Total Funds Raised: NZD468m in 1H07, up 3935 per cent (1H06 NZD12m)
Total Funds Raised: NZD468m in 1H07, up 3935 per cent (1H06 NZD12m)
Results for New Zealand’s venture capital and private equity sectors for the first half of this year have set new records by some distance, admittedly aided by the NZD2.24bn acquisition of Telecom New Zealand’s Yellow Pages business by a consortium led by CCMP Capital Asia.
‘This one transaction alone has helped boost investment in the first half of 2007 in New Zealand’s venture capital and private equity sectors by 159 per cent to NZD1.1bn invested across 41 deals,’ says Ernst & Young director Jon Hooper.
In the first six months of 2006, a total of 54 venture capital and private equity deals involved an aggregate investment of NZD434m. ‘Investment during the first half of 2007 alone has almost hit the total for the whole of 2006 of NZD1.2bn,’ he says.
‘It’s clear the momentum from the second half of last year has continued into 2007. While the Yellow Pages deal has pushed levels of investment higher, a limited pool of opportunities for similar size deals and a possible squeeze on credit indicate that this level of investment, particularly in top-end private equity, may soften into 2008.’
According to Hooper, various sectors within the broader venture capital and private equity markets performed differently but with equally encouraging results.
‘Large leveraged buyout and top-end private deals saw NZD938m invested in two deals, compared with NZD350m invested in seven deals in the first half of 2006,’ he says, ‘and mid-market private equity saw NZD132m invested in 10 deals, up 134 per cent from NZD57m invested in 11 deals in the same period of 2006. Both these results confirm that private equity in this market continues to grow and gain momentum.
‘Venture capital saw NZD56m invested in 29 deals, up 101 per cent on the first half of 2006, when NZD28m was invested in 36 deals. Again, this result suggests the venture capital industry is continuing to develop strongly off the back of local fund investments.
Five divestments were reported for the first half of 2007 with a total value of NZD59m, more than double the value of exits in the first half of the previous year (NZD20m from five deals), but down from the second half of 2006 which included one significant top-end private equity exit.
According to New Zealand Venture Capital Association chairman Hamish Bell, the results demonstrate the continuing development of New Zealand’s private capital market. ‘Putting aside the LBO market, it’s very encouraging to see continued momentum and growth in mid-market private equity and venture capital, which together comprise the heart of the New Zealand private capital market,’ he says.
‘In both these areas we’ve seen solid deal flow and an increase in average deal size. Both are indicators that reflect growing acceptance of the value that private capital investors can bring to the table in partnering New Zealand’s growth companies.’
Committed capital for New Zealand-based funds increased by NZD468m to NZD2.5bn, Hooper says, largely attributable to new capital of AUD415m raised by Goldman Sachs JBWere in a trans-Tasman private equity fund that represents a strong pool of local funding for New Zealand businesses. Just NZD12m was raised in the first half of 2006.
Activity during the first half of this year remained well spread, with average deal value rising from NZD8m in 2006 to NZD26.8m, reflecting continued development in mid-market private equity and activity in the leveraged buyout market. The six months to June also saw another secondary buy-out, a further measure of the industry’s growing maturity.
‘In a sense this activity is a sign of venture capital funds beginning to realise their first vintage, resulting in the release of funds to make additional capital available for further investment,’ Hooper says. ‘In addition, this is a clear signal of sector strength providing a strong base to attract additional investors.’
Both in dollar value and number of deals done, the health and bioscience sector demonstrated the most promising growth in the first half of this year. ‘Last year this sector deviated from international levels of investment and deal-making, but our figures are now in sync with the strong global commitment being made to these two areas,’ he says.
Activity in these sectors included the raising of NZD35m by anti-cancer drug company Proacta, NZD14.5m by Protemix, which develops therapies for cardiovascular disease, diabetes and other metabolic disorders, and NZD10m by wound-healing drug company CoDa Therapeutics.
Hooper says: ‘Overseas investment coming into New Zealand reflects two trends. One is a clear endorsement of the high quality of biomedical research and technology that some of our major universities have been actively commercialising.
‘Another is the obvious benefit that some of these companies have in basing operations in New Zealand as well as key overseas markets such as the US. This is reflected in the ability to attract follow-on commitments from overseas investors which should continue to benefit the industry by increasing funding options and partnership opportunities.’
A new trend in the overall sector is investment in green technology. ‘This new type of investment follows a trend that has been happening in the US for a number of years,’ Hooper says. ‘We expect interest to continue to increase in this new area of endeavour as the impact of the government’s regulations around biofuels and carbon credits start to come into effect.’
