EVCA launches investment figures for 2003

10 June 2004

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The EVCA has announced the final figures for fundraising and investment in 2003, which confirmed the return of confidence indicated in the preliminary figures announced in March. The figures were commissioned by and compiled for EVCA by Thomson Venture Economics and PricewaterhouseCoopers from questionnaires completed by fund managers in 20 countries.

Investment in 2003 represented a 5.2% increase on 2002 and the second-highest year ever. The UK accounted for the largest share in terms of country of destination of investments with 25.3%, with France second at 16.7%, Germany third at 14.2% and Italy fourth with 14%. Buyouts represented 63.3% of the total amount invested at EUR 18.4bn and 15.1% of the total number of investments. On a country basis, the predominance of buyouts was most marked in Italy, representing 74.4% of the total amount invested, followed by Germany and the UK (71.5% and 69.9% respectively). The average size of buyouts decreased from EUR 14.4m in 2002 to EUR 11.7m in 2003. As in 2002, expansion stage investment represented the largest category by number of investments at 46.2% and 21.4% of the total amount invested. Start-ups represented 31.1% of the number of investments and 6.8% of the total amount invested.

Consumer-related businesses accounted for the highest proportion of investment at EUR 5.6bn or 19.4% of the total amount invested, followed by communications with EUR 4.9bn or 16.9% of the total amount invested. High-tech companies received double the amount of investment they received in 2002 - EUR 7bn - and represented nearly 1/4 of the total amount invested, compared to 1/8 in 2002. On a country basis, Ireland (95.8%), Hungary (77.5%) and Switzerland (50%) invested the highest amounts in this sector in relation to their total investment amount.

The number of investments increased by 1.4% to 10,375. Of these, 75.5% of the amount invested went to first-time investments and 24.5% of the amount to follow-on financings. The number of companies backed was 7,446, a decrease of 10.8% from 2002. The average investment size increased slightly to EUR 2.8m from EUR 2.7m in 2002. Looking at the investment size by stage of financing, the average seed investment amounted to EUR 440,000 and for start-ups, EUR 610,000. For expansion stage and replacement stage deals, the average investments were EUR 1.3m and EUR 5.67m respectively. The average buyout investment amounted to EUR 11.72m in 2003. 64.9% of the total amount invested in 2003 involved no syndication. The majority of investments - 82.2% by number and 71.2% by amount of investment - were made in the private equity fund manager's local country although cross border investments were up on 2002's 16.3% to 17.8%.

2003's figure of EUR 27bn remained virtually unchanged from the 2002 level (a slight decrease of 1.8%). The UK players accounted for over half (55.5%) of funds raised in 2003. This is partly due to the fact that most large pan-European players are based in the UK. Sweden accounted for the next largest percentage (8%) and the Netherlands third with 7.6%. Funds raised for investment in buyouts increased from 66.3% in 2002 to 76.5% of the total. Banks continued to be the largest contributor to funds raised (21.5% compared to 26% in 2002), followed by pension funds (19.4% versus 16% in 2002) and funds-of-funds (16.4% versus 13% in 2002). Independently managed funds accounted for E20.7bn or 76.8% of the total raised, almost the same as in 2002, with captives accounting for 16.9%.

Divestments at cost were EUR 13.6bn, up 27% on 2002. 2003 saw write-offs decline by 50% on 2002 to EUR 1.6bn. 2003 was a difficult year for exits with 4,019 companies divested, compared to 4,911 in 2002. In total, 20.4% of all divestments were trade sales, accounting for EUR 2.8bn. Divestments through secondary sales increased to EUR 2.7bn or 20.2% of the total amount. IPOs represented 11.8% of divestments. The European portfolio at cost is estimated at EUR 139bn, net of divestment, on 31 December 2003, up from EUR 123bn in 2002.

Commenting on the final figures, Jean-Bernard Schmidt, EVCA chairman and chairman and managing director of Sofinnova Partners said: 'These figures reveal what we on the ground have felt: a return of confidence and cautious optimism for 2004 which has already been borne out by a real upturn in investment activity in the first half of 2004 and a number of successful IPOs and trade sales.''The European private equity and venture capital industry is well positioned to take advantage of these opportunities. However, there is still scope for further long-term expansion, in particular through increased commitments from pension funds, especially European-based funds. The adoption of the European Pension Fund Directive underlines the need to strengthen European retirement systems via pension funds by encouraging them to diversify their asset allocation through private equity and venture capital commitments.'

'The figures also confirm that banks continue to play an important role in the development of private equity and venture capital in Europe. There is a need for coherent policies that recognize the specific needs and place of the private equity and venture capital within the European economy.'