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European private equity to mature by 2005, says report

The European venture capital market will function as a mature industry and will be ‘radically different' within three years, according to a new report by investment bank Brask & Company.

The market will, however, undergo a period of pain, the report says. The technology bubble created the necessary catalyst for the growth of the venture capital industry in Europe. But the characteristics of the bubble - the low perception of risk, the short investment horizons and the exuberant exit markets - created unsustainable conditions in the industry. ‘The immature industry landscape must adapt if it is to thrive,' the report says.

That transformation will come in the form of consolidation among firms to bring increased specialisation to the market. Secondary market activity will also increase to provide pools of liquidity.

The medium-term outlook for the industry is bleak, in terms of exits. The current slump in the IPO market and in M&A activity will last until the end of 2002, the report says. Next year will see an ‘unspectacular recovery' with activity resuming stable long-term growth rates.

‘The bleak medium-term outlook is likely to serve as a restructuring catalyst triggering a process of horizontal integration,' the report says. ‘We view Europe as an immature market poised for substantial growth, fuelled by extensive structural reform.'

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