Private equity and venture capital investment by UK-based firms in 2008 fell below GBP20bn for the first time since 2005, according to the BVCA’s forthcoming report on investment activi
Private equity and venture capital investment by UK-based firms in 2008 fell below GBP20bn for the first time since 2005, according to the BVCA’s forthcoming report on investment activity.
The preliminary data, collated and analysed by PricewaterhouseCoopers, shows investment dropped to GBP19.5bn in 2008 compared to GBP31.6bn in 2007 and GBP21.8bn in 2006.
The number of companies receiving private equity or venture capital backing also fell, from 1,680 in 2007 to 1,571 in 2008.
These preliminary figures reflect the worsening of credit conditions through 2008 and the onset of recession.
However, in comparison with the decade as a whole, rather than the exceptional 2006-2007 period, investment in 2008 was robust. The GBP19.5bn invested in 2008 almost equalled the total for 2004 and 2005 combined (GBP21.3bn) and exceeded that of 2001, 2002 and 2003 put together (GBP18bn).
The report also shows that UK-based private equity and venture capital firms raised GBP23.1bn in 2008, a decline from the GBP29.2bn raised in 2007 and considerably below the record GBP34.3bn raised in 2006. These numbers do not include the impact of any investor commitments cancelled subsequent to a formal fund close.
North America continues to dominate as a source of fund raising, contributing GBP10.4bn or 45 per cent of the total, while funds raised from UK sources was GBP5.6bn or 24 per cent of the total (in 2007, North America and the UK contributed 42 per cent and 25 per cent, respectively).
Early-stage investment in UK-based companies declined to GBP346m, a GBP600m drop from 2006 and a significant decline from the GBP434m invested in 2007. The number of companies financed fell from 502 in 2007 to 441 in 2008. Total management buyout/buy-in value by UK firms declined considerably, to GBP8.7bn in 2008 from GBP20.2bn in 2007.
Regionally, London and the South East saw investment levels drop to just over GBP4.5bn, compared to GBP8.2bn last year. The number of companies receiving private equity or venture capital backing also fell away year-on-year, from 554 to 460.
All other regions also experienced falling investment levels in comparison to 2007 (the West Midlands remained static), although the volume of companies financed increased in a number of regions, including Yorkshire the Humber, where 119 investments were completed in 2008 compared to 108 in 2007, the North West, which saw volume increase from 154 to 171, and in the North East where 55 companies were funded compared to 51 last year.
Scotland bucked the trend on investment levels, with GBP1.1bn invested in 2008 compared to GBP393m in 2007. This figure includes one deal of close to GBP500m. However, excluding this figure Scotland still recorded a healthy GBP571m of investment and the number of companies financed in the country dropped by just two, from 73 to 71.
Commensurate with the decline in investment activity, divestments activity was also subject to market driven constraints, suffering a fall from GBP13.6bn in 2007 to GBP10.7bn in 2008. Only 938 companies were divested in 2008 compared to 1,469 in 2007. Unsurprisingly, a larger proportion of divestment in 2008 (16 per cent) came from write-offs, increasing in number and value to 204 and GBP1.7bn, from 185 and GBP0.9bn, respectively.
Simon Walker, chief executive of the BVCA (pictured), says: ‘Private equity and venture capital firms are not immune to the effects of the recession and the decline in investment levels and fundraising is not unexpected. The stark decline in early-stage investments, though, is particularly worrying. There is a wealth of opportunity in the early-stage sector and we would like to see the government cornerstone a fund-of-funds which can invest in the best venture managers in order to take advantage of these opportunities and ensure that Britain does not bear witness to a lost generation of innovation. We are in for a period of uncertainty and continued difficulty, but by investing in ailing companies and saving jobs, backing the businesses of tomorrow and creating jobs, private equity and venture capital will be at the forefront of economic recovery.’
