European PE investment in 2009 down 71 per cent on boom of 2007

Preliminary data compiled by Thomson Reuters in association with EVCA 2009 shows that the €21bn of new equity invested during 2009 represented just 29 per cent of the 2007 figure at the top of the boom. Even so, more than 4,000 companies benefited from private equity investment, just 17 per cent fewer than in 2007. Around half, by both amount and number, were follow-on investments to support existing portfolio companies.

A virtual absence of mega buy-outs accounts for much of the decline in investment since the boom, with just three investments over the €1bn mark during 2009. By contrast, the number of growth capital investments increased by 23 per cent, surpassing the number of buy-outs. Of all companies receiving private equity finance, 44 per cent were early stage companies. Private equity also played an active role in rescuing companies in distress, with an increase of 83 per cent in the number of turnaround investments.

Meanwhile, the cyclicality of the market for new fundraisings reached its lowest ebb, with just 184 funds reaching incremental closings, compared with 316 in 2008 and 338 in 2007. The €13bn  raised last year was less than the largest two funds raised in 2008. However, if the outliers that closed at or above €1bn in 2007 to 2009 are discounted, the average size of buy-out, growth and mezzanine funds that reached final closes in 2009 was in line with the average size of funds closed in the previous two years.

Javier Echarri, EVCA secretary general, said, “Private equity and venture capital firms spent 2009 ensuring their European portfolio companies could weather the economic storm and march out of recession in fighting spirit. However, private equity firms face pressures from both ends of the investment chain as institutional investors struggle to make fresh commitments to new fundraisings.  The industry is, therefore, taking some strain, on the one hand to support Europe’s businesses patiently while, on the other hand, waiting for the exit and fundraising cycle to re-engage.”

The amount divested at cost by private equity firms was 29 per cent lower than in 2008, which itself was half that of the boom year of 2007. Write-offs, which had been running at very low levels through 2008, increased from a total of €870m in 2008 to €3.2bn in 2009.

Echarri believes that “the increase in write-offs, albeit from a low base, shows the seriousness of the wider economic situation.”

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