20 May 2016

European private equity holds its own in 2015

Last week, Invest Europe (formerly the European Private Equity and Venture Capital Association) released its annual report on Private Equity Activity for 2015. The data, covering 91% of the market, show that the industry is continuing to raise significant funds, while also seeing a small increase in investments: fundraising matched 2014 levels, although it is still slightly below the post-crisis high set in 2013, while investment levels continued their steady rise, since they faltered during the Euro crisis. It is unlikely that deal activity will be sustained at this rate in 2016 – and European buyouts and realisations have certainly been significantly less numerous in the early part of this year – but the real story of the last two years is the exit market: divestments once again set a record in 2015, exceeding the all-time industry high of the year before.

The Invest Europe graph below summarises the main findings of the report and shows that fundraising by amounts raised in 2015 was roughly the same as 2014. In fact, the number of funds raised fell by 15%, from 324 to 274, implying fewer but larger funds than in 2014, although the actual number of funds raised remains strong by comparison with 2012 and 2013, and aggregate numbers can be skewed by a small number of mega funds. Even more encouragingly, fundraising for the period 2013 to 2015 shows a 70% increase when compared with the total for 2010 to 2012. And the figures bear out the generally accepted wisdom that private equity firms have been making hay while the exit market is (or, perhaps, was) firmly open: the number of divestments all but matched 2007 levels last year, and the amount divested (based on the initial investment amount) was the highest since Invest Europe began to collect data in 2000, exceeding 2007 levels by €14bn.

Looking in more detail at Invest Europe's breakdowns across fund types reveals that, although the number of venture funds raised fell by 24% in 2015 when compared to 2014, amounts raised by venture capital and growth funds has grown year on year since 2012, with fundraising for early stage focussed funds seeing a very impressive 13% increase in amounts raised in 2015. The European Union's Capital Markets Union initiative is looking to promote European venture capital investing, and strong reserves of capital in the hands of venture managers is crucial if those initiatives are to succeed. Buyout funds saw a slight decrease in both the number of funds raised (down 3% on last year) and the amount of capital raised (down 8%), but are still significantly up on the figures for 2010 to 2012.

The diversity in the types of investors committing to European private equity funds is also encouraging, with UK and Nordic funds especially relying on a broad range of investors, and increasingly on sovereign wealth funds. Many of these investors are based in the Middle East or Asia, and they contributed 21% of the sums raised by Nordic funds in 2015, up from 7% in 2014. DACH funds (Germany, Austria and Switzerland) and funds in Central and Eastern Europe continue to rely more heavily on government agencies and family offices/private individuals, rather than the more traditional investor base of pension funds and insurance companies.

Overall the picture is much the same as last year, with a strong fundraising environment and sustained activity in the M&A market during 2015. Given the amount of capital raised, and the (not unrelated) fact that large amounts were returned to investors in 2013 to 2015, the medium term outlook continues to look positive – even if fears over Brexit and other economic worries may be dampening some parts of the deals market until at least the middle of this year, and perhaps beyond.

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