Europe: Market introduction

Author: | Published: 4 Jan 2001
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The European private equity industry has grown substantially during the first half of 2000 and all indicators point to another buoyant and healthy year.

Euro13.5 billion ($11.4 billion) was invested in the first half of 2000 by 56% (613) of Europe's private equity houses in 4,630 companies. These included 2,277 high-tech companies, which attracted euro4.4 billion, some 32% of the total invested. The average investment by company was euro2.9 million. The percentage of investment allocated to early stage in Europe is now at 55% of the total amount invested. The average investment per company was shown to be:

  • euro0.9 million in seed;
  • euro1.3 million in start-up;
  • euro2.5 million in expansion;
  • euro4.2 million in replacement capital; and
  • euro11.8 million in buyout.

This year saw the European Venture Capital Association (EVCA) launching the first EVCA Mid-Year Survey, conducted in 21 countries by PricewaterhouseCoopers on behalf of EVCA in conjunction with the national associations. This survey provides information about private equity investment and divest-ment activity in Europe during the first six months of the year.

It also provides indications about a period-on-period trend. All respondents were asked to compare the first six months of 2000 with the first six months of 1999, and confirm whether they had experienced an upward, stable or down-ward movement in levels of investment. The findings were positive; 57% confirmed an upward trend - and can lead us to expect forthcoming substantial additional growth and a further positive outlook for the rest of the year.

 European overview
 Substantial growth in 2000
  • euro13.5 billion invested by 613 private equity houses in 1st the first six months of 2000
  • 57% of respondents confirm an upward trend
 All-time record year in 1999
  • euro25.4 billion of funds raised, up 25%
  • Total invested at euro25.1 billion, up 74%
 Banks still largest source of capital

High-tech leads the way into 2000

During the first half of 2000, almost 50% of investee companies were high-tech. These 2,277 companies received a total of euro4.4 billion, amounting to 32% of the total invested with the remaining 15% in replacement capital and buyouts.

Average amount invested by stage in high-tech was euro1 million per company in seed, euro1.4 million per company in start-up, euro2.8 million per company in expansion, euro1.2 million per company in replacement capital and euro9.8 million per company in buyouts.

Exits up to euro3.9 billion

In Europe, the main divestment route continues to be the trade sale. Divestment at cost in the first six months stood at euro3.9 billion in exits from 1,495 companies. The trade sale accounts for 54.9% of the total amount (41.3% of the number of companies).

Despite stock market turbulence, the IPO and sale of quoted shares still represents 24.4% of the total number of companies exited (and 24.7% of total amount at cost).

Records smashed again in 1999

The European private equity industry continued its record-breaking streak in 1999. Funds raised, and investments made, both reached new heights at over euro25 billion each. This continued growth makes 1999 a third successive record year. Particularly noteworthy is that the gap between funds raised and investments has narrowed significantly. The euro25.1 billion invested came close to the euro25.4 billion raised, refuting the view of "too much money chasing too few deals".

Funds raised for high-tech investment almost tripled, from euro2.9 billion in 1998 to euro8.4 billion in 1999. Funds earmarked for early-stage investment increased by over 300%, and those raised for expansion investment increased by over 100%. The majority of the investment (53% by amount) was in the buyout stage. Expansion stage investment was up 71% to euro7.4 billion. Seed capital and start-up investment was up 97% to euro3.2 billion (13% of the total amount). A total of 11,253 investments were made, representing a 47% increase over 1998 investment numbers. The average investment size also increased in value, from euro1.9 million to euro2.2 million.

These statistics were compiled for the annual EVCA pan-European survey of private equity and venture capital activity. The survey's results are available in the 2000 EVCA Yearbook. The survey was conducted in early 2000 by PricewaterhouseCoopers and sponsored by the European Investment Fund. The data was collected via a written questionnaire, which resulted in a solid 73% response rate. Pilot data was collected from four Eastern European countries as in 1998, and also, for the first time, from US private equity firms who either had operations in Europe or had raised funds designated for Europe.

Further increases in activity 2000

Euro13.5 billion was invested in the first half of 2000 by 613 private equity houses in 4630 companies. These included 2,277 high tech companies, which attracted euro4.4 billion, some 32% of the total invested. The average investment by company was euro2.9 m. The percentage of investment allocated to Early stage in Europe is now at 55% of the total amount invested. The average investment by stage was shown to be euro0.9 million by company in seed - euro1.3 million by company in start-up - Fundraising at highest level ever

Funds raised during 1999 surpassed the 1998 figure by 25%, to set a new record at euro25.4 billion. This continues the upward trend from previous years. Most of this increase came from domestic sources (i.e., the private equity operator's own country), which now represent 57% of the total at euro14.5 billion. Independent funds made up around 72% of the total funds raised (euro18.2 billion). The amount raised by captives increased by 39% to euro5.3 billion, representing 21% of the total.

High-tech increases 200%; buyouts stable

Funds raised for investment in high-tech at early and expansion stages almost tripled from the 1998 level of euro2.9 billion, to euro8.4 billion in 1999. Of these, funds expected to be invested in early-stage high-tech increased by over 300% to euro5.1 billion, while those raised for investment in the expansion stage increased by over 100% to euro3.4 billion. In contrast, the euro500 million raised for investment in non high-tech companies at these stages represented a similar amount to 1998. Funds raised for buyouts were 47% of the total, a slight (3%) decrease from 1998, but still strong at euro11.8 billion.

Fundraising by country

The UK led fundraising again in 1999, with euro9.9 billion raised (39% of the total). France was second, with euro4.3 billion (17%) and Germany third with euro3.8 billion (15%), doubling its 1998 total of euro1.9 billion. Amounts in excess of euro1 billion were also raised in Italy and the Netherlands, with Italy showing an 88% increase over 1998 at euro1.8 billion. Fundraising also grew in other countries: Denmark raised euro169 million (up 267%); Switzerland raised euro600 million (up 170%); and Ireland raised euro316 million (up 93%).

In addition, a pilot survey was conducted this year on US-based funds raised for investment in Europe. The total raised was estimated at euro6.2 billion.

Sources of funds

Banks were again the largest single source of capital, contributing euro7.4 billion (29% of the total). This represents a 31% increase from 1998. Contributions from pension funds fell from just under euro4.9 billion in 1998 to just over euro4.7 billion in 1999 (19% of the total). Insurance companies contributed euro3.4 billion, up 86%. Corporate investors were the next largest category at euro2.4 billion, up 21% from 1998 and representing almost 10% of the total. Fund of Funds contributed euro1 billion or 4% of total funds raised.

Over half the funds were raised from domestic sources (i.e., within the fund's country). Funds raised from other European countries rose by 58% to euro5.4 billion, while funds raised from non-European countries (i.e., countries outside Europe) dropped 13% to euro5.5 billion.

Investment up by 74%

European private equity operators invested euro25.1 billion in 1999, up 74% from 1998. The number of investments increased by 47% to 11,253. This correlates with the upward trend in fundraising levels and demonstrates that, in the words of EVCA's latest chairman Emile van der Burg, "European private equity has clearly found its place as a key asset allocation class for institutional investors".

Investment by stage: buyouts lead the way

Over 50% of the total amount invested in 1999 went into buyouts, up 79% from 1998 to euro13.3 billion. This represented only 16% of the number of investments, down from 21% in 1998, in part owing to the fact that the average size of buyout deals went from euro4.7 million in 1998 to euro7.5 million in 1999. As in 1998, the largest category of investment by number was in the expansion stage (at 4,632, 41% of the total), followed by start-ups (at 3,599, 32% of the total).

Expansion investment increased in value by 71% to euro7.4 billion, maintaining a 30% share of the overall total. Seed capital and start-up investment increased their combined share from 11% to 13%, with the amount invested up 97% to euro3.2 billion.

Investment by sector: high-tech attracts largest share

The combined high-tech sectors attracted the largest share of investment in 1999 - some euro6.5 billion or 26% of the overall total. This comprised 4,973 investments in just over 3,700 high-tech companies. The number of investments rose to almost 5,000, representing 44% of total investments by number.

The proportion of high-tech investment varied significantly from country to country. Switzerland led with a 60% high-tech share, followed by Belgium with 59% and Ireland with 50%. Germany, France, Denmark and Finland had shares ranging from close to one third to one half of total investment while the UK, Italy and Spain had shares below 20%.

The consumer-related industry (comprising consumer products and services, leisure and recreational products, and retailing) was the largest individual sector in terms of amount invested, attracting euro4.7 billion (19% of the euro25.1 billion total, a 15% increase on 1998).


Investment by country

The UK accounted for euro11.5 billion (46%) of the total invested in 1999, with Germany investing euro3.2 billion (13%) and France euro2.8 billion (11%). Italy, the Netherlands and Sweden each saw investments of over euro1 billion, which were substantial increases from the previous year.

In the UK, 76% of the total investment amount in 1999 was allocated to buyouts, up from 71% in 1998. Italy and Sweden also had a high proportion of buyouts, both at 65%. In Germany and France, the proportion decreased from 1998, to 15% (down 14%) and 38% (down 8%), respectively.

More than half of Spanish investment was in expansion, with Germany, France, and the Netherlands allocating 50%, 38% and 33% respectively, to this stage. Germany led the way in seed and start-up investment with euro1billion invested in these stages (32% of total German investment), followed by the Netherlands (20%) and France (18.5%).

Average investment size

The average investment size increased across the board, with the exception of replacement capital. The biggest change was in the average size of buyouts, which grew from euro4.7 million to euro7.5 million. The average size of a seed investment went from euro648,000 to euro775,000, while the average size of a start-up investment went from euro709,000 to euro770,000. Mean expansion investment size also increased, from euro1.4 million to euro1.6 million.

Amount Invested (euro million)
 Country  1998  1999  Change (%)
 United Kingdom  7,105  11,501  61.9
 Germany  1,948  3,159  62.2
 France  1,777  2,817  58.5
 Netherlands  1,059  1,710  61.5
 Italy  933  1,779  90.7
 Spain  363  723  99.2
 Belgium  259  673  159.8
 Switzerland  215  440  104.7
 Sweden  203  1,277  529.1
 Finland  189  249  31.7
 Norway  165  265  60.6
 Ireland  64  105  64.1
 Austria  50  89  78
 Portugal  50  119  138
 Denmark  40  116  190
 Iceland  22  24  9.1
 Greece  20  71  255
 Total  14,461  25,116  73.7


Exits: trade sales and public offerings increase, but IPO numbers fall

Divestment at cost of original investment stood at euro8.6 billion, up 24% from last year's euro7 billion total. A total of 5,706 divestments were made in 1999, increasing from the 5,075 made in 1998.

While the overall number of divestments by public offering was 1,020, up from 924 in 1998, the number of IPOs fell from 291 in 1998 to 193 in 1999, despite an increase in total value of euro500 million. The number of divestments made by trade sale rose from 1,090 in 1998 to 1,507 in 1999. However, the overall value of divestment by trade sale fell from euro3.7 billion to euro3.2 billion. Divestment by repayment of preferential shares and principal loans increased from euro300 million to euro1.5 billion. Write-offs as a percentage of the total divestment were at a level similar to 1998, at 6.6% of the total amount.


2000 EVCA Yearbook

The 2000 EVCA Yearbook contains the full results of the annual Survey of Private Equity and Venture Capital in Europe, with analysis and detailed figures on investing and fundraising in 17 European countries, and information and articles on the industry in Europe. A directory section contains comprehensive listings of all EVCA members arranged by country. As well as address and contact names, each listing covers areas of business, types of deals and areas of specialization, portfolio sizes, investments, and a short description written by the respective member. New features this year include: fundraising from funds-of-funds; funds tracked by country of final investor; investments tracked by country of destination; and a pilot estimate of US-based funds raised for investment in Europe.

Copies of the Yearbook are available from the EVCA Secretariat, priced at euro100 for non-members and euro25 for EVCA members. The Directory of EVCA Members, without the survey, is available free of charge. Call EVCA on +32 2 715 0020 for details of this and other EVCA publications on the private equity industry in Europe.

EVCA's website, which can be found at the above address, contains regularly updated information on events and publications, as well as the complete directory of EVCA members. A search engine allows users to search by areas of investment, stage, and geographical preferences, among other criteria.

European Venture Capital Association

Minervastraat 6,
1930 Zaventem

Tel: 32 2 715 00 20
Fax: 32 2 725 0704