Europe’s private equity managers invested a record ecu 14.5 billion ($16.97 billion) in 1998, nearly 50% more than in the previous year, according to a survey conducted by PricewaterhouseCoopers on behalf of the European Private Equity and Venture Capital Association (EVCA).
Fund raising, by contrast, increased only 1.7% from the previous year, but nevertheless also reached an historic high at ecu 20.3 billion. The stabilization in fund-raising levels, however, should be viewed in the context of the colossal leap in funds raised between 1996 and 1997, when the volume of capital flowing into European funds increased by a multiple of more than 2.5.
Fund-raising levels likely will fall from their current plateau in the short term. Despite the rapidly increasing rate of European disbursements, which more than doubled between 1996 and 1998, Europe currently has a growing backlog of uninvested funds. During the three years prior to 1998, more than ecu 48 billion of new capital was raised for venture and private equity investments in Europe, while investments during the same period totaled only ecu 31 billion.
U.K. Continues to Lead
The U.K. retained its historic position as the largest single market in terms of funds raised, accounting for 44% of the 1998 European total, although the ecu 8.9 billion raised by U.K.-based fund managers was 27% less than the previous year’s total.
German fund raising experienced a similar decline last year, falling to ecu 1.9 billion from the record ecu 2.6 billion inflow seen in 1997. Among Europe’s major private equity markets, France recorded the largest fund-raising increase, reaping ecu 3.8 billion in 1998, 3.5 times more than in the preceding year.
Spain and the Netherlands also enjoyed healthy increases in funds raised and levels in Sweden remained stable, whereas Italy, which boosted fund-raising totals by nearly 50% between 1996 and 1997, last year experienced a decline of some 13%.
Fund-raising levels in Europe’s smaller and less developed private equity markets tend to fluctuate dramatically from year to year in line with fund-raising cycles in each individual market. Last year, however, all the smaller markets raised substantially more than in 1997 with the sole exception of Portugal.
Interestingly-particularly in view of recent U.K. statistics that show an increasing reliance on non-domestic, and more particularly, North American, sources of capital-a slightly lesser percentage of European funds raised (31%) came from outside Europe in 1998 than in the preceding year (33.5%). Overall, slightly more than half of the new capital raised came from domestic European limited partners.
While the ecu 14.5 billion headline number for European investment last year is 49.8% greater than the total recorded in 1997, it should be noted that the two figures are not directly comparable, since unsecured debt was included for the first time in the 1998 investment survey.
For markets where the split of data with and without unsecured debt was available for both years, which excludes Germany and Spain, investment increased by an average of 40% between 1997 and 1998.
As in previous years, the U.K. ranked first by a considerable margin in terms of investment activity in 1998, with ecu 7.1 billion deployed in 1,686 companies, which accounted for half of the European total. Interestingly, according to the EVCA survey, U.K. investment levels increased by more than 60.5% between 1997 and 1998, whereas the British Venture Capital Association’s statistics indicated that U.K. players’ worldwide disbursements increased by just 19% in 1998.
Germany, France, the Netherlands, Italy and Spain also saw substantial increases in investment last year, as did almost all the smaller national markets.
Sweden was alone among the principal European markets in registering a decline in total disbursements, which fell 42% to ecu 203 million last year.
Portugal was the only market to register a statistically significant decrease in both investment activity and fund raising during 1998.
Predictably, buyouts and buy-ins again absorbed the lion’s share of capital invested during 1998, accounting for 51% of total European disbursements. This figure masks considerable variations among the individual national markets; in Germany, for example, investment in buyouts comprised only 29% of deployed capital compared with 71% in the U.K. and 46% in France.
Nearly 60% of European funds raised in 1998 are slated for investment in buyouts, compared with 33% for venture capital.
Even so, seed and start-up investments are the fastest-growing sector of the European market; such investments absorbed ecu 1.6 billion last year, more than twice as much as in 1997. Altogether, ecu 5.9 billion was deployed in venture investments, including growth financings, last year-an increase from ecu 4.1 billion in 1997.
European Fund Raising and Investment in 1998
1998 Growth 1998 Growth
Funds Raised 1997-1998 Investments 1997-1998
Region Ecu Million (%) Ecu Million (%)
United Kingdom 8,959 -26.8% 7,105 60.5%
France 3,811 253.5% 1,777 42.4%
Germany 1,875 -27.1% 1,948 46.9%
Netherlands 1,162 35.3% 1,059 39.3%
Sweden 999 1.6% 203 -42.3%
Italy 936 -12.7% 933 54.7%
Spain 692 69.5% 363 38.7%
Norway 442 474.1% 165 -2.8%
Belgium 415 118.2% 259 44.6%
Finland 365 58.6% 189 67.0%
Switzerland 222 192.2% 215 291.8%
Ireland 164 464.2% 64 77.1%
Austria 123 101.2% 50 164.0%
Greece 70 25.5% 20 22.1%
Portugal 47 -10.1% 50 -21.4%
Denmark 46 2191.3% 40 81.4%
Iceland 16 94.5% 22 332.5%
European Total 20,343 1.7% 14,461 49.8%
Source: PricewaterhouseCoopers, EVCA
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