Where is European Private Equity Heading? - 2006 European Private Equity Statistics

Where is European Private Equity Heading?Where is European Private Equity Heading?

- 2006 - 2006 European Private Equity StatisticsEuropean Private Equity Statistics

Gemma Postlethwaite, Thomson Financial

14 March 2007

2

2006 State of European Private Equity

Private Equity asset class viewed as mainstream, and now a major driver of Capital Markets activity

Increased importance of reporting, analytics and education supporting continued growth in data contribution

European activity and performance continues on a positive trajectory

3

Investment Activity Methodology

Thomson Financial’s global data collection efforts supplemented by data collected from GPs via survey questionnaires – preliminary response rate at 61% for PE firms

Europe is defined as location of the PE fund

1. Fundraising: only formal closings included2. Investments: based on completion date, only equity value

(debt only if provided by PE fund)

3. Divestments: at cost, and at time of divestment by PE firm

Definitions

4

2.4

5.25.7 7.4

9.6

9.26.8 5.4 5.1

11.9 16.0

1.8

5.04.9

4.7

10.7

10.2

4.3 4.9 4.5

16.8

22.0

3.3

3.4

5.7

4.7

3.6 2.8

7.5

7.7

5.0

4.6

3.4 4.2 3.2

8.9

18.1

2.2

0

10

20

30

40

50

60

70

80

90

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

€ b

illio

n

Capital Markets

Academic Institutions

Fund of Funds

Insurance Companies

Pension Funds

Banks

Government Agencies

Private Individuals

Corporate Investors

Realised Capital Gains

Others/Not Available

8.0

20.0 20.325.4

48.0

40.0

27.5 27.0 27.5

71.7

89.8

Fundraising All-Time Record at €90bn

Source: EVCA / Thomson Financial / PricewaterhouseCoopers

Funds of funds allocations double

Pension funds continue to invest massively – baby boomers with a pension shortfall

79% of funds raised allocated to buyout in 2005 and 2006

European Private Equity Funds Raised

5

Fundraising Highs also Mirrored in the Americas

5443

139

160

4 38

14 10

72

2827

90

28

69

0

20

40

60

80

100

120

140

160

2002 2003 2004 2005 2006

Europe

Americas

Asia

Sources: EVCA / Thomson Financial / PricewaterhouseCoopers for EuropeThomson Financial for other regions

€ billions

Global Private Equity Funds Raised

6

5th Consecutive Year of Steady Investments Growth

27.5

71.7

27.5

40.0

48.0

89.8

27.025.4

47.0

27.624.325.1

29.1

36.935.0

50.3

9.18.6

12.510.7

13.6

19.6

29.8

21.8

0

10

20

30

40

50

60

70

80

90

1999 2000 2001 2002 2003 2004 2005 2006

€ B

illio

n

Funds Raised

Investments

Divestments

Significant capital available for investment due to two consecutive record fundraising years

77.5% of amount invested related to buyout deals, while 72.8% of number of deals related to venture


7

Exit Conditions Continue to be Very Favourable

9.5 11.08.6

12.7 12.7

5.3

4.33.9

6.02.9 4.1

5.3

14.58.4

15.9

21.323.3

18.9

3.8

3.9

20.213.1

18.4

18.9

22.830.0

11.69.7

4.7

3.7

9.1 5.3

6.27.0

8

2.0 6.6

5.64.8 3.8

4.3

33.930.9 20.4 23.7 22.6

25.6

5.5 4.8 5.310

5.1

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006

Sale to Management

Trade Sale

I PO

Sale of Quoted Equity

Write-Off

Sale to Another PE Firm

Repayment of Shares/Loans

Sale to Financial I nstitution

Other

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2000 2001 2002 2003 2004 2005 2006

in €m

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000Number

Total Deal Value # of Deals

Divestments – Breakdown by Type

0

20,000

40,000

60,000

80,000

100,000

120,000

2000 2001 2002 2003 2004 2005 2006

in €m

0

100

200

300

400

500

600

700

Number

Proceeds # of Deals

M&A Activity, Europe*

IPO Activity, Europe*

Source: Thomson Financial

*Public and private deals


8

PE Activity is Fuelling the Global M&A Market

5% 5% 5%

13%

14%

16%

20%

25%

6%

6%

7%8% 8% 8%

9%

10%

12% 12%

0%

5%

10%

15%

20%

25%

1998 1999 2000 2001 2002 2003 2004 2005 2006

0%

2%

4%

6%

8%

10%

12%

14%

Worldwide PE-Backed Value as % of Worldwide M&A Value

Worldwide Number of PE-Backed Deals as a % of Worldwide Number of M&A Deals

Global M&A activity totalled $ 3.8 trillion in 2006 (including net debt of the targets), up 38% from the $ 2.8 trillion the previous year


9

Perception vs. Reality of Leverage Levels

0

2

4

6

8

10

2003 2004 2005 2006

Debt

/ EB

ITD

A R

ati

o

Private EquityMax

Private EquityAverage

Private EquityMin

Public EquitiesAverage

Source: Thomson FinancialNB: Based on calculated or reported ratios, for transactions were the data was available

European Buyout Transactions

Average leverage on buyout transactions is going up slightly to 5.3x

Average Net Debt / EBITDA in the European stock market stands at 3.4x

10

Is the Affordability of Public Companies Changing the Game?Evolution of P/E Ratios, European public equity marketsForward values based on aggregate mean broker estimates


P/E Ratios in the European stock market have been around 15 for the last 3 years

Brokers anticipate earnings to grow more rapidly that stock prices, leading to a target P/E of 11.3 in 3 years’ time

5

10

15

20

25

30

Feb-1997

Aug-1997

Feb-1998

Aug-1998

Feb-1999

Aug-1999

Feb-2000

Aug-2000

Feb-2001

Aug-2001

Feb-2002

Aug-2002

Feb-2003

Aug-2003

Feb-2004

Aug-2004

Feb-2005

Aug-2005

Feb-2006

Aug-2006

Feb-2007

Aug-2007

Feb-2008

Aug-2008

Feb-2009

Aug-2009

11

Performance Methodology

* net of management fees and carried interest

All calculations are done at the fund level* by Thomson Financial based on cash flows and NAVs reported by participating LPs and GPs

Cash flow database contains 1100+ European funds

1. Pooled IRR: IRR of a group of funds where their cash flows have been aggregated together before IRR calculation

2. InvestmentHorizon Return: IRR calculated with Net Asset Value as capital outflow at beginning of period, Net Asset Value at end of period, and actual cash flow in between

Definitions

12

Thomson Financial’s Investment Benchmarks

Report Year

Number of Funds

Committed (€Bn)

1996 278 20.6 1997 384 39.8 1998 438 51.4 1999 511 68.8 2000 573 87.6 2001 665 108.8 2002 774 135.4 2003 881 158.7 2004 949 159.4 2005 1007 192.4 2006 1129 234.0

European Private Equity Sample

13

European Private Equity Funds Formed 1980-2006Investment Horizon Return for period ending 31-Dec-2006

Stage 1 YR 3 YR 5 YR 10 YR 20 YR

All Venture -0.7 8.7 0.5 5.5 6.6

Buyouts 26.9 13.2 7.2 13.6 13.8

Generalist 20.2 4.5 -0.8 7.2 8.3

All Private Equity 21.3 11.0 4.3 10.3 10.5

Indicators Show Good Performance

Source: Thomson Financial on behalf of EVCA

14

3 and 5-Year Venture IRR Moves Into Positive Territory

-10

0

10

20

30

40

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Rolli

ng I

RR

s (%

)

10-year IRR5-year IRR3-year IRR

+8.7%+5.5%


European Venture 3-,5-,10-Year Rolling IRRs

+0.5%

15

All Horizon IRRs in Positive Territory for Buyouts and Increasing

-10

0

10

20

30

40

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Rolli

ng I

RR

s (%

)

10-year IRR5-year IRR3-year IRR

+13.2%

+13.6%

European Buyouts 3-,5-,10-Year Rolling IRRs

+7.2%


16

Top Quarter Funds Average Close to 30% IRR

Stage Pooled

IRR

Minimum Value Top

Quarter

Average Top

Quarter Return

All Venture 6.4 5.5 23.5

Buyouts 13.7 15.9 37.6

Generalist 8.2 8.1 24.1

All Private Equity

10.3 10.0 29.1

European Private Equity Funds Formed 1980-2006, Measured as of 31-Dec-06

0

25

50

75

100

3rd quarter

4th quarter

10.0%

Net IRRPercentile

2nd quarter

268.1%Avg Top quarter29.1%


17

Private Equity and Public Market Comparators

-5

0

5

10

15

20

2000 2001 2002 2003 2004 2005 2006

IRR

%

Morgan Stanley Euro Equity

HSBC Small Company

J P Morgan Euro Bonds

European Private Equity

*Comparators are Internal Rates of Return (IRR). IRRs for public market indices are calculated by investing the equivalent cash flows that were invested in private equity into the public market index. Then an equivalent IRR is calculated for each index.

Calculations based on methodology proposed by J Coller and published by A Long and C Nickles.


10-Year Rolling IRR for 2000-2006

18

Conclusion: Record Activity

Fundraising record at €89.8bn Pension funds, funds of funds and banks - main investors with

65.5%

2006 investments at €50.3bn Buyouts represent 78% by amount invested

Venture represent 73% by number of investments

Divestments at cost down at €21.8bn Trade sale continues to be the most popular exit route with 25.6%

of the total amount divested

Sale to management registers most aggressive increase of 37% - proof that insiders are optimistic

Write-offs at low levels

19

Conclusion: Improved Performance

Long-term performance Stays constant at around 10% net IRR, with top quarter IRR

of 29.1% with great returns generated by both venture funds (23.5%) and buyout funds (37.6%)

5 and 10 year rolling averages are steadily increasing and both in positive territory

Shorter-term performance Overall 3-year rolling IRR moves up to 11% IRR with both

buyout and venture returns in positive territory and trending upward

20

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Where is European Private Equity Heading? - 2006 European Private Equity Statistics

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