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Institutional Investing in Private Equity
Investor Forum
Overview of the Private Equity Industry
November 6, 2007 Bucharest
November 7, 2007 Prague
Javier EcharriSecretary General, EVCA
The European Private Equity and Venture Capital Association
Introduction to EVCA
Established in 1983 and based in Brussels
Represents the European Private Equity and Venture Capital (PE/VC) industry and promotes the asset class both within Europe and throughout the World
1200 members, mainly European 2/3 Full Members: PE/VC fund management companies
1/3 Associate Members:
Institutional investors (banks, pension funds, insurance companies, family offices)
Professional advisors (lawyers, placement agents, investment banks)
National (European) Trade Associations
Introduction to EVCA
EVCA key focus areas
Professional Standards
Public & Regulatory Affairs
Statistical Research
Economic & Industry Analysis
Conferences & other Networking events
Professional Development and Training
Publications
Help Desk
Team: 33 people
What is Private Equity?
Seed Start-up
ExpansionReplacement Capital Buyout
Venture Capital
Early stage
Private Equity
What is Private Equity?
Early Stage Later Stage
Stages Seed Start-up Expansion/ Development
Buyout Replacement capital/ secondary purchase
Company Age
1 to 2 2 to 3 3 to 5 5+ 5+
Next step of company
Develop and finalize initial business concept
Launch business activity and start selling the product commercially
Expansion and growth of company
Bring company to the next level
Bring company to the next level
Capital is used to
Finalize research and develop business plan
Finalize product and start initial marketing
Finance increased production capacity, new market or product development
Acquisition of business or business unit with new/existing management
Acquisition of a business from a private equity or other financial owner
Investment Methods
1. Through a private equity fund 2. Through a Fund of Fund or Advisor3. Directly in private company
Investors Fund of Funds
PE Fund
Company
Company
Company
Company
PE Fund
PE Fund
2
1
3
Investment Methods
Institutional investors
(bank, insurance, pension funds, …)
Fund of funds
Individuals & Family Offices
Corporates(e.g. Intel, Sony, …)
Fund A
Fund B
PE investment management
company
Portfolio/investee co 1
Portfolio/investee co 2
Portfolio/investee co 3
…
€ € € €
advis
es
€
LP
GP
12 – 20 investments
Private Equity in numbers
Evolution Activity Flows5 consecutive years of investment growth
112.3
20.0
40.0
27.5
71.8
20.3
25.4
48.0
27.027.5
47.0
9.7
25.1
14.5
35.0
35.027.6 29.1
36.9
71.2
19.6
29.8
13.610.7
12.59.1
33.1
8.65.8 7.0
0
10
20
30
40
50
60
70
80
90
100
110
120
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Funds Raised
Investments
Divestments
€ billion
2006 European Private Equity SurveyConducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA
Fundraising Highs also Mirrored in the Americas
5443
139
160
4 38
14 10
28
112
27 28
7269
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
Sources of New Funds Raised
Academic Institutions
3.6%
Capital Markets1.2%
Other4.1%
Corporate Investors3.7%
Private Individuals8.9%
Fund of Funds18.2%
Insurance Companies
10.1%
Pension Funds27.1%
Banks14.4%
Government Agencies
8.7%
2006 2005
Corporate Investors5.1%
Private Individuals6.0%
Government Agencies
9.9%
Other8.7%
Insurance Companies
11.1%
Fund of Funds13.1%
Pension Funds24.8%
Banks17.6%
Academic Institutions
2.5%
Capital Markets1.2%
2006 European Private Equity SurveyConducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA
Fundraising for CEE Private Equity, 2003-2006
312
496
1,293
2,254
0
500
1000
1500
2000
2500
2003 2004 2005 2006
€ m
illi
on
Source: EVCA
€71 Billion InvestedRecord Level
8.514.4 15.3 12.1
17.9 20.726.6
34.4
52.4
4.16.0
10.7
19.7
12.2
9.88.4
10.3
12.7
18.7
5.60
10
20
30
40
50
60
70
80
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
€ billion
Venture CapitalBuyout
2006 European Private Equity SurveyConducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA
8,583 Private Equity Deals in 2006
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Preliminary
Number of Investments*
Venture Capital
Buyouts and Replacement Capital
6,252
2,331
2006 European Private Equity SurveyConducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA
*Each syndication partner is counted once
Annual Investment Value in CEE, 2005-2006 (amounts in €m)
€ 1
09
.0
€ 1
47
.2
€ 1
07
.8
€ 7
0.0
€ 1
9.5
€ 8
.7
€ 1
4.4
€ 1
2.7
€ 0
.0
€ 1
9.1
€ 5
08
.3
€ 3
54
.2
€ 7
34
.4
€ 3
03
.6
€ 1
10
.0
€ 1
9.3
€ 0
.0
€ 1
8.1
€ 4
.0
€ 3
5.8
€ 8
7.6
€ 1
,66
7.0
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
CzechRep.
Hungary Poland Romania SlovakRepublic
Latvia Lithuania Estonia Bulgaria Other* TotalCEE
EU
R m
illio
n
2005 2006
Source: EVCA
*Croatia, Slovenia, Bosnia and Herzegovina, Serbia and Montenegro
Stage Distribution of InvestmentsAmount Invested
Buyout68.2%
Replacement Capital4.8%
Expansion21.8%
Seed0.2%
Start-up5.0%
Buyout68.6%
Replacement Capital5.0%
Expansion16.0%
Start-up8.0%
Seed2.4%
2006 2005
2006 European Private Equity SurveyConducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA
Type of Investment in CEE vs. Europe, 2006 (Amounts in € th)
€ ' 000 Total CEE % of total Total Europe % of total 2006
Seed 1,190 0.1% 236,084 0.3%
Start-up 45,064 2.7% 6,777,776 10.0%
Expansion 95,361 5.7% 10,417,704 15.4%
Replacement Capital 8,220 0.5% 3,478,698 5.1%
Buyout 1,517,177 91.0% 46,897,279 69.2%
Total 2006 1,667,013 100.0% 67,807,541 100.0%
Total 2005 508,320 47,107,024
Source: EVCA
Type of Investment by CEE Country, 2006 (Amounts in € th)
€ ' 000 Bulgaria Czech Republic Hungary Poland Romania Slovakia Baltic States Others*
Seed - - 890 - - - 300 -
Early Stage - 318 2,277 - 31,339 3,999 7,132 -
Expansion 7,000 780 28,673 7,000 38,150 221 2,517 11,020
Replacement Capital - 211 - 5,875 2,134 - -
Buyout 28,812 352,899 702,520 296,621 34,592 12,994 12,185 76,554
Total 2006 35,812 354,208 734,360 303,621 109,956 19,348 22,134 87,574
Total 2005 - 108,953 147,247 107,818 70,000 19,467 35,730 19,105
*Croatia, Slovenia, Bosnia and Herzegovina, Serbia and Montenegro
Source: EVCA
Size of companies financed
Exposure to companies of different sizes and sectors
Company size Amount invested 2005 (in mil €)
In % of total No. of investments
In % of total
0 - 19 2,876 6% 3,551 33%
20 - 99 4,617 10% 3,059 28%
100 - 199 2,245 5% 699 6%
200 - 499 3,568 8% 550 5%
500 - 999 2,961 6% 229 2%
1000 - 4999 14,106 30% 311 3%
5000 + 11,041 23% 96 1%
Subtotal 41,414 88% 8,496 78%
Unknown 5,587 12% 2,419 22%
TOTAL 47,000 100% 10,915 100%
2005 European Private Equity Survey
Conducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA
Buyouts totalled €48.9 billion
Buyout Deal Size (no bank leverage included)
Total Invested
2006
Total Invested
2005
No. of Deals2006
No. of Deals2005
Avr. Deal Size 2006
Avr. Deal Size 2005
Small < 15 4,714 4,081 1,890 2,034 2.5 2.0
Mid-market15<X<150
17,947 13,926 398 281 45.1 49.6
Large150<X<300
7,113 7,929 36 39 197.6 203.3
Mega > 300
19,077 6,161 40 15 476.9 410.7
Total 48,851 32,097 2,364 2,369 20.7 13.6
€ million
2006 European Private Equity SurveyConducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA
Buyouts totalled €48.9 billion in 2006
2006 European Private Equity SurveyConducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA
Please note no bank leverage included. Legend: Small < €15 m
Mid-market €15m<x<€150m
Large €150m<x<€300m
Mega >€300m
0
5,000
10,000
15,000
20,000
25,000
Small Mid- Market Large Mega
Am
ount
invest
ed
in €
mill
ion
0
500
1,000
1,500
2,000
2,500
No o
f D
eals
2006 Total Invested 2005 Total Invested 2006 No.of Deals 2005 No.of Deals
Private equity Investments as a Percentage of GDP for Europe, CEE and Selected European Countries, 2006*
Source: EVCA
1.4
37
%
1.2
58
%
1.0
48
%
0.8
83
%
0.6
07
%
0.5
52
%
0.4
45
%
0.3
94
%
0.3
67
%
0.3
35
%
0.3
33
%
0.3
15
%
0.3
13
%
0.2
82
%
0.2
58
%
0.2
33
%
0.2
18
%
0.1
50
%
0.1
43
%
0.1
30
%
0.1
18
%
0.1
15
%
0.1
15
%
0.1
03
%
0.0
76
%
0.0
55
%
0.0
45
%
0.0
35
%
0.0
33
%
0.0
31
%
0.0
00
%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
Swed
en
Unite
d Kin
gdom
Nethe
rland
s
Hunga
ry
Fran
ce
Tota
l Eur
ope
Belg
ium
Irel
and
Spain
Denm
ark
Italy
Czec
h Re
publ
ic
Germ
any
Switz
erland
Norway
Finl
and
Tota
l CEE
Serb
ia a
nd M
onte
negr
o*
Bulg
aria
Slov
enia
Poland
Rom
ania
Portu
gal
Aust
ria
Lith
uani
a
Bosn
ia a
nd H
erze
govina
Slov
ak R
epub
lic
Croa
tia
Greec
e
Esto
nia
Latv
ia
* based on GDP figure for 2005
€33bn European Divestment at Cost
11.0 14.1 17.5 18.0% 18.2%3.9
6.02.9 4.0% 5.4%
8.4
15.921.3
23.3% 17.1%
3.9
20.213.1
18.4%
16.6%
30.0
11.69.7
4.7%
3.8%5.3
6.27.0
4.5%
7.2%6.6
5.64.8 4.5%
9.0%
30.9%
20.4%23.7% 22.6% 22.7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2002 2003 2004 2005 2006
Trade Sale
IPO
Sale of Quoted Equity
Write- Off
Sale to Another Private EquityHouse
Repayment of Shares/Loans
Sale to Financial Institution
Other
2005 European Private Equity SurveyConducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA
Exits in CEE vs Total Europe, 2006 (Exit Value at Investment Cost in €th)
Exit value at investment cost, € '000 Total CEE % of total 2006 Total Europe % of total 2006
Divestment by trade sale 209,291 47.4% 7,652,225 23.0%
Divestment by public offering 80,028 18.1% 5,348,614 16.0%
Divestment by write-off 930 0.2% 1,255,760 3.8%
Repayment of principal loans 36,040 8.2% 5,664,889 17.0%
Sale to another private equity firm 56,098 12.7% 5,529,199 16.6%
Sale to financial institution 300 0.1% 1,783,683 5.4%
Sale to management (MBO) 36,276 8.2% 2,048,871 6.1%
Divestment by other means 22,679 5.1% 4,044,112 12.1%
Total 2006 441,641 100.0% 33,327,352 100.0%
Total 2005 421,693 19,562,478
Source: EVCA
Divestments at Cost by CEE Country, 2005-2006 (Amounts in €m)
€ 61
€ 37
€ 10
7
€ 88
€ 70
€ 22
€ 16
€ 21
€ 42
2
€ 11
5
€ 32
€ 13
8
€ 63
€ 8
€ 59
€ 20
€ 7
€ 44
2
0
50
100
150
200
250
300
350
400
450
500
CzechRepublic
Hungary Poland Romania SlovakRepublic
Bulgaria BalticStates
Other Total CEE
2005 2006
Source: EVCA
Economic impact of Private Equityand Professional Stnadards
The Virtuous Financing Cycle of Private Equity and Venture Capital Investment
repayments+ capital gains
commitments
divestments
pensions savings
savings and pensions
investments
Private Equity Funds
High-potential companies
Institutional investors(Insurance companies,
pension funds, banks…)
Private Equity Funds
Institutional investors(Insurance companies,
pension funds, banks…)
Saving accounts, Pension plans,
Insurance contracts…
Economic contribution
Over 6 million people employed by PE/VC backed companies in 2005
1+ million new jobs created between 2000 to 2004
420,000 in buyouts 630,000 in venture backed companies
Annual average employment growth in buyout financed companies of 2.4%
Annual average employment growth in venture backed companies of 30.5%
Annual EU25 employment growth 0.7%
Source: CEFS/EVCA
EVCA Professional Standards
EVCA believes that transparency is a key factor in the success and growth of PE/VC and has developed the highest Professional Standards.
• Code of Ethics
• Governing Principles
• Corporate Governance Principles
• International Valuation Guidelines, endorsed by 35 associations worldwide and managed by an independent Board
• Reporting Guidelines
Private Equity has become a mainstream asset class on most investor portfolios
Growth market with further strong potential compared to other markets.
It requires undertanding and a committed team for the investment program
It can be access in different ways: funds, funds of funds, quoted vehicles...
It is an superb and exiting industry
In short
Thank you
For more information
www.evca.com
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