24th november 2003 pwc...fund-raising pricewaterhousecoopers western europe 1h 2003 main headlines...

Fund Raising

pwc24th November 2003

24th November 2003 pwc

A World ViewAngela Crawford-Ingle

Fund-raising PricewaterhouseCoopers

Top 20 countries based on investment 2002

2. United Kingdom (2)3. France (5)4. Italy (7)6. Germany (3)8. Netherlands (11)10. Sweden (9)14. Spain (17)17. Finland (-)20. Belgium (19)

Western EuropeNorth America

1. USA (1)9. Canada (4)

Middle East & Africa13. Israel (12)18. South Africa (-)

Central & South America

1%2%

25%

<1%Asia Pacific

5. Japan (6)7. Korea (10)11. Australia (14)12. India (15)15. Hong Kong (8)16. Indonesia (-)19. China (13)

63%9%

Source: PwC/3i GPE Rpt 2003

“Europe has taken 63 per cent of the world's $292bn ( £173bn) worth of private equity mergers and acquisitions over the past four years - nearly twice the size of the share taken by the US, according to an analysis by JP Morgan.” (Financial Times, 17.11.03)


Global investment trends

90

159206

103 102

132 152

250

165

88

5380

5964

370

25

50

75

100

125

150

175

200

225

250

1998 1999 2000 2001 2002

InvestmentsFunds RaisedBuyouts

(US$bn)

Source: The PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree™ Survey / Buyout Newsletter / Private Equity Analyst / CVCA Annual Statistical Review / EVCA Yearbook / AVCJ Guide to Venture Capital in Asia / Latin American Private Equity Analyst / SAVCA Private Equity Survey


The World View 2002

Main Headlines

• At least $102 billion of private equity and venture capital was invested globally in 2002 – a decrease of only 1% on the 2001 level of $103 billion.

• This is equivalent to 0.32%* of the worlds GDP

• At least $88 billion of funds were raised globally in 2002 –down 46% from $164 billion in 2001.

* Based on 2002 GDP, as calculated using The World Bank Development Database - $32,252 billion


World View 1H 2003

Main Headlines

• At least $57 billion of private equity and venture capital was invested globally in the first half of 2003.

• At least $24 billion of funds were raised globally in the same period.


Annual funds raised and investment in Europe

05,00010,00015,00020,00025,00030,00035,00040,00045,00050,000

€m

1990199119921993199419951996199719981999200020012002

Funds RaisedInvestment

Source: EVCA/PwC

Europe


Funds raised by country2000-2002

0

5,000

10,000

15,000

20,000

25,000

€m

UK France Italy Germany Netherlands

2000 2001 2002

Source: EVCA/PwC


Cumulative investments and funds raised (98-02)

US $ Billion

Region Investment Value Funds Raised Overhang

Global 660.10 788.04 127.94

North America 466.19 554.76 88.57

Western Europe 122.53 153.50 30.97

Asia Pacific 46.49 54.83 8.34

Middle East & Africa 10.75* 12.14* 1.39

Central & South America 12.30* 9.68 -2.62

Eastern Europe 1.86* 3.13* 1.27

* Data upweighted to take account of under-reporting in these regions


Western Europe 2002

Main Headlines

• $26 billion of private equity and venture capital was invested in Western Europe in 2002 – a 21% increase on 2001.

• This is equivalent to 0.29%* of Western European GDP.

• $25.8 billion funds were raised in Western Europe in 2002 –down 24% on 2001 levels.

* Based on 2002 GDP for Western Europe


Western Europe 1H 2003

Main Headlines

• Indicative data shows that at least €8.1 billion ($8.9 billion) of private equity and venture capital was invested in Europe in the first half of 2003 – down from €8.8 billion during the same period last year.

• At least $7.1 billion funds were raised in Europe in the first half of 2003 – down from $9.1 billion in the first half of 2002.


Sources of new funds in 2002 & 2003

2002

0

5

10

15

20

25

30

%

Pension Funds Banks InsuranceCompanies

Fund of Funds Corporate PrivateIndividuals

GovernmentAgencies

AcademicInstitutions

Capital Markets Other

Sources of new funds

20022003


Summary: Key points forEurope

• Europe’s significance in the world private equity market continues to increase

• Despite global “wall of money”, European funds available are currently just over one years’ supply

• 2002 was second best year ever for European private equity industry – due to large buyouts

24th November 2003 pwc

Private Equity Fund-raisingPhilip Borel


Limited LP appetite

Investors are struggling with…

• Overallocation problems

• Lack of familiarity with the product

• Recent experience (late entrants are hurting)

• Falling return expectations – is private equity worth it?


LP’s push for greater alignment of interest

Fund terms & conditions:

• Management fees to be offset or cut back

• Transaction fees and abort fees

• Carried interest distributed how

• Key man clauses

• GP clawback provisions

• No fault divorce clauses

• GP capital contribution


Other LP concerns

• General partner turnover

• Succession

• Recent performance and health of existing portfolio

• Too many of GP relationships

• Information management and reporting

• Disclosure: FOIA a problem for both GPs and LPs


What does it take to raisea private equity fund?

Successful fundraisers need many things…especially

momentum fuelled by flight to (perceived) quality:

• Permira

• Graphite

• Altor Equity Partners

“There is nothing wrong with this fund that I’m looking at. I’ve invested with the manager before, and I still like the story. But no one else seems to be going in, so I won’t be going in either.” Limited Partner


Geography matters

In Europe, country and regional fundraising schemes attract demand.

Example: Italy

• Active deal environment: large LBOs (SEAT, Fiat Avio) and mid market transactions

• Strong fundraising activityInvestitori Associati: €600m fundraising launchedBS Private Equity: closed on €550m in AugustClessidra Capital: €560 at first close; E1bn target


Strategic differentiation

• Generalist private equity firms develop/emphasise sectoralexpertise

• New groups emerge with sector focus:

4D Global Energy Advisors (SGAM): $81mRetail Private Equity, Sweden


Aligned interests as a marketing tool

General partners are responding to LP emphasis on improved terms and conditions.

Recent examples:

• Hicks Muse Europe Fund II

• ViaNova Capital

• Partners Group Secondaries Fund

• IndustriKapital


2004 and beyond: a recovering buyout market

• Deal flow picking up

• Improved visibility, realistic pricing

• Leveraged transactions can be funded in the debt markets

• Corporate restructuring still a major theme

• Public to privates

• Midmarket investing remains attractive

• Exit routes are open, exit activity is improving

Key concerns for investors in European buyout funds: Syndication, secondary buyouts .


Fundraising to pick upnext year

• GPs are coming back to the market: 67 per cent of groups in Europe and US to raise fresh capital by mid-2004

• LP appetite recovering:Recovering stock markets reduce pressure on relative allocation levelsHunt for premium over liquid assets: strategic allocations are going upNew investors to enter: exploratory access through funds of funds

Fund-raisingRemy Kawkabani

pwc24 November 2003


Introduction

• Over 60 professionals located in five offices in New York, Chicago, San Francisco, Dallas and London

• The team collectively has raised over $132 billion in commitments for private investment funds since inception in March 1994 and nearly $26 billion of that was for non-U.S. funds

• The PFG’s global market share has increased from 15.4% in 1998 to 25.9% in 2002

• PFG has unsurpassed global investor breadth and reach: 320 commitments by 240 buyers in 2002

Credit Suisse First Boston’s Private Fund Group is dedicated exclusively to raising private investment capital


Investor Fundraising Themes for European General Partners Since 1990

1990 - 95:Regional;

Country specific;Development capital

Undervalued assetsEmerging technologiesPrivate equity as a catalyst for change

1996 - 99:Large;

Pan-European;Financially driven

Emergence of single currencyConvergence in EuropeLarge re-structurings and corporate divestmentsTelecoms & I.T.

1999 - 2002:Specialist funds;

Distressed;Mezzanine;Secondaries

New techniques in the asset classSearch for unique strategies and inefficiencies

2002 - 03:Regional mid-market;

Value added post acquisition;

Operational focus

Assets perceived as expensiveAuctions competitiveEffectiveness of financial engineering questionedDifferentiated deal flow key

2004 - 05:“Best of Breed”

& + ?

Asset prices?Economic cycle?Euro convergence?Geopolitics?New GP Issues• Team stability• Alignment of interest

(terms)

Regardless of changing themes, as the Private Equity industry in Europe has matured, firms perceived as “Best of Breed” are increasingly in demand.


Traditional Best of Breed Firms

Traditional Best of Breed firms will attract the most capital, and share many of the following characteristics:

A long and well documented history• Formed in late ‘70s and ‘80s as country focused funds• E.g. BC Partners (1986); Cinven (1977); CVC Capital Partners

(1981); Permira (1985)Strong and consistent investment performance through numerous cyclesStable senior team with the ability to recruit / nurture talented juniorsInstitutionalised limited partner base with strong consultant supportA well communicated investment strategy that has evolved over timeSeen as a market leader in one or more geographic regions


Evolving Best of Breed Firms

Evolving Best of Breed firms will enjoy strong fundraisings and have some of the following characteristics:

Capitalising on a clearly identified opportunity• E.g. Silverlake (1999); Francisco Partners (2000);

Altor (2002); Clessidra (2003);Dynamic teams with unique skill/experience/talent set


Fundraising ChecklistSample

The Successful Issue Non -Issue

• Depth and stability of team• Succession plan clearly communicated• Track Record

Well executed investment strategyRealisations (recent, solid) Current portfolio is stable

• Prior investors support first close TBD• Terms / conditions support marketing • Investor belief in differentiated “edge”

Deal sourcing and acquisitionAdd value during ownershipProfitability exit

Marketing Issues

• Right cover amount TBD• Pre-launch momentum

Successful realisation TBDStrong pre-marketing effort TBD

The inability to address one of the following points could result in a challenged fundraise.

The Challenged Issue Non -Issue

• Internal issues - perceived or real• Turnover• Track Record

Style drift Young portfolio Lack of investment focus

• Priors non-committal or declining TBD• Terms and conditions distract LP focus • Investor perception as followers

Overpay, e.g. in auction Financial engineers / arbitrageurs Difficulty in exiting TBD

Marketing Issues

• Poor decision on cover amounts TBD• Unsuccessful pre-marketing with key

new investors TBD• Poor pre-launch preparation of due

diligence and marketing materials TBD


Lessons Learnt

When raising a fund, GP’s must:

• Be proactive with priors when pre-marketingnever assume they will re-updo not expect the terms to be the same

• Have a 1st closing in sight at launchbirth of the ‘contingent order’

• Have a clear definition of their position

Build momentum prior to fundraising. Launching should be a precursor to a 1st closing

24th november 2003 pwc...fund-raising pricewaterhousecoopers western europe 1h 2003 main headlines...

Documents