
≥ 300 |
≥ 1,000 |
Industry statistics consist of aggregation of the figures by countries of location of the private equity firm in charge of the deal. So Europe here means activity of the European offices of the private equity firms.
Market statistics consist of aggregation of the figure by countries of location of the portfolio company. So Europe here means activity into European portfolio companies, regardless of the location of the private equity firm.
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