Private equity activity slowed during 2008 in response to widespread uncertainty across financial markets, according to preliminary data for 2008 from the European Private Equity and Ve
Private equity activity slowed during 2008 in response to widespread uncertainty across financial markets, according to preliminary data for 2008 from the European Private Equity and Venture Capital Association.
The statistics, which cover fundraising, investment and divestment activity, showed that private equity funds raised EUR65.3bn last year, a fall of 20 per cent on the EUR81.4bn raised in 2007.
In 2008, 128 funds reached a final close, down from 144 in 2007. Average fund sizes also fell, from EUR496.9m in 2007 to EUR425.7m.
Venture capital fundraisings proved particularly robust, with 47 funds reaching final closing compared with 37 the previous year, with an average fund size of EUR84.7m. Early-stage venture funds saw successful final closings increase from 15 in 2007 to 21 in 2008.
Growth capital funds also saw a large increase, with ten funds raising nearly EUR3bn, compared to nine funds raising EUR2bn in 2007.
At the same time, the number and value of buyout funds fell from 62 that raised EUR56.5bn in 2007 to 53 funds raising EUR44.4bn last year.
In terms of sources of capital, pension funds were by far the largest contributor, accounting for 23 per cent of all funds raised or EUR15.2bn, compared with 17 per cent and EUR13.9bn in 2007. Bank commitments halved from just over EUR9bn to EUR3.8bn.
Regionally, Southern Europe and the UK accounted for the largest drop-offs in funding contributions, with Southern European contributions falling from 13 per cent to 1.6 per cent of the total, and UK contributions falling from 17.5 to 11.3 per cent.
The amount invested by private equity firms fell around 27 per cent in 2008 to EUR52.4bn and by 12 per cent by number of companies financed to 4,593, mainly driven by a drop-off in activity during the final quarter of the year.
The number of larger deals experienced the steepest decline, with those between EUR150m and EUR300m equity value falling from 57 to 26, and those above EUR300m from 23 to 14.
By region, investments in UK-based companies suffered the steepest decline, with a fall of 39 per cent by amount, followed by the Nordic region (-34 per cent), and France and Benelux (-32 per cent). While in the UK the number of deals completed was relatively stable, the number of companies financed in the Nordic region and France/Benelux was also down on 2007.
Two sectors attracted more capital than the year before: energy and environment, and computer and consumer electronics. Financial services deals continued to account for a small proportion, falling from 4.9 per cent of amount invested to 4.4 per cent over the year.
The sale of equity stakes, measured at cost, halved during 2008, from EUR26.6bn in 2007 to EUR13.1bn, with trade sales and secondary buyouts representing two-thirds of the exits. The public markets were effectively closed with just nine new listings, six of which were venture-backed companies and three buyout-backed.
By sector, private equity firms exited more companies in the business and industrial products, and computer and electronics (together representing 37 per cent of the companies exited in 2008). By amount, the business and industrial products sector was joined by consumer goods and retail, together accounting for 32 per cent of the total amount divested in 2008.
Javier Echarri, secretary general of EVCA, says: ‘The fact that institutional investors continued to commit significant sums to private equity funds during 2008, amounting to nearly EUR80bn of ‘dry powder’ in Europe, means the industry is well-placed to find attractive investment opportunities at a time when other sources of corporate finance are scarce.
‘With capital markets all but closed and so much uncertainty in the wider economy, it is no surprise that there was a significant slump in both investment and divestment activity towards the end of last year. As holding periods increase, private equity will demonstrate its capacity to support portfolio companies, with a combination of capital and skills, through the downturn.’
The figures were compiled by PEREP_Analytics, an independent data-gathering organisation, and are preliminary. Final figures for 2008 will be published in June 2009.
