where is european private equity heading? - 2006 european private equity statistics gemma...
TRANSCRIPT
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
Source: EVCA / Thomson Financial / PricewaterhouseCoopers
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
Source: EVCA / Thomson Financial / PricewaterhouseCoopers
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
Source: Thomson Financial
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
Source: Thomson Financial
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%
Source: Thomson Financial on behalf of EVCA
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%
Source: Thomson Financial on behalf of EVCA
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%
Source: Thomson Financial on behalf of EVCA
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.
Source: Thomson Financial
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
Want to Know More?
Public and private company data Benchmark funds by vintage, location, size, type, etc. Fund raising activity Broker research, deal multiples, rumoured and announced deals, news research And much more!
Thomson ONE