Europe: Story of a mature market

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<ul><li> 1. Europe: Story of a mature market Marie-Annick Peninon-Bernard Public Affairs and Strategy director EVCA AVCA, November, 2006</li></ul> <p> 2. Agenda </p> <ul><li>EVCA - The European Private Equity and Venture Capital Association: presentation and history </li></ul> <ul><li>Three decades of Private Equity in Europe </li></ul> <ul><li>Future trends of the EU market </li></ul> <p> 3. </p> <ul><li>I - EVCA - The European Private </li></ul> <ul><li>Equity and Venture Capital</li></ul> <ul><li>Association: </li></ul> <ul><li>Presentation and history </li></ul> <p> 4. Presentation of EVCA </p> <ul><li>Originally founded on the initiative of the European Commission </li></ul> <ul><li>Established in 1983 and based in Brussels </li></ul> <ul><li>Represents the European PE/VC sector and promotes the asset class both within Europe and throughout the world </li></ul> <ul><li>Over 950 members, mainly European </li></ul> <ul><li><ul><li>PE/VC fund management companies </li></ul></li></ul> <ul><li><ul><li>Institutional investors (pension funds, insurance companies, ...) </li></ul></li></ul> <ul><li><ul><li>Professional advisors (lawyers, placement agents, investment bankers, ...) </li></ul></li></ul> <ul><li><ul><li>National Private Equity and Venture Capital associations </li></ul></li></ul> <p> 5. Presentation of EVCA </p> <ul><li>The Associations aim: </li></ul> <ul><li><ul><li>Create a more favourable environment for equity investment and entrepreneurship </li></ul></li></ul> <ul><li>Its strategic priorities: </li></ul> <ul><li><ul><li>Actively raise awareness to improve knowledge and understanding of the European Private Equity/Venture Capital industry </li></ul></li></ul> <ul><li><ul><li>Reinforce and develop professional standards for the industry </li></ul></li></ul> <ul><li><ul><li>Strengthen the industry across Europe by maintaining a strong and relevant community of shared interests for European PE/VC practitioners</li></ul></li></ul> <p> 6. Direct members involvement </p> <ul><li>Via EVCAs seven operating committees, led by industry specialists </li></ul> <ul><li><ul><li>Investor Relations</li></ul></li></ul> <ul><li><ul><li>Professional Standards</li></ul></li></ul> <ul><li><ul><li>Conferences and Member Services</li></ul></li></ul> <ul><li><ul><li>Tax &amp; Legal</li></ul></li></ul> <ul><li><ul><li>Venture Capital </li></ul></li></ul> <ul><li><ul><li>Buyout</li></ul></li></ul> <ul><li><ul><li>National Associations</li></ul></li></ul> <ul><li>In addition, a series of task forces and working groups on specific issues (CEE, Awareness of the industry,) </li></ul> <p> 7. EVCA key services </p> <ul><li><ul><li>Professional standards </li></ul></li></ul> <ul><li><ul><li>Public &amp; Regulatory affairs at EU level </li></ul></li></ul> <ul><li><ul><li>Statistical research: activity and performance </li></ul></li></ul> <ul><li><ul><li>Economic &amp; Industry analysis with academics:Corporate Venture, Fund of Funds surveys, Tax &amp; Legal Benchmark </li></ul></li></ul> <ul><li><ul><li>Conferences &amp; networking events:Investors Forum, Symposium, Venture Capital Conference</li></ul></li></ul> <ul><li><ul><li>Professionaldevelopment andtraining </li></ul></li></ul> <ul><li><ul><li>Publications </li></ul></li></ul> <ul><li><ul><li>Help Desk </li></ul></li></ul> <p> 8. EVCAs messages</p> <ul><li>The virtuous cycle of the PE/VC investment </li></ul> <ul><li>A high level of ethics: the professional standards </li></ul> <p> 9. Private Equity in the global economy Repayments + Capital gains Commitments Divestment Pensions Savings Savings and Pensions Investment Private Equity Funds High-growth companies Institutional investors (Insurance companies, pension funds, banks) Private Equity Funds Institutional investors (Insurance companies, pension funds, banks) Saving accounts, Pension plans, Insurance contracts </p> <ul><li><ul><li>Single fund structure </li></ul></li></ul> <p>Young innovative company High Growth Markets Pension Fund DirectiveSolvency II Entrepreneurship 10. Professional Standards Framework Limited Partner General Partner Portfolio Company Reporting Guidelines Governing Principles Valuation Guidelines IFRS US GAAP consistent Corporate Governance Code of Conduct 11. II - Three decades of Private Equity &amp; Venture Capital in Europe </p> <ul><li>Looking back </li></ul> <ul><li>Today </li></ul> <ul><li>Trends: global expansion </li></ul> <p> 12. Looking back </p> <ul><li>Value creation tools &amp; processes </li></ul> <p>Buyout 80sFinancial engineering Cash flow management 90sBuy &amp; build strategy M&amp;A expertise 00sOperational improvements Industrial expertise Venture Expansion financing Financial &amp; strategicexpertise Technology investments Tech-entrepreneurs US - VC model adopted by the large funds from financiers via strategists to industrialists. 13. Today: Industry structure in Europe </p> <ul><li>1 100 GPs / 2 000 LPs -&gt; $800bn AUM </li></ul> <ul><li>Industry growth over 10 years: CAGR 21% p.a. (AUM) </li></ul> <ul><li>Marketis maturing: 300+ Fund-of-Funds, Secondary, Mezzanine, Turnaround, Quoted, Corporate venture, Secondary buyouts </li></ul> <ul><li>LP preferences: BO in EU and VC in the US </li></ul> <ul><li>Biggest funds: BO 14bn vs. VC 0,5bn </li></ul> <ul><li>BO: more global VC: more local </li></ul> <ul><li>Emergence of brands &amp; PE-institutions </li></ul> <ul><li>Large diversified international teams </li></ul> <ul><li>Club deals &amp; syndication </li></ul> <ul><li>Standardization of Terms and Conditions </li></ul> <ul><li>Few home runs driving returns (BO + VC) </li></ul> <ul><li>Top funds heavily oversubscribed (BO) </li></ul> <p> 14. Trends: global financial investment expansion 2005 (Preliminary) $93.4 Trillion 1969 $2.3 Trillion Source:UBS Global Asset Management / Adams Street Partners NVCA Annual Meeting 2006 15. PE activity levels, confirming a new record in 05 billion Source: EVCA/Thomson Financial/ PricewaterhouseCoopers </p> <ul><li>Not too much capital overhang </li></ul> <ul><li>68% of investments in 2005 related to buyout deals, vs. 70% in 2004 </li></ul> <ul><li>Pension funds taking the lead in fund raising (24,8%), followed by banks (17,6%), funds of funds (13,1%) and insurance companies (11,1%) </li></ul> <p> 16. European Private Equity Funds Formed 1980-2005 Net IRRs to Investors, Investment Horizon Return as of 31-Dec-2005 Source: Thomson Financial/EVCA Short term and long term indicators show an improving performance 10.4 11.4 2.0 6.3 33.8 All Private Equity 8.6 9.6 -4.3 2.2 52.4 Generalist 13.7 14.3 6.1 9.1 31.7 Buyouts 6.4 6.4 -3.0 1.7 36.5 All Venture 20 YR 10 YR 3 YR 1 YR Stage 5 YR 17. Private equity continues to deliver a strong performance Evolution of Private Equity and Public Market comparators 10-year rolling IRR for 2000-2005 Updated Benchmarks 31-December-2005 Source: Thomson Financial / EVCA NB: Comparators are Internal Rates of Return (IRR). IRRs for public market indices are calculated by investing the equivalent cashflows that were invested in private equity into the public market index. Then an equivalent IRR is calculated for each index. 18. III. Future trends of the EU market </p> <ul><li>Market evolution in 2006 </li></ul> <ul><li>Looking forward </li></ul> <ul><li>Some challenges </li></ul> <p> 19. An expanding global investment focus (Respondents by Region/Continent) Comment: Overall, 56% of global respondents will expand their global investment focus.European respondents show the strongest increase at66%.Source: Deloitte/EVCA 20. Primary reasons for investors not to expand their international investment focus in the next 5 years(all respondents) Source: Deloitte/EVCA * predominant reason -the firm was already invested internationallyMissing bars indicate the reason is not applicable for the specific region 0% 10% 20% 30% 40% 50% 60% Adequate deal flow in existing markets Contractual restrictions Lack of partner capacity Legal restrictions Size of fund does not allow for cross border investing Superior returns are available in our local market Other * Europe U.S. APAC Middle East/Africa Americas (excluding U.S.) 21. Looking forward in EU </p> <ul><li>Rising interest from limited partners for PE </li></ul> <ul><li><ul><li>Increase asset allocation (because of, among others, demographic pressure on pension funds) </li></ul></li></ul> <ul><li><ul><li>New limited partners coming to the market </li></ul></li></ul> <ul><li>Rising public awareness </li></ul> <ul><li><ul><li>More scrutiny from press, governments and public at large,not always with a clear understanding of the business model </li></ul></li></ul> <ul><li><ul><li>More communication with the different parties </li></ul></li></ul> <ul><li>Increase professionalism in a more mature industry </li></ul> <ul><li><ul><li>Institutionalization of large players into alternative asset managers </li></ul></li></ul> <ul><li><ul><li>Growing secondary market and market liquidity </li></ul></li></ul> <ul><li><ul><li>Differentiation in market niches </li></ul></li></ul> <p> 22. Thank you </p> <ul><li>Formoreinformation</li></ul> <ul><li> </li></ul> <ul><li>[email_address] </li></ul>