The UK private equity industry proved unable to escape the gloom experienced almost universally in 2002, according to the latest figures released by the British Venture Capital Association.
Fundraising conditions in particular have been tough for private equity firms with the annual value raised plummeting to £7.8bn last year, down 43 per cent from an all time high of £13.6bn in 2001.
Worldwide investment by UK private equity firms fell 11 per cent in 2002 to £5.5bn from £6.2bn the previous year. The average financing across all stages fell slightly to £3.7m from £3.9m.
Investment in the UK decreased by just six per cent from £4.8bn in 2001 to £4.5bn last year with the domestic market now representing 82 per cent of the total amount invested, up from 77 per cent in 2001. I
By contrast, investment abroad fell by a substantial 30 per cent to £986m and UK investment in the US fell by a massive 73 per cent to £54m. Investment in continental Europe fell 25 per cent to £899m.
The number of companies financed at the start-up stage dropped 13 per cent to165 from 190 in 2001, and the value of investment in early-stage companies fell 14 per cent to £196m from £227m. Expansion stage investment fell by 17 per cent.
Management buy-outs presented a solitary ray of hope with a six per cent increase in investment, from £2.5bn in 2001 to £27bn last year. This gives an average MBO financing of £17.7m, compared to £12.5m in 2001.
A lack of viable exit opportunities continued to present problems for private equity firms with the number of realisations falling by 24 per cent. Write-offs were the most common form of exit accounting for 28 per cent of divestments, followed by trade sales at 22 per cent.
Tough times continue in 2003 as a number of UK-based mega-funds have been forced to cut fundraising targets. Charterhouse Development Capital, Doughty Hanson and Terra Firma have all scaled back fund targets in the last month. There are fragile but as yet unconfirmed signs that investment activity in some areas is gathering pace. Exit opportunities, however, still look dismally thin.
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