Money for Growth The European Technology Investment Report 2005* Joe Tynan, Leader, Technology Industry Group *connectedthinking PwC
Agenda Introduction Overview of report on Money for Growth The Private Equity Market in Ireland The Irish Market in relation to Europe and the US Key Trends and Issues How PwC can assist VC s and their investee companies Shay Garvey - IVCA Page 2
Some Key Issues Deal size Fundraising Divestments High Tech Sectors: 1 Software 2 Medical devices 3 Communications Funding seed companies Page 3
Methodology 20 Western and Central European countries surveyed included in European tables Additional 7 CE countries included as pilots PwC and TVE collected data directly from 18 countries (plus 7 pilots) Data editing and processing carried out by Thomson Venture Economics (and by PwC for UK, France and Italy) Survey directed and analysed by Global Technology Industry Group in Europe Data collected via survey questionnaires (response rate of 72.5% out of universe of 1,600 private equity firms) Source: EVCA Survey of Pan-European Private Equity and Venture Capital Activity 2004 Conducted by: Thomson Venture Economics and Page 4
Methodology (cont) High response rate achieved via PwC International Survey Unit,country coordinators and NVCAs Fundraising - only formal closings included Investment - cut off = completion date (not announcement date) - only equity value (not enterprise value) - debt included only if provided by the private equity fund Divestment - captured at cost (not proceeds). Source: EVCA Survey of Pan-European Private Equity and Venture Capital Activity 2004 Conducted by: Thomson Venture Economics and Page 5
Irish Overview - 2004 Investment by domestically based VC s and private equity houses down 76% at 61 million (total investment in Ireland fell 69% to 166 million) Partially due to the absence of buyouts (2003:69% - 175 million) Hi-tech investments accounted for 88% of investments made 96% in 2003 Average deal size in 2004 was 0.51 million up 53% - ( 0.33 million 2003 excluding buyout) Funds raised down 22% - at 47 million (2003: 60 million) Seed / start up investment - 28 million in 2004 compared to 33 million in 2003 Total divestments of 190 million in Ireland in 2004 (2003: 58 million) Page 6
European & US Overview - 2004 Europe - 2004 Overall investment up 27% - at 36.9 billion - highest ever Technology investment rose 19% - 6.4 billion in 2004 ( 5.4 billion in 2003) Buyouts represented 70% of total invested in 2004 (2003 : 63%) Funds allocated to technology seed / start up steady at 1.5 billion in 2004 Funds raised in Europe steady - at 27.5 billion Highest level ever of divestments in Europe - 19.6 billion (2003: 13.6 billion) US - 2004 Overall investment up 14% - at US$20.9 billion Overall technology investment up 14% - at US$17.5 billion Average deal size for technology investments down 2% to US$6.1 million in 2004 Page 7
37 Billion Invested in Europe Record Level billion 40 35 30 Venture Capital Buyout 10.3 25 19.6 9.8 8.4 20 10.7 12.2 15 10 5 0 2.6 2.9 3.2 3.6 4.1 5.6 6.0 8.5 14.4 15.3 Source: EVCA Survey of Pan-European Private Equity and Venture Capital Activity 2004 Conducted by: Thomson Venture Economics and 12.1 17.9 20.7 26.6 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Page 8
2004 European Investments Country of Management and Country of Destination billion 25 20 2004 Country of management 2004 Country of destination 15 10 9.7 5 0 United Kingdom 6.4 5.1 3.5 2.3 2.2 1.9 0.2 19.1 5.2 3.8 2.0 1.7 1.6 1.5 0.1 France Germany Spain Netherlands Source: EVCA Survey of Pan-European Private Equity and Venture Capital Activity 2004 Conducted by: Thomson Venture Economics and Sweden Italy Ireland Page 9
European Venture Capital and Buyout Amount Invested as % of GDP 0.30 0.25 0.20 0.22 VC as % of GDP BO as % of GDP 0.18 0.17 0.18 0.21 0.26 % 0.15 0.10 0.13 0.13 0.13 0.10 0.08 0.10 0.11 0.05 0.00 1999 2000 2001 2002 2003 2004 Ireland 2004 0.00 Source: EVCA Survey of Pan-European Private Equity and Venture Capital Activity 2004, CSO National accounts Conducted by: Thomson Venture Economics and Page 10
Private Equity Market in Ireland Page 11
Total Investment by Domestic VCs 300 250 223 255 200 EUR m. 150 100 145 105 61 50 0 2000 2001 2002 2003 2004 Page 12
Total Investment in Ireland 600 535 500 400 Eur m. 300 200 211 153 129 166 100 0 2000 2001 2002 2003 2004 Page 13
Total Funds Raised 350 300 EUR m. 250 200 150 100 50 198 210 201 60 47 0 2000 2001 2002 2003 2004 Page 14
Total Funds Raised and Total Funds Invested by Domestic VCs 350 Funds Raised Funds Invested 300 EUR m. 250 200 150 198 223 210 201 145 255 105 100 50 60 47 61 0 2000 2001 2002 2003 2004 Page 15
Total Investment and Total Hi-tech Investment Total Investment Total Hi-tech Investment 250 223 255 244 200 188 EUR m. 150 100 50 145 116 105 70 61 54 0 2000 2001 2002 2003 2004 Page 16
Total Number of Deals vs. Hi-tech Deals No. of Deals No. of Hi-tech Deals 250 249 200 150 205 166 184 156 203 197 132 121 108 100 50 0 2000 2001 2002 2003 2004 Page 17
Average Total Deal Size (includes buyouts) 1.20 1.00 0.80 1.09 0.79 1.02 EUR m. 0.60 0.40 0.20 0.52 0.51 0.00 2000 2001 2002 2003 2004 Page 18
Average Deal Size (Hi-tech and Non Hi-tech) Average size of non Hi-tech deal Average size of Hi-tech deal 1.24 1.2 1.0 0.89 1.14 1.00 0.8 0.75 EUR m. 0.6 0.50 0.53 0.59 0.50 0.4 0.2 0.2 0.0 2000 2001 2002 2003 2004 Page 19
Initial vs. Follow-on Investment as a % of Amount Invested Initial Investment Follow-on Investment 80 73 70 60 50 52 48 45 55 42 58 45 55 40 30 27 20 10 0 2000 2001 2002 2003 2004 Page 20
Geographical Source of Private Equity Raised 2001 2002 8% 11% 27% 89% 65% 2003 2004 27% 100% 73% Domestic Other European Countries Non European Countries Page 21
Geographical Distribution of Total Amount Invested 2001 2002 9% 24% 91% 76% Domestic Other European Countries 2003 2004 5% 13% 95% 87% Page 22
Analysis of Divestments by Number of Divestments 2001 9% 2002 9% 9% 19% 33% 44% 33% 33% 2003 22% 10% 6% 2004 16% 15% Trade Sale Public Offering Write-Off Repayment of Loans Sale to another VC Other 2% 40% 20% 15% 28% 21% Page 23
Divestment Amount Divested 2001-2004 2001 2002 2003 2004 EUR m. 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 22,827 13,770 11,800 34,543 9,382 8831,435 24,457 16,162 14,701 12,622 9,046 16,728 7,119 8,202 5,786 Trade Sale Public Offering Write-Off Repayment of Principal Loans 76,587 25,783 13,746 132 0 1,142 4,056 1,098 Sale to another VC Other(including MBO) Page 24
The Irish Market in relation to Europe & the US Page 25
Funds Raised vs. Funds Invested Europe & Ireland 2001-2004 Funds Raised vs. Funds Invested Europe 2001-2004 2004 60,000 40,000 EUR m. 20,000 0 Funds Raised Funds Invested 40,012 36,920 29,096 27,533 27,648 24,331 27,020 27,500 2001 2002 2003 2004 Funds Raised vs. Funds Invested Ireland 2001-2004 2004 350 300 250 200 EUR m. 150 100 50 0 Funds Raised Funds Invested 255 210 201 145 105 60 61 47 2001 2002 2003 2004 Page 26
Funds Invested Europe & US 2002-2004 140,000 120,000 EU US 100,000 EUR m. 80,000 60,000 40,000 20,000 27,648 18,165 29,096 36,920 16,268 16,855 0 2002 2003 2004 Source: EVCA Survey; PwC Moneytree Survey (Europe = Private Equity; US = VC companies only) Euro exchange rates used (2004 : $1.24; 2003 : $1.131; 2002: $0.946) are mean annual figures provided by the ECB Page 27
Number of Deals & Average Deal Size 2002 2003 2004 Number of Deals Eur m. 12000 10000 8000 6000 4000 10,229 10,375 10,286 3,030 2,808 2,833 2000 0 203 249 121 Eu ro pe Ire la n d US 2002 2003 2004 8 7.00 6.60 7.40 Average Deal Size Eur m. 6 4 2 2.70 2.8 3.6 0.52 1.02 0.51 0 Europe Ireland US Source: EVCA Survey; PwC Moneytree Survey (Europe = Private Equity; US = VC companies only) Euro exchange rates used (2004 : $1.24; 2003 : $1.131; 2002: $0.946) are mean annual figures provided by the ECB Page 28
Hi-tech Investments as % of Total Investment Europe 17 24 2003 2004 France 26 26 Germany 25 30 Ireland 88 96 Italy 5 7 Sweden 23 43 UK 16 26 US 84 84 0 20 40 60 80 100 120 Source: EVCA Survey and PwC Moneytree Survey EU High-Tech comprises: Comms, Computer Related, Electronics; and Biotech Page 29
Investment in Ireland By Sector 2002 Amount of Investment ( 000) 2003 2004 % Amount of Investment ( 000) % Amount of Investment ( 000) % No. of Investments % No. of Co.'s % Communications 25,009 23.8% 28,238 11.1% 14,710 24.0% 23 19.0% 16 19.8% Computer Related 44,623 42.4% 212,564 83.3% 19,454 31.8% 43 35.5% 33 40.7% Other Electronics Related 9,377 8.9% 2,770 1.1% 2,702 4.4% 10 8.3% 6 7.4% Biotechnology 2,406 2.3% 883 0.3% 1,352 2.2% 8 6.6% 6 7.4% Medical / Health Related 12,097 11.5% 5,650 2.2% 15,337 25.1% 24 19.8% 10 12.3% Energy 1,155 1.1% 0 0.0% 0 0.0% 0 0.0% 0 0.0% Consumer Related 2,705 2.6% 0 0.0% 63 0.1% 1 0.8% 1 1.3% Industrial Products and Services 297 0.3% 0 0.0% 0 0.0% 0 0.0% 0 0.0% Chemicals and Materials 159 0.2% 103 0.0% 3,869 6.3% 2 1.7% 2 2.4% Industrial Automation 0 0.0% 103 0.0% 0 0.0% 0 0.0% 0 0.0% Other Manufacturing 2,747 2.6% 1,321 0.5% 2,140 3.5% 6 5.0% 3 3.7% Transportation 567 0.5% 0 0.0% 0 0.0% 0 0.0% 0 0.0% Financial Services 0 0.0% 1,137 0.4% 0 0.0% 0 0.0% 0 0.0% Other Services 3,995 3.8% 1,717 0.7% 1,252 2.0% 1 0.8% 1 1.3% Agriculture 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% Construction 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% Other 0 0.0% 731 0.3% 314 0.5% 3 2.5% 3 3.7% Total Investment 105,137 100.0% 255,217 100.0% 61,193 100.0% 121 100.0% 81 100% Subtotal High Tech 70,026 66.6% 244,456 95.8% 53,555 87.5% 108 89.2% 87 87.6% Page 30
Sectoral Distribution 2002 2003 2004 Sectoral Distribution of European Technology Investments 100 80 60 40 20 0 83 72 66 17 9 4 6 6 8 2 2 4 2 7 7 1 2 2 Comms Computer Electronics Biotech Medical/Health Other 2002 2003 2004 Sectoral Distribution of Irish Technology Investments 100 80 60 40 20 0 83 42 32 24 24 25 11 9 12 11 13 1 4 2 0 2 2 3 Comms Computer Electronics Biotech Medical/Health Other Page 31
US Hi-tech Sectoral Investments as % of Total US Investment 2002 2003 2004 30 25 20 15 10 5 0 13 1918 4 3 2 1 2 2 5 4 4 9 11 8 9 9 7 8 6 6 25 2120 13 11 9 Biotech Computer Electronics IT Services Medical Devices Networking Semiconductors Software Telecoms Page 32
Key Issues & Opportunities Page 33
Some Key Issues Deal size Fundraising Divestments High Tech Sectors: 1 Software 2 Medical devices 3 Communications Funding seed companies Page 34
Opportunities Retail IT systems Application service provider models (ASP) Software as a service (SAAS) Utility Computing Page 35
How PwC can help investors Pre-investment Financial and business due diligence, including reviewing tax and employee benefits Specialist advice on financial reporting, including IAS and IFRS Access to technical and market analysis provided by Menlo Park Europe Advice on tax efficient ways of structuring the potential deal to enhance stakeholder returns Review and identification of costs savings/process improvement for investee companies Treasury process and systems review Page 36
How PwC can help investors Post-investment Portfolio reviews and valuation advice Ongoing independent review of investees key performance indicators against key milestones Helping to achieve efficiencies from investee companies Proactive advice on tax and corporate finance in connection with your investments Sales side due diligence (to include review of contracts, including employee contracts, and systems) to lessen risks of acquirors reducing an offer during their own due diligence work Page 37
How we help investee companies Tax Strategies Risks and Controls Business Advice Corporate Finance Technical Support Human Resources Page 38
Contact Details Joe Tynan Direct telephone: +353-(0)1-662 6399 Email: joe.tynan@ie.pwc.com 2004. All rights reserved. refers to the network of member firms of International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of. PwC
Money for Growth The European Technology Investment Report 2005* Shay Garvey, IVCA *connectedthinking PwC
The Irish VC industry - Statistics 2000 2001 2002 2003 2004 a) VC funds raised ( m) 195 196 201 60 47 b) Portfolio at cost 1st Jan ( m) 412 609 702 776 973 Total Invested ( m) 223 144 105 255 61 Total Divested -26-52 -31-58 -190 Portfolio at cost 31st Dec 609 702 776 973 844 c) Companies raising VC New 67 52 48 49 20 Follow on 84 65 108 138 61 Total 151 117 156 187 81 No. of VC professionals 40 60 64 98 80 Source EVCA Page 41
The Irish VC industry Behind the Statistics 1995 1998 2000 2003 2005 GLOBAL TECH MARKETS Slow growth Boom Bust Slow growth Supply of deals Low V. High Low Medium Quality of deals Low Mixed Better Better VC investing rate Low High Medium Medium Int l VC investing No Yes Yes Yes VC exits No Yes No Some VC fundraising rate Low High Medium Low VC investors Public Agencies Public Agencies Public Agencies Public Agencies Pension Funds Banks Pension Funds Banks Pension Funds Banks Page 42
Ireland is one of the most Internationalised markets in Europe. This is positive but has associated risks. Investment Flows ( million) 2001 2002 2003 2004 2004 Investment by Irish VCs 144 105 255 61 Foreign investment by Irish VCs (13) (25) (13) (8) Irish investment by Irish VCs 131 80 242 53 32% Irish investment by Foreign VCs 21 49 293 113 68% Total Irish Investment 153 129 535 166 100% GDP ( billion) 115 128 134 146 VC as % of GDP 0.13 0.1 0.4 0.11 Page 43
Four interrelated issues for the Irish VC Can Irish VCs generate exits? Can Irish VCs generate returns? Can Irish VCs raise sufficient funds to continue doing early stage tech investing? (Ireland has the highest proportion of early stage tech investing of any country in Europe) How can Irish VCs ensure that the value in later stage mature investee companies is not completely captured by the later stage larger international investors? Page 44
The Irish VC backed high tech industry could fade away through the lack of institutional support Investment % Investment % 1999 2003 2005 2010 ( million) ( million) Pension Funds 204 21? Fund of Funds 210 22? Banks 216 22? Government Agencies 117 12? Privates 83 9? Insurance 53 5? Corporates 37 4? Other 52 6? Total 972 100%? 100% Page 45
! The IVCA represents the Irish VC Industry! 21 VC members. Over 1 billion at work, mainly in high technology companies. 25 Associate members.! Contact us at www.ivca.ie Page 46