BVCA Private Equity and Venture Capital Report on Investment Activity 2014 Autumn 2015 Percentage of UK Investee Companies by Region East of England 4% East Midlands 3% London 24% North East 4% North West 10% Northern Ireland 2% Scotland 8% South East 16% South West 7% Wales 6% West Midlands 8% Yorkshire & The Humber 7%
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BVCA Private Equity and Venture Capital Report on Investment Activity 2014Autumn 2015
Percentage of UK Investee Companies by Region
East of England 4%East Midlands 3%London 24%North East 4%North West 10%Northern Ireland 2%Scotland 8%South East 16%South West 7%Wales 6%West Midlands 8%Yorkshire & The Humber 7%
Contents
Summary 3
Data Tables 4
Appendix Methodology and Definitions 14
BVCA Private Equity and Venture Capital Report on Investment Activity 2014 3
Summary
2014 was a positive year for the UK’s private equity and venture capital industry, with global investment by our members growing to just under £13.4bn globally in 2014 from £10.1bn the previous year. Moreover, 2014 saw the greatest amount divested in the industry since the BVCA began collecting data, with divestment figures reaching £21.6bn, as firms focused on returning value to their investors.
Domestic investment by BVCA members was solid in 2014, with investments into the UK growing to over £4.7bn this year from £4.1bn in 2013. Global investment also remained strong, with European investment reaching £6.4bn this year from £4.1bn, US investment remaining largely the same at £1.6bn and investment into the rest of the world more than doubling to £606m in 2014.
The most striking trend for 2014 was the unprecedented surge in divestments, nearly doubling last year’s figure of £12.9bn. This record level of divestment suggests increasing strength in the industry, as firms began to achieve liquidity on many of their pre-financial crisis investments.
The most active exit routes this year were trade sales – which more than doubled from £2bn in 2013 to over £4.4bn this year – followed closely by sales of quoted equity post flotation, which grew from just under £800m last year to over £4.2bn in 2014, reflecting the relative buoyancy of the IPO market in recent years. This continued strength in the IPO market was reflected in firms raising a record £2.7bn from flotations this year. This trend of the re-emergence of IPOs as an exit route will only help the industry over coming years.
An equally noteworthy aspect of this year’s report has been the greater regional balance in investment across Northern England and Scotland. While London and the South East continue to lead by amount invested, growing from £2bn in 2013 to £2.7bn this year, other parts of the country have also experienced considerable increases in investment, with the West Midlands more than doubling their 2013 levels to £336m and Scotland almost doubling last year’s figure to £206m. Across England, both the North West and Yorkshire and The Humber saw marginal increases at £448m and £397m, respectively, while Northern Ireland also saw its investments increase from £10m in 2013 to £16m. This continuing trend towards greater investment decentralisation is a positive development for the long-term future of the UK economy, and bodes well for the current political focus on creating a Northern Powerhouse.
With regards to investment by industry sector, 2014 saw an increase in investment in technology, growing from £841m to £1.2bn, and was followed by the financial sector and consumer services at £1.1bn and £906m, respectively. In contrast, investment in healthcare and industrials continued to fall, to £442m and £535m respectively.
Finally, fundraising largely kept pace with the strong showing from last year, with £10.8bn raised in 2014 compared to £11.2bn in 2013. Pension funds once again represented the single most important source of funding, with £2.7bn raised from these investors representing 25% of total fundraising. This year was also important for Small MBOs who saw their fundraising increase from £162m in 2013 to over £1.1bn. VC fundraising grew marginally from £259m last year to £288m this year and Middle MBOs saw an increase from £4.2bn to £5.2bn.
Joe Steer, Director, Research
Summary
Data Tables1
Table 1. Global Investment Activity of BVCA Members
1. The number of companies in some financing stage categories and their subtotals add up to more than the total number of companies invested in. This is due to some companies receiving more than one investment within the year at different financing stages. Please refer to the appendix for further information.
2. – indicates a value greater than 0 but less than 0.53. Some financing stages have been amalgamated where there are instances of single deals, in order to preserve confidentiality
Table 4. UK Investment by Financing Stage
Financing Stage Number of companies % of companies Amount invested (£m) % of amount invested
1. The number of companies in some financing stage categories and their subtotals add up to more than the total number of companies invested in. This is due to some companies receiving more than one investment within the year at different financing stages. Please refer to the appendix for further information.
2. – indicates a value greater than 0 but less than 0.53. Some financing stages have been amalgamated where there are instances of single deals, in order to preserve confidentiality.
BVCA Private Equity and Venture Capital Report on Investment Activity 2014 5
Data tables
Table 5a. MBOs by Investment Size (UK)
Size Number of companies % of companies Amount invested (£m) % of amount invested
1. The number of companies in some financing stage categories and their subtotals add up to more than the total number of companies invested in. This is due to some companies receiving more than one investment within the year at different financing stages. Please refer to the appendix for further information.2. Size bandings are based on amount of equity invested by BVCA private equity members, not the total transaction size.
Table 5b. MBIs by Investment Size (UK)
Size Number of companies % of companies Amount invested (£m) % of amount invested
1. The number of companies in some financing stage categories and their subtotals add up to more than the total number of companies invested in. This is due to some companies receiving more than one investment within the year at different financing stages. Please refer to the appendix for further information.
2. Size bandings are based on amount of equity invested by BVCA private equity members, not the total transaction size.3. Some financing stages have been amalgamated where there are instances of single deals, in order to preserve confidentiality.
Table 6. Average Amount Invested by Stage (UK)
Financing Stage Average Amount Invested, £000s
2014 2013 2012
Seed 260 217 206
Start-up 352 711 744
Early Stage 466 380 686
Later stage VC 2,977 2,601 1,203
Total Early Stage 914 795 796
Expansion/Growth Capital 3,730 3,119 5,194
Bridge financing 2,151 251 422
Total Expansion 3,683 3,030 4,968
Replacement Capital 5,007 4,965 3,059
Secondary Buyout 13,704 44,123 87,131
PIPE 0 0 1,584
Refinancing Bank Debt 1,667 3,555 7,929
Total Replacement Capital 7,633 21,270 25,747
Management buyout(MBO) 29,516 22,383 27,610
Management buy-in(MBI) 13,016 22,973 15,664
Total MBO/MBI 28,115 22,433 26,774
Public to Private11,741
0 0
Rescue/Turnaround 7,313 6,426
Other 2,871 5,125 1,899
Total Other Late Stage 5,214 5,874 5,702
Total 6,260 5,330 6,436
1. Some financing stages have been amalgamated where there are instances of single deals, in order to preserve confidentiality.
6 BVCA Private Equity and Venture Capital Report on Investment Activity 2014
Data tables
Table 7. Investment by Industry Sector (UK)
Industry Sector Number of companies % of companies Amount invested % of amount invested
1. – indicates a value greater than 0 but less than 0.52. The Industry Classification Benchmark (ICB) has been used to classify individual company investments by industry and subsector.3. Some sectors have been amalgamated where there are instances of single deals, in order to preserve confidentiality
BVCA Private Equity and Venture Capital Report on Investment Activity 2014 7
Data tables
Table 8. Technology Investment (UK)
Industry Sector Number of companies % of companies Amount invested (£m) % of amount invested
1. – indicates a value greater than 0 but less than 0.52. Technology classification is included in the appendix (p 14)
Table 9. 2014 Technology Investment by Stage (UK)
Industry sector Number of companies Amount invested (£m)
Early Stage Expansion
Replacement Capital MBO/MBI Other Total
Early Stage Expansion
Replacement Capital MBO/MBI Other Total
Mobile Telecommunications3
3 0 0 06 1
4 0 0 04
Fixed Line Telecommunications 0 0 0 0 0 0 0 0
Computer:
Computer Hardware 2 0 0 0 0 2 1 0 0 0 0 1
Internet 23 6 0
8
0
184
10 11 0
267
0
396
Semiconductors 9 2 0 0 2 1 0 0
Software 61 203
0 30 2914
0
Other Electronics 14 32
3 61
Biotechnology 28 5 0 0 21 2 0 0
Medical:
Medical Equipment 233
0 0 0
184
106
0 0 0
806Pharmaceuticals 15 0
20 9 0
520
Health Care 13 2 011
9 7 017
Other 60 32 3 20 33 70 15 578
Total 251 76 6 30 13 376 129 134 29 897 18 1,207
1. The number of companies in some financing stage categories and their subtotals add up to more than the total number of companies invested in. This is due to some companies receiving more than one investment within the year at different financing stages. Please refer to the appendix for further information.
2. – indicates a value greater than 0 but less than 0.53. Technology classification is included in the appendix (p 14)
8 BVCA Private Equity and Venture Capital Report on Investment Activity 2014
Data tables
Table 10. Investment in ‘Cleantech’ Companies by Stage (UK)
Financing Stage Number of companies % of companies Amount invested (£m) % of amount invested
1. The number of companies in some financing stage categories and their subtotals add up to more than the total number of companies invested in. This is due to some companies receiving more than one investment within the year at different financing stages. Please refer to the appendix for further information.
2. Some financing stages have been amalgamated where there are instances of single deals, in order to preserve confidentiality.3. Cleantech is defined in the appendix (p 14)
Table 11. Investment by Region (UK)
Region Number of companies % of companies Amount invested (£m) % of amount invested
1. The number of companies in some financing stage categories and their subtotals add up to more than the total number of companies invested in. This is due to some companies receiving more than one investment within the year at different financing stages. Please refer to the appendix for further information.
2. – indicates a value greater than 0 but less than 0.53. Some regions have been amalgamated where there are instances of single deals, in order to preserve confidentiality.
Table 14. Investment Stage Analysis by Region – Amount invested (UK)
RegionVenture capital Expansion Replacement capital MBO/MBI Other stage
Organisations which invest own or parent company money (Captives) 506 459 447 11 11 8
Organisations which do both (Semi-captives) 1,484 1,627 2,031 31 40 35
Total 4,720 4,109 5,767 100 100 100
Table 18. Funds Raised by Source
Type of source Amount raised (£m) % of amount raised
2014 2013 2012 2014 2013 2012
Pension Funds UK 305 137 665 3 1 11
Overseas 2,373 2,805 419 22 25 7
Total 2,677 2,943 1,084 25 26 18
Insurance Companies UK 54 56 509 - - 9
Overseas 464 1,092 154 4 10 3
Total 518 1,148 663 5 10 11
Corporate Investors UK 84 252 713 1 2 12
Overseas 69 240 7 1 2 -
Total 154 492 720 1 4 12
Banks UK 0 0 5 0 0 -
Overseas 106 101 32 1 1 1
Total 106 101 37 1 1 1
Family Offices UK 147 94 42 1 1 1
Overseas 739 368 43 7 3 1
Total 886 462 85 8 4 1
Funds of Funds UK 280 300 84 3 3 1
Overseas 1,288 1,157 680 12 10 11
Total 1,568 1,458 764 14 13 13
Government Agencies UK 8 25 424 - - 7
Overseas 143 25 18 1 - -
Total 151 50 441 1 - 7
Academic Institutions UK 77 0 7 1 0 -
Overseas 685 65 70 6 1 1
Total 761 65 77 7 1 1
Private Individuals UK 270 183 326 2 2 5
Overseas 444 309 22 4 3 -
Total 714 492 348 7 4 6
Capital Markets UK 1 123 42 - 1 1
Overseas 0 27 0 0 - 0
Total 1 150 42 - 1 1
Sovereign Wealth Funds UK 0 0 1,138 0 0 19
Overseas 1,000 1,890 170 9 17 3
Total 1,000 1,890 1,308 9 17 22
Others UK 48 1,032 387 - 9 6
Overseas 2,238 917 17 21 8 -
Total 2,286 1,949 404 21 17 7
Total UK 1,273 2,201 4,342 12 20 73
Total Overseas 9,549 8,997 1,631 88 80 27
Grand Total 10,822 11,198 5,973 100 100 100
1. – indicates a value greater than 0 but less than 0.52. UK includes Bermuda, Cayman Islands, Channel Islands and British Virgin Islands
Table 19. Funds Raised by Country
Country Amount raised (£m) % of amount raised
2014 2013 2012 2014 2013 2012
UK 1,273 2,201 4,342 12 20 73
France 116 80 134 1 1 2
Germany 266 522 85 2 5 1
Ireland 0 44 16 0 - -
Netherlands 616 427 50 6 4 1
Sweden 110 171 52 1 2 1
Switzerland 510 445 152 5 4 3
Rest of Europe 510 422 227 5 4 4
United States 5,420 4,314 534 50 38 9
Canada 349 541 192 3 5 3
Australia 97 265 0 1 2 0
China 61 467 1 1 4 -
Japan 125 114 0 1 1 0
Middle East 698 386 184 6 3 3
Africa 59 48 4 1 - -
Other 612 764 0 6 7 0
Total 10,822 11,211 5,973 100 100 100
1. UK includes Bermuda, Cayman Islands, Channel Islands and British Virgin Islands2. – indicates a value greater than 0 but less than 0.5
Table 20. Funds Raised by Investment Focus
Focus Amount raised (£m) % of amount raised
2014 2013 2012 2014 2013 2012
Large MBO 4,181 6,555 3,634 39 58 61
Middle MBO 5,204 4,235 1,170 48 38 20
Small MBO 1,149 162 722 11 1 12
VC 288 259 428 3 2 7
Generalist 0 0 19 0 0 -
Total 10,822 11,211 5,973 100 100 100
1. – indicates a value greater than 0 but less than 0.5
Table 21. 2014 Divestments
Type of divestment Amount divested Number of divestments Number of companies
£m % Number % Number %
Divestment on Flotation (IPO) 2,668 12 36 4 29 5
Repayment of Preference Shares/Loans 3,683 17 334 33 144 24
Sale of quoted equity post flotation 4,203 19 82 8 51 9
Sale to another Private Equity firm 2,702 13 77 8 61 10
Sale to Financial Institution 691 3 67 7 32 5
Sale to Management (Buy-back) 1,420 7 71 7 45 8
Trade Sale 4,415 20 197 20 145 24
Write Offs 732 3 55 6 39 7
Others 1,077 5 80 8 46 8
Total 21,592 100 999 100 592 100
BVCA Private Equity and Venture Capital Report on Investment Activity 2014 13
Data tables
Appendix Methodology and DefinitionsIn early 2015, BVCA’s Benchmark data collection system collected data on investments made by BVCA private equity and venture capital members during the calendar year 2014. A 96% response rate was achieved, which included virtually every major private equity and venture capital firm in the UK. In order to ensure only qualifying investments were included in the analysis certain criteria were applied to the data received and are outlined below:
Overseas InvestmentsThe BVCA survey includes all investments ‘made’ or ‘advised by’ the BVCA full member firm, ‘regardless of whether the investing fund is UK or overseas-based’. This means that the figures relate to investments undertaken by BVCA full member firms based in the UK, and also to those undertaken through an overseas office where the UK office was the lead adviser, regardless of where the investment fund was domiciled. As a result, more cross-border investments have been included in the BVCA data which therefore reflect more accurately the activity of BVCA full members, particularly those that invest through pan-European or global funds.
Industry SectorsThe Industry Classification Benchmark (ICB) is used throughout this report to classify individual company investments by industry and subsector.
Financing StagesThe number of companies in some financing stage categories and their subtotals add up to more than the total number of companies invested in. This is due to some companies receiving more than one investment within the year at different financing stages. For example, if a company receives a round of start-up finance and then further rounds of expansion finance later in the same year, that company will be counted once in each of the start-up and expansion categories (therefore appearing to be counted twice), but only counted as one investment in the overall total. This only affects ‘number of companies’ not ‘amounts invested’.
Technology ClassificationThere is as yet no universally accepted definition of a ‘technology’ company. For the purposes of this report, investments defined by BVCA member firms as ‘high-tech’ are included in tables 8 and 9.
Cleantech ClassificationCleantech represents a diverse range of products, services and processes which are intended to provide superior performance at lower costs, while greatly reducing or eliminating negative ecological impact, at the same time as improving the productive and responsible use of natural resources. For the purposes of this report, investments defined by BVCA member firms as ‘cleantech’ are included in table 10.
Foreign Currency ConversionWhere BVCA collected investment information in foreign currencies, the amounts were converted into Sterling using the annual average exchange rates for 2012, calculated from figures supplied by the Bank of England.
Private Equity DefinitionsThe term private equity is generally used in Europe to cover the industry as a whole, including both buyouts and venture capital. Venture capital is a subcategory covering the start-up to expansion stages of investment.
Private equity describes equity investments in unquoted companies, often accompanied by the provision of loans and other capital bearing an equity-type risk.
14 BVCA Private Equity and Venture Capital Report on Investment Activity 2014
Appendix: Methodology and Definitions
Types of Private Equity Firms
The definitions below need to be interpreted with caution. In recent years, several larger private equity firms that historically invested funds from a single in-house source have begun to raise and manage external sources.
Independents: These can either be firms, funds or investment trusts, either publicly listed or private, which raise their capital from external sources.
Captives: These organisations invest their own money, and/or manage or invest funds on behalf of a parent organisation. In the latter case, the private equity firm would be a wholly owned subsidiary or division of the parent, usually a financial institution.
Semi-captives: These organisations invest funds on behalf of a parent company, or their own funds, in addition to investing funds raised within the last five years from external sources.
Stages of Investment
Seed: Financing that allows a business concept to be developed, perhaps involving the production of a business plan, prototypes and additional research, prior to bringing a product to market and commencing large-scale manufacturing.
Start-up: Financing provided to companies for use in product development and initial marketing. Companies may be in the process of being setup or may have been in business for a short time, but have not yet sold their product commercially.
Other early stage: Financing provided to companies that have completed the product development stage and require further funds to initiate commercial manufacturing and sales. They may not yet be generating profits.
Late stage venture: Financing provided to companies that have reached a fairly stable growth rate; that is, not growing as fast as the rates attained in the early stage. These companies may or may not be profitable, but are more likely to be than in previous stages of development.
Expansion: Sometimes known as ‘development’ or ‘growth’ capital, provided for the growth and expansion of an operating company which is trading profitably. Capital may be used to finance increased production capacity, market or product development, and/or to provide additional working capital.
Bridge financing: Financing made available to a company in the period of transition from being privately owned to being publicly quoted.
Replacement capital: Minority stake purchase from another private equity investment organisation or from another shareholder or shareholders.
Refinancing bank debt: Funds provided to enable a company to repay existing bank debt.
PIPE: Private investment in public companies (minority stake only).
Rescue/Turnaround: Financing made available to existing businesses which have experienced trading difficulties, with a view to re-establishing prosperity.
Management buyout (MBO): Funds provided to enable current operating management and investors to acquire an existing product line or business. Institutional buyouts (IBOs), leveraged buyouts (LBOs) and other types of similar financing are included under MBOs for the purposes of this report.
Management buy-in (MBI): Funds provided to enable an external manager or group of managers to buy into a company.
Public to private: Purchase of quoted shares with the purpose of de-listing the company.
Secondary buyout: Purchase of a company from another private equity investment organisation.
BVCA Private Equity and Venture Capital Report on Investment Activity 2014 15
Appendix: Methodology and Definitions
Fundraising
The following apply to the fundraising section:
1. Funds managed by UK private equity firms for both UK and overseas investment are included.
2. Funds managed by the overseas headquarters of international private equity firms (which have UK-based offices that are BVCA members) are excluded.
UK Regions
The standard Government Office Region (GORs) classification is used throughout this report to classify the location of individual company investments. The composition of GORs is listed below.
North EastClevelandDurhamNorthumberlandTyne and Wear
East MidlandsDerbyshireLeicestershireLincolnshireNorthamptonshireNottinghamshire
South EastBerkshireBuckinghamshireEast SussexHampshireIsle of WightKentOxfordshireSurreyWest Sussex
North WestCumbriaCheshireGreater ManchesterLancashireMerseyside
West MidlandsHereford and WorcesterShropshireStaffordshireWarwickshireWest Midlands
London
Yorkshire and The HumberHumbersideNorth YorkshireSouth YorkshireWest Yorkshire
East of EnglandCambridgeshireNorfolkSuffolkBedfordshireEssexHertfordshire
South WestAvonCornwallDevonDorsetGloucestershireSomersetWiltshire
16 BVCA Private Equity and Venture Capital Report on Investment Activity 2014
Appendix: Methodology and Definitions
Industry classifications
Economic Group Sectors Subsectors
Oil and Gas Oil and gas, Oil and gas producers Oil equipment, services and distribution Alternative energy
Exploration and production, integrated oil and gas. Oil equipment, and services pipelines. Renewable energy equipment, alternative fuels.
Basic Materials Chemicals Forestry and paper Industrial metals and mining Mining Commodity and speciality chemicals. Forestry, paper. Aluminium, non-ferrous metals, iron and steel. Coal, diamonds and gemstones, general mining, gold mining, platinum and precious metals.
Industrials Construction and materials Aerospace and defence General industrials Electronic and electrical equipment Industrial engineering Industrial transportationSupport services
Building materials and fixtures, heavy construction. Aerospace, defence. Containers and packaging, diversified industrials. Electrical components and equipment, electronic equipment. Commercial vehicles and trucks, industrial machinery.Delivery services, marine transportation, railroads, transportation services, trucking.Business support services, business training and employment agencies, financial administration, industrial suppliers, waste and disposal services.
Economic Group Sectors Subsectors
Consumer goods Automobiles and partsBeveragesFood producersHousehold goodsLeisure goodsPersonal goodsTobacco
Automobiles, auto parts, tyres.Brewers, distillers and vintners, soft drinks.Farming and fishing, food products.Durable household products, non-durable household products, furnishings, home construction.Consumer electronics, recreational products, toys.Clothing and accessories, footwear, personal products.Tobacco.
Basic materials ChemicalsForestry and paperIndustrial metalsMining
Commodity and specialty chemicals.Forestry, paper.Aluminium, non-ferrous metals, steel.Coal, diamonds and gemstones, general mining, gold mining, platinum and precious metals.
Healthcare Healthcare equipment and servicesPharmaceuticals and biotechnology
Health care providers, medical equipment, medical supplies.Biotechnology, pharmaceuticals.
Consumer Services Food and drug retailers General retailers Media Travel and leisure
Drug retailers, food retailers and wholesalers.Apparel retailers, broadline retailers, home improvement retailers, specialised consumer services, specialty retailers.Broadcasting and entertainment, media agencies, publishing.Airlines, gambling, hotels, recreational services, restaurants and bars, travel and tourism.
Economic Group Sectors Subsectors
Telecommunications Fixed-line telecommunications Mobile telecommunications
The data provided has been collected from different sources. BVCA has taken steps to ensure the reliability of the information presented. However, BVCA cannot guarantee the ultimate accuracy of the data and therefore BVCA does not accept responsibility for any decision made or action taken based on the information provided.
BVCA Private Equity and Venture Capital Report on Investment Activity 2014 17
Appendix: Methodology and Definitions
For further information contact the BVCA
British Private Equity & Venture Capital Association
5th Floor East, Chancery House, 53-64 Chancery Lane, London WC2A 1QS T +44 (0)20 7492 0400 [email protected] www.bvca.co.uk