Europe: Story of a mature market

Europe: Story of a mature market

Marie-Annick Peninon-BernardPublic Affairs and Strategy director

EVCAAVCA, November, 2006

Agenda

1. EVCA - The European Private Equity and Venture Capital Association: presentation and history

2. Three decades of Private Equity in Europe

3. Future trends of the EU market

I - EVCA - The European Private Equity and Venture Capital

Association:

Presentation and history

Presentation of EVCA

Originally founded on the initiative of the European Commission

Established in 1983 and based in Brussels

Represents the European PE/VC sector and promotes the asset class both within Europe and throughout the world

Over 950 members, mainly European PE/VC fund management companies Institutional investors (pension funds, insurance companies, ...) Professional advisors (lawyers, placement agents, investment

bankers, ...) National Private Equity and Venture Capital associations

Presentation of EVCA

The Association’s aim: Create a more favourable environment for equity

investment and entrepreneurship

Its strategic priorities: Actively raise awareness to improve knowledge and

understanding of the European Private Equity/Venture Capital industry

Reinforce and develop professional standards for the industry

Strengthen the industry across Europe by maintaining a strong and relevant community of shared interests for European PE/VC practitioners

Direct members involvement

Via EVCA’s seven operating committees, led by industry specialists

Investor Relations

Professional Standards

Conferences and Member Services

Tax & Legal

Venture Capital

Buyout

National Associations

In addition, a series of task forces and working groups on specific issues (CEE, Awareness of the industry,…)

EVCA key services

Professional standards

Public & Regulatory affairs at EU level

Statistical research: activity and performance

Economic & Industry analysis with academics: Corporate Venture, Fund of Funds surveys, Tax & Legal Benchmark

Conferences & networking events: Investors Forum, Symposium, Venture Capital Conference

Professional development and training

Publications

Help Desk

EVCA’s messages

The “virtuous cycle” of the PE/VC investment A high level of ethics: the professional standards

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…

Single fund structure

Young innovative companyHigh Growth Markets

Pension Fund Directive Solvency II

Entrepreneurship

Professional Standards Framework

LimitedPartner

GeneralPartner

PortfolioCompany

ReportingGuidelines

GoverningPrinciples

ValuationGuidelines

IFRS – US GAAP consistent

CorporateGovernance

Codeof

Conduct

II - Three decades of Private Equity & Venture Capital in Europe

Looking back

Today

Trends: global expansion

Looking back

Value creation tools & processes

Buyout

80’s Financial engineering

Cash flow management

90’s Buy & build strategy

M&A expertise

00’s Operational improvements

Industrial expertise

Venture

Expansion financing

Financial & strategic expertise

Technology investments

Tech-entrepreneurs

US - VC model adopted by the large funds

…from financiers via strategists to industrialists…….

Today: Industry structure in Europe

1 100 GPs / 2 000 LPs -> $800bn AUM Industry growth over 10 years: CAGR 21% p.a. (AUM) Market is maturing: 300+ Fund-of-Funds, Secondary, Mezzanine,

Turnaround, Quoted, Corporate venture, Secondary buyouts LP preferences: BO in EU and VC in the US

Biggest funds: BO €14bn vs. VC €0,5bn BO: more global – VC: more local

Emergence of brands & “PE-institutions” Large diversified international teams Club deals & syndication Standardization of Terms and Conditions

Few home runs driving returns (BO + VC) Top funds heavily oversubscribed (BO)

Trends: global financial investment expansion2005 (Preliminary)

$93.4 Trillion1969

$2.3 Trillion

U.S. Equity30.7%

All Other Bonds15.6%

Private Equity0.1%

All Other Equities12.8%

Dollar Bonds22.3%

U.S. Real Estate11.6%

Cash Equiv.6.9%

U.S. Equity, 16.9%

Private Equity, 0.3%

U.S. Real Estate, 6.2%

Cash Equiv., 4.1%

High Yield Bonds, 1.0%

Dollar Bonds, 24.5%

All Other Bonds, 21.5%

Emerging Mkt Debt, 2.9%

All Other Equities, 18.0% Emerging Mkt

Equities, 1.8%

Source: UBS Global Asset Management / Adams Street Partners NVCA Annual Meeting 2006

PE activity levels, confirming a new record in ‘05

€ billion

Source: EVCA/Thomson Financial/ PricewaterhouseCoopers

8

20 20

25

48

40

28 27 28

72

710

15

25

35

2428 29

37

47

6 79 9

30

20

141113

4

0

10

20

30

40

50

60

70

80

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Funds Raised

Investments

Divestments Not too much capital

overhang

68% of investments in 2005 related to buyout deals, vs. 70% in 2004

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%)

European Private Equity Funds Formed 1980-2005Net IRRs to Investors, Investment Horizon Return as of 31-Dec-2005

Stage 1 YR 3 YR 5 YR 10 YR 20 YR

All Venture 36.5 1.7 -3.0 6.4 6.4

Buyouts 31.7 9.1 6.1 14.3 13.7

Generalist 52.4 2.2 -4.3 9.6 8.6

All Private Equity 33.8 6.3 2.0 11.4 10.4

Source: Thomson Financial/EVCA

Short term and long term indicators show an improving performance

Private equity continues to deliver a strong performance

Evolution of Private Equity and Public Market comparators10-year rolling IRR for 2000-2005

-10

-5

0

5

10

15

20

2000 2001 2002 2003 2004 2005

IRR

%

Morgan Stanley Euro Equity

HSBC Small Company

J P Morgan Euro Bonds

European Private Equity

Updated Benchmarks 31-December-2005Source: 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.

III. Future trends of the EU market

Market evolution in 2006

Looking forward Some challenges

An expanding global investment focus(Respondents by Region/Continent)

Not expand

47% Expand53%

U.S. Respondents

Not expand

48% Expand52%

Americas (non-US)

Not expand

70%

Expand30%

Middle East/ Africa Respondents

Not expand

44%Expand

56%

APAC Respondents

Not expand

34%

Expand66%

European Respondents

Comment: Overall, 56% of global respondents will expand their global investment focus. European respondents show the strongest increase at 66%.

Source: Deloitte/EVCA

* predominant reason - the firm was already invested internationally Missing bars indicate the reason is not applicable for the specific region

0%

10%

20%

30%

40%

50%

60%

Adequate dealflow in

existingmarkets

Contractualrestrictions

Lack ofpartner

capacity

Legalrestrictions

Size of funddoes not allow

for crossborder

investing

Superiorreturns areavailable in

our localmarket

Other *

Europe U.S. APAC Middle East/Africa Americas (excluding U.S.)

Primary reasons for investors not to expand their international investment focus in the next 5 years (all respondents)

Source: Deloitte/EVCA

Looking forward in EU Rising interest from limited partners for PE

- Increase asset allocation (because of, among others, demographic pressure on pension funds)

- New limited partners coming to the market

Rising public awareness- More scrutiny from press, governments and public at large,

not always with a clear understanding of the business model

- More communication with the different parties

Increase professionalism in a more mature industry- Institutionalization of large players into “alternative asset

managers”

- Growing secondary market and market liquidity

- Differentiation in market niches

Thank you

For more information www.evca.com info@evca.com