Post on 11-Feb-2020
European Private Equity: Facts and figures
Didier GuennocEVCA
EESC – 5 December 2007
Private equity (PE) as financial intermediary
repayments+ capital gains
commitments
divestments
pensions savings
savings and pensions
investments
Private Equity Funds
Companies
Institutional investors(Insurance companies,
pension funds, banks…)
Private Equity Funds
Institutional investors(Insurance companies,
pension funds, banks…)
Saving accounts, Pension plans,
Insurance contracts…
Facts about the relationship between investors and PE fund managers
repayments+ capital gains
commitments
divestments
pensions savings
savings and pensions
investments
Private Equity Funds
Companies
Institutional investors(Insurance companies,
pension funds, banks…)
Private Equity Funds
Institutional investors(Insurance companies,
pension funds, banks…)
Saving accounts, Pension plans,
Insurance contracts…
€112 Billion raised in 2006for venture capital and buyout investments
12.8 12.625.1 24.2 18.6 21.1 18.2
59.3
89.6
25.6
50.012.8
22.915.9
8.9 5.9 9.2
12.5
22.7
3.4
6.7
0
20
40
60
80
100
120
1998 1999 2000 2001 2002 2003 2004 2005 2006 H12007*
H22007*
€ billion
Venture Capital Buyout
EVCA Yearbook 2007Conducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA* Source: PEREP Analytics (data are updated quarterly), preliminary data for H1. H2 data represents large buyout funds currently being raised
Who are the investors in private equityfunds?
Geographical origin of funds raised
2002-2006
Type of investorShare in total funds raised 2002-2006
Pension funds23%
Banks18%
Funds of funds16%
Insurance companies
11%
Government agencies
9%Private individuals
7%
Corporate investors
5%
Other (capital markets-Fund of funds,etc)
11%
Europe60%
USA25%
Asia and the rest of the
world15%
Source: EVCA/Thomson Financial/PricewaterhouseCoopers
What is the strategic asset allocation of institutional investors to private equity?
Source: 2005-2006 Russell Survey on Alternative Investing
3.6
1.7
4.03.6
8.3
4.55.3
9.8
6.1
7.2
10.5
0
2
4
6
8
10
12
14
Private Equity Hedge Funds Real Estate
% o
f To
tal
Asse
ts
2001 2003 2005 2007 Forecast
North American Investors
7.5
2.5
7.57.1 7.17.0
7.7
6.77.6
9.1
7.3
0
2
4
6
8
10
12
14
Private Equity Hedge Funds Real Estate
% o
f T
ota
l A
ssets
2001 2003 2005 2007 Forecast
Note: 2001 North American hedge fund allocation is represented by the median.
European Investors
Why and how to invest in private equity? Demonstrated persistence of outperformanceof the best teams, but selection process isparamount
Evolution of Private Equity and Public Market Comparators10-Year Rolling IRR for 2000-2006
-10
-5
0
5
10
15
20
25
30
35
40
2000 2001 2002 2003 2004 2005 2006
IRR
%
Morgan Stanley Euro Equity
HSBC Small Company
JP Morgan Euro Bonds
European Private Equity
Top Quarter European Private Equity Funds
Source: Thomson Financial/EVCA
From a regulatory perspective
• The fund manager or the fund or both are regulated in most of the Member States (e.g. 60% of the capital under management is regulatedby the UK FSA)
• Institutional investors are also regulated
• Retail investors can have access to the asset class through quotedvehicles having to comply with stock market regulation
• Funds raised, management fees, carried interest and other terms and conditions result from market forces in a market which is not oligopolistic
• Risk diversification imposed by investors on funds (maximum share for one single investment in non-leveraged, closed-end funds with a duration of 10 to 12 years)
Facts about buyout investments
repayments+ capital gains
commitments
divestments
pensions savings
savings and pensions
investments
Private Equity Funds
Companies
Institutional investors(Insurance companies,
pension funds, banks…)
Private Equity Funds
Institutional investors(Insurance companies,
pension funds, banks…)
Saving accounts, Pension plans,
Insurance contracts…
European buyout investments(transaction value - €bn)
13.118.6
10.9 10.2 10.7 10.1 13.7 15.322.8
35.943.9
59.7
74.565.5 67.6 65.3
80.8
128.5
166.7
91.8
0
20
40
60
80
100
120
140
160
180
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 H12007
Source: CMBOR
Mega buyouts vs. total buyouts in Europe2003 – 2006
% of Amount invested (equity value)
Mega Buyouts
27%
Other Buyouts
73%
% of Number of Investments
Mega Buyouts
1%
Other Buyouts
99%
Source: EVCA/Thomson Financial/PricewaterhouseCoopers
Relative weight of buyout investments(equity value) as % of GDP(Data 2006)
1.68
6%1.
156%
0.46
0%0.
453%
0.36
1%0.
194%
0.16
4%0.
144%
0.13
1%0.
112%
0.10
7%0.
087%
0.08
2%0.
065%
0.06
5%0.
063%
0.02
7%0.
010%
0.00
7%0.
000%
0.00
0%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
United
Kin
gdom
Swed
enFr
ance
Euro
peNet
herla
nds
SpainIta
lySw
itzer
land
Belgi
umGer
man
yPo
land
Denm
ark
Norway
Portu
gal
Finla
ndRo
man
iaAu
stria
Czec
h Re
publ
icIre
land
Greec
eHun
gary
Source: EVCA/Thomson Financial/PricewaterhouseCoopers
Relative size of buyout transactions in the European M&A market
Buyout share (%) of total M&As in Europe(% of total transaction value)
7.6%
15.7%16.7%
14.8%
12.5%11.5%
9.4%
5.0%
0
2
4
6
8
10
12
14
16
18
1999 2000 2001 2002 2003 2004 2005 2006
%
Source: EVCA based on CMBOR and Dealogic data
Share of European P to P transactions as percentage of total buyout investment2003 – 2006
% of Value invested
Public to Private22%
Other Buyout78%
% of Number of Investments
Public to Private
3%
Other Buyouts
97%
Source: CMBOR
Evolution of deal origination
0
100
200
300
400
500
600
2000
2001
2002
2003
2004
2005
2006
Family & Private Foreign parent Local parentPublic to Private Receivership Secondary buyout
Source: CMBOR
By number of deals
Private equity investment by industrial SectorsAmount Invested (Equity)
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000
Agriculture
Ind. Automation
Biotechnology
Other Electronics
Construction
Energy
Transport
Chemical
Finance
Other Manuf.
Computer Related
Medical/Health
Ind. Products/Services
Communications
Other Services
Consumer
€m
2006
2005
Source: EVCA/Thomson Financial/PricewaterhouseCoopers
The buyout model
Value growth depending on four mechanisms:
• Market price evolution• Use of debt / leverage• Reduction of agency costs• Growth strategy
Leverage loan market activity in Europe
Debt to EBITDA Multiples
4.8
4.4
1
4.2
8
4.2
4
4.3
8
4.6
4 5.2
1 5.4
9 5.9
8
3.6
8
3.6
3
3.4
7
3.3
9
3.5
6
3.6
5 4.0
7
4.2
8
5.2
4
0
1
2
3
4
5
6
7
1999
2000
2001
2002
2003
2004
2005
2006
H1 20
07
Total Debt/ EBITDA
Senior Debt/ EBITDA
Average Equity Contribution (% of total transaction value)
33.8
1%
33.7
0%
33.7
0%
35.9
0%
37.2
9%
38.6
2%
37.4
0%
35.9
0%
37.6
1%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
1999
2000
2001
2002
2003
2004
2005
2006
H1 20
07
Source: S&P LCD
Impact of macro-economic environment on PE business…PE price maker or price taker?
0
1
2
3
4
5
6
2001
2002
2003
2004
2005
2006
YTD
2007
(est
)
World GDP growth Real interest rate (Libor 12 months - inflation) Total Debt/ EBITDA
Source: EVCA based on data provided by S&P, IMF, Eurostat and British Bankers Association
Annual % for World GDP and real interest rate
Multiple for Total DEbt/Ebitda
Problem with the debt as sole factor of value creation
• Macro-economic impact
• Financial engineering is a commodity, i.e. no differentiation factor in itself
Reduction of agency costs and growth strategy
• The PE corporate governance model: alignmentof interest – strong involvement at Board level
• Growth strategy: the FT reported on a recentstudy mandated by the European Parliamentshowing that out of 1,000 buyout companies, 91% implemented growth strategies, againstonly 54% with restructuring initiatives
• Average holding period of PE houses: 3 to 5 years. Longer than block holders in quotedsecurities, but the nature of implementedstrategies is more important
From a regulatory perspective
• Long termism vs. short termism: up to regulators to qualify strategies or are the buyers of PE backedcompanies better suited for this task?
• Asset stripping? Not confirmed by independent research atthe level of portfolio companies
• Adopting a systemic approach regarding the use of debt: portfolio company level, overall financial system but alsopositive impact on the balance sheet of the seller!
• The debate about employment: A Deutsche Bank researchpaper demonstrated that a rise in buyout investmentequal to 0.1% of GDP translates in an increase in real economic growth of 0.2%.
For more information…
Didier GuennocEVCA Director – Large Buyout PlatformDidier.guennoc@evca.euhttp://www.evca.eu