As we will report in our seminar in London next week, the private equity and venture capital market has been recovering steadily since the financial crisis – which hit the industry hard after four years of unprecedented levels of capital raised and invested by fund managers in Europe and globally. This post-crisis recovery continues, as confirmed by recently released data from the European Private Equity and Venture Capital Association (EVCA).
The EVCA report, which provides a view on more than 1,200 private equity firms in Europe, is a comprehensive stock-take of the fund raising, investment and divestment markets. And the picture is an encouraging one: although a first glance shows that the amount of capital raised in 2014 was less than in the previous year, it was still the second highest total since 2009. The small reduction can be attributed in part to fewer "mega" funds, an accident of the cycle, and it is notable that 2014 saw the highest number of funds closing since 2011. The graph below, taken from the EVCA report, contains data looking back to 2000, and shows that – despite being some way off the boom years of 2006 and 2007 – activity levels are matching, and in some cases exceeding, levels seen before the boom.
The source of this capital is also interesting, with sovereign wealth funds (many from the Middle East and Asia) appearing to favour the UK and Nordic based managers over Central, Eastern and Southern Europe, where government agencies and pension funds are providing more of the capital. Over half of the capital for European funds has come from investors within Europe, with 40% being funded by non-European institutional investors.
The value of investments made in 2014 is higher than in the two preceding years, which is perhaps not surprising given the large amount of capital raised by fund managers in 2013. But the fact that 80% of this €41.5bn has been invested in small and medium sized European enterprises (SMEs), demonstrates the positive impact that private equity and venture capital can have in Europe - a point made recently by the European Commission in its consultation on an EU Capital Markets Union. Investment activity is up across venture, buyout and growth strategies, with growth investments increasing by as much as 56%.
The exit market in Europe is also incredibly strong at the moment, which is reflected in the EVCA data. Last year the number of private equity exits in Europe was almost at 2007 levels, and was the highest by value (based on the initial equity investment) since the EVCA began this study in 2000. Approximately half of these exits were either trade sales or sales to another fund, but public markets were also an important route to liquidity: 10% of all exits were achieved through an IPO. Nevertheless, if some of the suggestions made recently by the IPO Task Force are taken on board this could lead to further strengthening of IPOs as an exit route in the coming years, especially for smaller businesses.
So the outlook remains positive for private equity and venture capital in Europe, with many funds in the market with both capital to deploy and assets for sale. While it is a long way from the peak in the middle of the last decade, the steady growth seen over the past few years looks set to continue for some time.