THE DUTCH PRIVATE EQUITY MARKET IN 2009 ENTERPRISING EQUITY APRIL 2010
Enterprising Equity The Dutch private equity market in 2009 April 2010
Private equity in the Netherlands... Dutch private equity firms in 2009 represented 1,300 companies worldwide 1,060 companies in the Netherlands 320,000 employees in the Netherlands 81 billion combined turnover, the equivalent of 14% of GDP 23.3 billion capital under management 776 million investments, with more than 84% of this in the Netherlands 214 million investments in buy-outs 68% of the total number of investments in start-ups 2
In 2009, Dutch companies received 816 million from private equity firms With foreign private equity firms accounted for 163 million investments in Dutch companies 30 companies in the Netherlands in portfolios, with 30,000 employees in the Netherlands 27 billion combined turnover, the equivalent of 4.7% of GDP 3
contents Enterprising equity Contents 6 Notes to the survey 8 Preface 10 Summary and conclusions 10 Considerable investments in own portfolios Support for SMEs 11 Seed and start-up financing stable 11 Relatively large amount of expansion capital 11 By far most investments in innovative sectors 12 Relatively large number of investments below 5 million 13 Divestments limited 14 Funds acquisition down 14 Private equity: factor of major socio-economic importance 14 Outlook 2010 16 1 General developments 16 More smaller investments 18 Slight recovery per quarter 18 Reduced average investment sum 20 Capital under management stabilised 20 Funds raised temporarily reduced 23 2 Developments per financing stage 24 Seed and start-up financing stable 24 Investments in buyouts down 80% 25 Growth investments stable 26 Six new funds set up for seed and start-up capital 27 Investments in Europe down 28 3 Developments per corporate sector 28 Majority of capital for business and industrial products 29 Greatest number of investments in healthcare, biotechnology and ICT companies 30 Private equity firms create growth and employment 4
The Dutch private equity market in 2009 contents 31 4 Developments in divestments 32 More write-downs, fewer strategic sales 34 5 Outlook 34 Buyout funds have sufficient capital available 34 More investments 34 Expansion investments remain stable 35 Cautious increase in exits 35 Fund acquisition diverse 38 annex 1 Set-up of the survey 40 annex 2 Nederlandse Vereniging van Participatiemaatschappijen 41 annex 3 Glossary 5
notes Enterprising equity Notes to the market survey The Dutch Private Equity and Venture Capital Association (De Nederlandse Vereniging van Participatiemaatschappijen - NVP), together with the Corporate Finance team of PricewaterhouseCoopers Advisory N.V., conducts an annual market survey on the key developments in the Dutch private equity market. The figures are based on PEREP_Analytics, a pan-european database supported by the European Private Equity & Venture Capital Association (EVCA), NVP and 17 other European associations. This set-up makes it possible to analyse not only the investments by private equity firms established in the Netherlands (industry-analysis), but also the private equity investments in companies registered in the Netherlands (market-analysis). The Dutch private equity industry comprises all investments by private equity firms with head offices in the Netherlands and by the independently operating offices of foreign private equity firms. Unless otherwise stated, this is based on the industry analysis. The data is gathered by means of a questionnaire and from reliable public sources. This means the 2009 survey covers close to 95% of the investments by Dutch players and also around 95% of the investments in Dutch companies. In recent years, foreign investors have been very active in the Dutch market, but because they are largely involved in one-off, very large transactions, their effect on the total investments in the Netherlands varies. There were none of these type of transactions in 2009. Finally, in interpreting the figures, it is important to note that the investments and divestments reported are only the (dis)investments of private equity firms in private equity, or in other words in share capital. Bank loans used to partly finance the transactions have not been taken into account. 6
The Dutch private equity market in 2009 notes The results of other surveys often represent the total transaction value of participations, which is often higher than the investment in private equity. How the investments and divestments are measured is explained in more detail in Annex 1. Annex 3 contains a list of definitions which explain the most commonly used private equity terms. Private equity and venture capital The phrase private equity is used for investments in non-listed companies. Private equity covers both investments in young, fast-growing (technology) companies also referred to as venture capital and investments in mature companies. Private equity firms are the main providers of private equity funding. 7
preface Enterprising equity Preface The year 2009 can be considered a transitional year. The economic recession forced our members and their portfolio companies to take certain measures, which led to more write-downs and restructuring operations compared to previous years. Private equity firms nonetheless continued to invest in their own portfolios where necessary. This allowed small and medium-sized companies (SMEs) to boost their balance sheets, retain employees and book growth despite the market conditions. Many venture capital funds also invested in new innovative companies. These start-ups were therefore able to acquire the necessary capital to finance product development and research. Private equity plays a crucial role in the development of the Dutch knowledge economy, which is set to make a significant contribution to economic recovery. It is remarkable therefore that there are plans at a European level to restrict the dynamics and added value of private equity and venture capital. Through the Directive on Alternative Investment Fund Managers (AIFM), the European Parliament is seeking to increase financial stability and protect investors interests. In practice, however, it turns out that private equity and venture capital do not constitute a systemic risk and the proposed measures are therefore aimed primarily at risks that do no occur in our sector. Investors in private equity and venture capital are therefore concerned about the costs of the proposed measures. Such a directive could have a detrimental effect on the financing of entrepreneurship and innovation in the Netherlands. The NVP is once again faced with the task of explaining to politicians and the public that the private equity model makes a structural contribution to a healthy and dynamic economy. In the coming year, the NVP will therefore once again focus on improving the investment climate for private equity and venture capital in the Netherlands. André Olijslager Chairman NVP 8
The Dutch private equity market in 2009 preface This is the 12th successive year that the Corporate Finance department of PricewaterhousehouseCoopers Advisory N.V., together with the NVP and its members, has conducted a survey of the private-equity market. We are very pleased to have received such a high level of response once again this year. The year 2009 was a difficult one, with many uncertainties for all the players in the private equity market. The downward economic trend put pressure on the results of many portfolio companies. In addition to reluctance among banks to issue (new) loans, they were confronted with a large group of companies with financing problems. This was a major factor in the drop in total capital invested. One key signal in the survey is the fact that private equity firms have continued to support their portfolio companies, partly to boost balance sheets and partly to finance acquisitions and growth. At the moment, we are seeing the first signs of a fragile recovery. To maintain this recovery the focus among portfolio companies will have to remain on investments in the development of new markets, research & development and further optimisation of their organisations. The year 2010 is expected to be a good investment year with quality companies and management teams available that will be able to continue on their growth path with the help of private equity. Joris van de Kerkhof Partner Corporate Finance at PricewaterhouseCoopers Advisory N.V. 9
summary and Enterprising equity Summary and conclusions Considerable investments in own portfolios support for SMEs The economic recession was felt right across society once again in 2009. This is partly why the private equity sector invested and divested less than in previous years. Total capital under management of Dutch private equity forms stabilised at 23.3 billion. It is notable that the number of companies that attracted private equity capital increased to 308 in 2009, from 284 in 2008. This is largely because private equity firms continued to invest heavily in the companies in their existing portfolios. Because of this they ensured that these companies were able to strengthen their balance sheets in times of economic uncertainty and attract capital for growth and acquisitions. The number of companies that attracted private equity for the first time remained stable, which shows that even in these difficult times private equity firms were also responding to opportunities in the market. The number of seed and start-up investments increased to 117 from 114 in 2008. The number of buy-outs dropped sharply from 67 to only 21. Almost 92% of all investments were less than 5 million, which is more than the historic average of 80%. This reduced the average amount invested per company to 2.5 million in 2009, compared with an average of 6.3 million in 2008. Dutch private equity firms invested a total of 776 million in private equity in 2009. This is a drop of 57% compared with 2008 and 81% compared with the record year 2007. This drop in the overall figure is largely due to the fact that there were virtually no large buy-outs with a private equity investment of more than 25 million in 2009. It is worth noting that investments in the ICT and healthcare sectors remained virtually the same compared with 2008, both in terms of investment volume and number of investments. However, investments in the Consumer Goods sector dropped sharply. 10
The Dutch private equity market in 2009 conclusions Domestic and foreign private equity firms together invested a total of 816 million in Dutch companies, compared with 2.7 billion in 2008. Foreign players made virtually no new investments in the Netherlands, but instead continued to invest in their existing portfolios. Seed and start-up financing stable Activity in start-up financing remained strong, with a total of 141 start-ups receiving funds from a venture capital firm in 2009, from 117 in 2008. The amount invested in this category did fall by 52% to 112 million, from 228 million. This is partly due to the fact that 2008 saw a number of exceptionally large start-up investments in the energy sector (a total of 135 million), which were not seen in 2009. Excluding these large investments, start-up financing therefore remained stable. Since investors judged most start-ups primarily in terms of future potential, the current economic crisis had a limited impact on valuations in this sector. In addition, no bank financing is used for these types of investment. The TechnoPartner Seed Facility resulted in the foundation of 28 new funds by year-end 2009 and these are already bearing fruit, in particular through the availability of small start-up financing facilities. These funds invested in at least 23 companies in the course of 2009. Relatively large amount of expansion capital In absolute terms, the amount of financing with expansion capital remained virtually unchanged ( 231 million in 2009, 233 million in 2008). This shows that private equity players continue to support small and medium-sized companies in times of crisis. Private equity firms have helped small and medium-sized businesses boost their shareholders equity and make further investments. By far most investments in innovative sectors At least 34% of the number of investments was made in the healthcare and biotechnology sectors, with a further 25% in the ICT sector. These innovative sectors therefore accounted for the largest number of investments and around 40% of the overall amount invested. The main reason behind this division is the relatively large number of venture deals in 2009. Venture capital funds invested relatively more than average in the biotechnology and ICT sectors. 11
summary and Enterprising equity All sectors were faced with falling investment volumes, but the consumer goods sector saw a greater than average decline of 84%. Relatively large number of investments below 5 million Dutch private equity firms on average acquired fewer large participations in 2009. No less than 69% of all investments were below 1 million, while this figure was around 50% in 2008. A total of 92% of the total number of investments was below 5 million. Historically, this figure has tended to be around 80%. As in 2008, there were virtually no buyouts with a private equity investment of more than 50 million in 2009. This was primarily due to the fact that the economic recession created considerable uncertainty about the future of companies, which meant few transactions were available in the market. In addition, it was virtually impossible to obtain the bank financing linked to such major private equity investments. Buyers and sellers also had difficulty reaching agreement on the acquisition price in the transaction opportunities that were available. The average investment amount per company fell to 2.5 million in 2009, from 6.3 million a year earlier. This drop is the result of the lower amounts invested in new participations and the relatively large number of follow-up investments. Divestments limited Divestments by Dutch players amounted to 502 million in 2009, half of the total seen in 2008. The lower divestments were due to the uncertainty in the market, with players waiting for the economic conditions to improve for better exits. In addition, many private equity firms restructured their portfolios in 2009 and supported healthy companies with fresh capital to help them through the crisis. Last year saw a relatively large proportion of write-downs. The amount of write-downs increased substantially to 252 million in 2009, which was still below the 2003 total. The number of write-downs in 2009 was 36, or around 2.8% of the total of 1300 companies in portfolios. The majority of the write-downs in private equity were in start-up investments, which by definition carry more risk. The recession makes it clear more quickly which companies are viable in the longer term and which are not. 12
The Dutch private equity market in 2009 conclusions Most divestments however were effected through the sale back of interests to others shareholders, such as the management. This type of exit accounted for around 41% of total divestments. Strategic sales to third parties accounted for 24% of the total. As in 2008, the public capital market played a minor role as an exit channel, although it was slightly more visible in 2009. Fund acquisition down Dutch private equity firms raised 536 million in new capital in 2009. This is a sharp drop compared to the 1.9 billion raised in 2008. This reduction was due to two major factors. First of all, the reduced funds acquisition reflects the reduced investment activity in the market. Buy-out funds have raised sufficient capital in recent years and therefore have no need to attract new capital in the current economic climate. They are waiting to gain a clear view of market developments before attracting fresh capital. On the other hand, insurance firms and pension funds in particular invested less in private equity. Although private equity is a fixed part of the portfolio for many insurers and pension funds, they were less able to participate in alternative forms of investment due to the economic crisis. While most buy-out funds have sufficient capital available for now, there is a threat of a shortage among the larger venture capital funds. These funds focus on later stage venture capital investments and currently have relatively little capital available to make new investments of that type. This may have a negative impact on the development of innovative companies in the Netherlands. The total capital under management of Dutch private equity firms stabilised at 23.2 billion in 2009, partly due to the reduced funds acquisition. 13
summary and Enterprising equity Private equity: factor of major socio-economic importance The capital private equity firms invest in Dutch companies is a major economic factor. At the end of 2009, Dutch private equity firms had a total of 23.3 billion under management. This capital was invested in more than 1300 companies and the majority of these (around 80%) have their head offices in the Netherlands. Foreign private equity companies, which were very active in the Netherlands in the past, have around 30 companies in their portfolios. The Dutch companies that are (partly) supported by Dutch private equity firms have a combined turnover of 81 billion and a total staff of 320,000 in the Netherlands. The Dutch companies that are financed solely by foreign private equity firms have a combined turnover of 27 billion and more than 30,000 employees in the Netherlands. In total, companies financed by private equity provide around 6% of the total employment in the Dutch private sector and around 19% of gross domestic product. 1 Outlook 2010 A gradual improvement in the climate for private equity Sufficient capital available for new investments Private equity firms to focus on both the management of existing portfolio and on new investments Number of transactions in the Dutch buy-out market appears to be on the rise in the first quarter of 2010, but so far it is unclear whether this trend will continue in the remainder of the coming year. Start-up financing to remain stable or increase slightly, as the long-term outlook for start-ups is reasonably positive. Recovery in divestments of participations. New funds acquisition for later stage venture capital remains difficult in 2010, partly because institutional investors are reluctant to make investments in higher risk categories. 1 Source: PricewaterhouseCoopers Tax & Human Resource Services, 2010. 14
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chapter 1 Enterprising equity general developments 1 more Smaller investments The year 2009 was a mixed year. One notable development was the increase in the number of companies that received private equity funding, which rose to 308 in 2009, from 284 in 2008. This increase was largely the result of follow-up investments. Private equity companies continued to invest in companies in their own portfolios and thus ensured that despite the economic crisis these companies had capital at their disposal to fi nance growth and acquisitions. The number of companies that received private equity funding for the fi rst time remained stable, which is also a sign that private equity companies took advantage of opportunities in the market. Number of investments increased from 284 to 308 1.1a investments - divestments by Dutch private equity firms 1997-2009 (industry-analysis) 5 4 Investments Divestments bn 3 2 1 0 1997 1998 1999 2000 2001 2002' 2003 2004 2005 2006 2007 2008 2009 16
the dutch private equity market in 2009 chapter 1 Dutch private equity fi rms invested 776 mln in total The total amount in private equity investments by Dutch private equity fi rms dropped to 0.78 billion, down 57% from 1.79 billion in 2008 (see fi gure 1.1a). Compared with 2007, the reduction was 81%. A total of 653 million, or 84% of the total, was invested in Dutch companies. The remaining 123 million was invested primarily in neighbouring countries. In 2009, the effects of the credit crisis were still being felt in all sectors of society. This explains in part why the total amount of private equity invested was down compared with previous years. Private equity fi rms focused on their existing portfolios. Uncertain economic conditions made it diffi cult to determine the value of companies, which made it more diffi cult for buyers and sellers to reach agreement. Banks also assessed credit applications more stringently and demanded higher interest rates. Investments with external capital dropped as a result and there were also virtually no large buy-outs in 2009. Foreign private equity fi rms invested 163 million in Dutch companies in 2009, compared with around 1.1 billion in 2008. A total of 816 million in private equity was invested in Dutch companies in 2009, compared with 2.2 billion in 2008 (see fi gure 1.1 b). The total amount of 1.1b investments - divestments in Dutch companies 2005-2009 (market-analysis) 10 8 Investments Divestments bn 6 4 2 0 2005 2006 2007 2008 2009 17
chapter 1 Enterprising equity investments in Dutch companies often fl uctuates strongly, due to the fact that it is dependent on a limited number of often very large transactions per year. Foreign activity in the Netherlands was therefore very limited, with private equity investments focused primarily on existing portfolio companies. SliGhT recovery per quarter The distribution of investments per quarter (fi gure 1.2) shows a slight increase in the number of investments per quarter. This increase was largely due to reduced uncertainty about the economic outlook. Expansion fi nancing and venture capital investments in particular continued unchanged because the long term perspective of the companies in question is the deciding factor. The same pattern can be seen in divestments. reduced average investment Sum The total number of companies that received private equity funding was 308 (see fi gure 1.4). As in 2008, the number of investments above 50 million remained low, as shown in table 1.5. However, the total number of companies that received more than 10 million in private equity was down substantially at 15, compared with 41 in 2008, while 271 companies received less than 5 million. This is around 90% of the total number of companies, which is more than the historic 92% of investments lower than 5 mln 1.2 number of investments per quarter 2008-2009 100 80 60 40 20 0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 18
the dutch private equity market in 2009 chapter 1 average of 75%. This reveals that there was a strong focus on small investments in 2009. There are three main factors behind these trends at the lower end of the market. First of all, the focus was on existing portfolios, with players making considerable small follow-up investments to cover possible temporary cash fl ow shortages. Secondly, there were fewer large transactions available in the takeover market. And thirdly, a shortage in external capital in the market reduced the amounts invested. It could be said that there is currently a greater focus on operational improvements and less emphasis on the fi nancing structure. The average investment per company dropped to 2.5 million, from 6.3 million. This is a sharp decrease compared with 2008. However, this primarily underlines once more that there were no large buy-out investments, while the number of seed and start-up investments actually increased. Average investment per company decreased from 6,3 mln tot 2,5 mln The average sum in new investments was 3.4 million. The main reason that this fi gure is higher than the general average is that new investments often involve greater sums than follow-up investments. The transaction costs for new investments are relatively high, which means new investments only become interesting at a higher average sum 1.3 number of divestments per quarter 2008-2009 60 50 40 30 20 10 0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 19
chapter 1 Enterprising equity than follow-up investments with relatively low transaction costs. Follow-up investments are also largely made in start-ups and ventures. The average follow-up investment was therefore only 2.0 million in 2009. The total number of new investments remained virtually unchanged from 2008, while the total number of follow-up investments increased to 207, from 186 (see table 1.4). Capital under management stabilised At year-end 2009, the total capital under management of Dutch private equity firms was 23.3 billion, as shown in figure 1.6. This is exactly the same as in 2008. This stabilisation is largely due to the low volume in funds acquired by Dutch private equity firms in 2009, which totalled 536 million. The volume of divestments by Dutch companies was virtually the same, at 502 million. The growth in capital under management has not been this low since 2001. Total capital under management stabilised on 23,3 bn The largest 10 funds manage around three quarters of the total capital. However, the largest Dutch companies are only medium-sized in international terms. The total amount under management is invested in around 1300 companies, of which around 1100 are registered in the Netherlands. FUNDS raised temporarily reduced The total amount in newly raised capital was 536 million in 2009, as shown in table 1.7. This is a reduction of 3 billion compared with 2008. Pension funds and insurers in particular made less capital available to private equity funds than in previous years. This means that, in times of economic uncertainty, there is less room for longer-term financial investments. Banks accounted for some 37% of the total newly raised capital in 2009. In general it should be noted that the source of the newly raised capital differs each year, as this 536 mln new funds raised, of which 37% from banks 1.4 invested sum versus number of companies 2006-2009 2009 2008 2007 2006 Amount invested (in bn) 0.78 1.79 4.02 2.35 New investments 101 98 248 125 Expansion investments 207 186 157 215 Number of companies 308 284 405 340 20
the dutch private equity market in 2009 chapter 1 is always extremely dependent on the very limited number of funds that have made acquisitions that year. The activity in capital acquisition in 2009 refl ects the total investment activity that year. Larger funds also required less new capital because they raised suffi cient capital in previous years to be in a position to continue their investments in private equity in the years to come. 1.5 number of investments per company in terms of volume 2006-2009 250 200 2006 2007 2008 2009 150 100 50 0 0 to 1 1 to 5 5 to 10 10 to 25 25 to 50 > 50 21
chapter 1 Enterprising equity 1.6 Total capital under management 1997-2009 25 20 15 bn 10 5 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1.7 Source of capital raised 2007-2009 ( million) 2009 2008 2007 Average 2007-2009 Banks 200 37.2% 239 12.7% 2306 79.4% 686 51.6% Pension funds 43 8.1% 393 20.9% 76 2.6% 128 9.6% Capital market 0 0.0% 0 0.0% 20 0.7% 5 0.4% Insurance companies 22 4.0% 84 4.5% 64 2.2% 43 3.2% Non-fi nancial institutions 40 7.5% 81 4.3% 2 0.1% 31 2.3% Funds in fund 90 16.8% 524 27.9% 44 1.5% 164 12.4% Public sector 10 1.8% 32 1.7% 51 1.8% 23 1.7% Private persons 94 17.4% 388 20.7% 149 5.1% 158 11.9% Academic institutions 0 0.0% 0 0.0% 4 0.1% 1 0.1% Other 38 7.1% 134 7.2% 188 6.5% 90 6.8% Total 536 100.0% 1874 100.0% 2904 100.0% 1328 100.0% 22
The Dutch private equity market in 2009 chapter 2 Developments per financing stage 2 Entrepreneurs can appeal to private equity providers at varying stages in their company s development. Technology-oriented companies, in the biotechnology sector for instance, often need risk-bearing capital in the early financing stages, because they do not generate any turnover (and certainly no profit or a positive cash flow), but will require considerable amounts of capital for research and the development of their products. Seed capital is provided for starting entrepreneurs who conduct research focused on the development of the first product concept. Start-up financing is meant for further product development and initial marketing activities. Companies that have completed these stages successfully often look for additional financing in the form of later-stage venture capital to further commercialise production and sales. Entrepreneurs with mature companies also cooperate with private equity firms. In these cases, this usually means latestage financing: buy-out or expansion financing of mature companies with a proven track record and sufficient growth potential, for instance through the broadening of the product range, organic growth at home or abroad or via takeovers. When a buy-out is accompanied by a reorganisation and extra financing, we call this turn-around financing. Financing stages Early stage financing: Seed financing Start-up financing Later stage venture capital Expansion financing Late-stage financing Buy-out financing - Turn-around financing 23
chapter 2 Enterprising equity Seed and start-up financing stable In 2009, the number of early stage financing investments remained stable. Although these investments accounted for only 14% of the total capital invested, 47% of the total number of investments constituted seed or start-up capital in 2009, compared with 42% in 2008. 47% of the total number of investments in early stage financing The amount invested was 112 million in 2009, down 55% from 228 million in 2008. However, 2008 saw a number of large start-up investments in the energy sector which were absent in 2009. Excluding these large investments, start-up investments remained stable, also compared with the years before the crisis. Since investors judge start-ups mainly on their long-term prospects, the current economic crisis has only limited impact on these investments. In addition, these type of investments are not financed using bank loans. The TechnoPartner Seed facility for technology starters has by now resulted in the foundation of 28 new funds and is bearing fruit, particularly in the field of small start-up investments. For instance, these funds invested in at least 23 companies in the course of 2009. The average early-stage investment per company at 0.8 million was in line with the historic average of 0.7-0.8 million. Investments in buy-outs down 80% In 2009, Dutch private equity firms invested 214 million in buy-outs, which is 80% less than in 2008. Other late stage investments, such as refinancing investments, came in at 164 million and were virtually unchanged from 2008. Here, too, the focus on existing portfolio companies is clearly visible. In recent years, Dutch buy-out funds have effected around 100 buy-outs per year, but this number dropped to 21 in 2009. Buy-out funds have sufficient capital at their disposal, but because of the greater economic uncertainties it has been more difficult for buyers and sellers to reach agreement on the future outlook and therefore the value of companies. In addition, it has been difficult to attract the necessary financing from banks. Total number of buyouts decreased from 67 to 21, almost no large buyouts Medium-sized buy-outs traditionally accounted for the bulk of Dutch private equity investments. Because there were 24
The Dutch private equity market in 2009 chapter 2 no large buy-outs, the average size dropped to 10 million in 2009, from 27 million in 2007. See also table 2.3. Anglo-Saxon players made virtually no large buy-outs and other late-stage investments in the Netherlands in 2009. The total number of Dutch companies that were owned by foreign private equity companies at year-end 2009 remained stable at around 30. In comparison, Dutch private equity firms have around 1050 Dutch companies in their portfolios. Growth investments stable Growth financing remained virtually unchanged in 2009, at 232 million, compared with 233 million in 2008. In absolute terms, expansion investments in 2009 were below the level of activity seen 2.1 Investment per financing stage 2007-2009 in procents investment amount number 2009 2008 2007 2009 2008 2007 Seed 0.2 0.6 0.1 0.8 10.7 3.5 Start/early-stage*** 21.2 18.9 3.3 67.7 48.8 43.0 Expansion / Bridge financing* 29.9 13.0 11.5 15.4 8.1 24.9 Buy-out 27.5 59.3 62.4 5.5 23.6 23.0 Other** 21.2 8.2 22.6 10.7 8.8 5.7 Total 100.0 100.0 100.0 100.0 100.0 100.0 in mln investment amount number 2009 2008 2007 2009 2008 2007 Seed 2 9 5 3 29 14 Start/early-stage*** 164 226 132 208 81 174 Expansion / Bridge financing* 232 356 464 52 66 101 Buy-out 214 805 2.511 21 62 93 Other** 164 161 911 33 26 23 Total 776 1,557 4,023 317 264 405 * Incl. bridging financing: expansion financing prior to a bourse listing ** Turn-around, re-financing, (including secondary financing, rescue / turn-around) in 2007 additional publicto-private, other PIPE *** From 2007, start-up, and other early stage 25
chapter 2 Enterprising equity between 2004 and 2007. Nevertheless, the relative share of expansion investments in total investments was 30%, compared with 13% in 2008. The number of companies receiving expansion fi nancing increased to 59, from 23. The average expansion investment was 4.5 million, compared with 10 million in 2008. Companies that received expansion investments were generally small and medium-sized companies needing funds too boost their capital or make new investments, as well as companies in the ICT and energy sectors which are past the start-up stage. 232 mln in growth capital, increased to 30% of total investments Six new funds SeT up for SeeD and STarT-up capital The TechnoPartner Seed facility (Regeling Seed Capital Technostarters) is aimed at stimulating and mobilising the lower end of the Dutch venture capital market in order to enable more technology start-ups to meet their capital needs. Venture capital funds may qualify for the Seed facility and apply for a subordinated loan from TechnoPartner. The loan has a maximum size which is equal to the private investment of the fund and is at most 4 million. In 2009, six new Seed funds were set up and TechnoPartner contributed 18 million. Right now, 28 funds have received a total of around 180 million. 2.2 Development early stage financing 1999-2009 350 300 250 200 bn 150 100 50 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 26
the dutch private equity market in 2009 chapter 2 Trend in the Netherlands almost the same as in Europe with 60% decrease in investments 2 European Private Equity & Venture Capital Association investments in europe DOWn Provisional fi gures from the EVCA 2 show that private equity investment in Europe fell by almost 60% in 2009 to 21.3 billion, largely due to a drop in the number and size of buy-outs. This is virtually the same as the trends seen in the Netherlands. A total of 52% of the total amount was still invested in buy-outs and other late-stage investments, primarily in the mid-market segment. Follow-up investments accounted for 56% of the total number of investments in Europe, compared with 48% in 2008. The majority of investments were made in the healthcare and biotechnology sectors. The provisional fi gures seem to indicate that divestments in Europe dropped 29% to 9.3 billion, from 13.1 billion a year earlier. Of the total divestments, 33% was made through write-downs and 28% via strategic sales. This indicates that portfolios were restructured elsewhere in Europe as well. The provisional fi gures also show that a total of 11 billion in new capital was raised in Europe, 80% less than in 2008. Half of this new capital is meant for ventures. Across Europe, the amount in capital raised from pension funds was also relatively lower in 2009 compared with the previous year. 2.3 number of buy-outs versus amount per buy-out 1999-2009 120 100 30 25 Number Amount per buyout 80 20 number 60 15 mln 40 10 20 5 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 0 27
chapter 3 Enterprising equity Developments per corporate sector 3 Majority of capital for business and industrial products In 2009, suppliers of business and industrial products and services attracted a total of 228 million in private equity. This is 32% lower than in 2008, but better than the average reduction of 60% in overall investments. Of the total of 776 million invested, this sector accounted for 29% of the total capital invested and 18% of the number of investments. 228 mln of investments in the business and industrial goods and services industry All sectors faced reduced investment amounts compared with 2008, but the consumer goods sector was hardest hit with a drop of 83% (see table 3.1). This sector was the biggest gainer in 2008. The sector nevertheless received around 15% ( 116 million) of the total capital invested and almost 10% of the total number of investments. The total amount invested in ICT was 164 million, with 145 million invested in healthcare and biotechnology. These sectors saw the lowest reductions, with investments down only 14% and 18% respectively. 3.1 Investments per corporate sector 2005-2009 ( million) 2009 2008 2007 2006 2005 Chemicals and agriculture 7 37 793 59 251 Business and industrial products/services 228 337 1,577 758 773 Consumer goods, services and retail 116 694 680 783 1,019 Energy and environment 54 180 87 92 19 Financial services (incl. real estate) 4 34 144 37 46 ICT 164 190 378 295 311 Health care and biotechnology 145 158 365 160 74 Other 58 158 0 239 89 Total 776 1,788 4,023 2,423 2,582 28
The Dutch private equity market in 2009 chapter 3 60% of the number of investments and 40% of the amount of investments in ICT and Life Sciences Greatest number of investments in healthcare, biotechnology and ICT companies Of the total number of private equity investments, 34% was made in the healthcare and biotechnology sectors and 25% in the ICT sector (see table 3.2). This means that these innovative sectors received the greatest number of investments. The combined proportion of total capital invested was 40%. The major reason behind this large contribution is the high number of venture deals in general. Venture capital funds are relatively large investors in biotechnology and ICT. 3.2 Investments per corporate sector 2005-2009 (number of companies) 2009 2008 number procentual number procentual Chemicals and agriculture 10 3.2 6 2.1 Business and industrial products/services 63 20.5 57 20.1 Consumer goods, services and retail 34 11.0 40 14.1 Energy and environment 19 6.2 17 6.0 Financial services (incl. real estate) 4 1.3 3 1.1 ICT 82 26.6 74 26.1 Health care and biotechnology 86 27.9 74 26.1 Other 10 3.2 13 4.6 Total 308 100.0 284 100.0 29
chapter 3 Enterprising equity Private equity firms create growth and employment Private equity firms provide private equity, or risk-bearing capital for non-listed companies. They are committed shareholders that work together with the management of the company on growth and on the creation of shareholder value. Private equity firms generally acquire majority stakes or substantial minority stakes. The majority of investments are made in small and medium-sized companies that do not receive funding via the stock exchange or banks. These include both new companies and mature companies or newly independent parts of companies. Private equity firms remain invested in companies for an average of five years. Research shows that companies often grow more quickly both in terms of turnover and employment - after receiving private equity investments, and that they improve their profitability. At the same time, these companies often invest more in their means of production, marketing, R&D and training courses. 3 Private equity companies generally specialise, focus on different financing stages or corporate sectors, differ in terms of the average sum invested and in terms of the size of the companies they invest in and the demands they make for their involvement in companies. This specialisation plays a role not only in how they select investments, but is also seen in their involvement in and the management assistance they provide their portfolio companies. Portfoliocompanies account for 19% of GDP and 6% of the total employment in the Netherlands 3 Economic and social impact of buy-outs in the Netherlands, NVP, 2008. 30
the dutch private equity market in 2009 chapter 4 developments in divestments 4 Divestments decreased by 50% to 502 mln Dutch parties recorded divestments of 502 million (on a cost-price basis) in 2009, around half of the total of 2008 and a quarter of the amount booked in 2007. As in 2008, many private equity fi rms chose to keep companies in their portfolios in 2009, and to restructure their own portfolios. This is also shown by the fact that largest share (50%) of the divestments made can be attributed to write-downs. 4.1 Development divestments 2001-2009 (industry-analysis) 2000 1500 Other/Non-specified Bankruptcies / provisions Reselling to shareholders (incl. repayment loans) Sales to other investors*** Trade through stock market** Sales to third parties* mln 1000 500 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 * General by sales to strategic players ** Both fl otation (IPO) and sale of quoted equity *** Both sales to another private equity fi rm and to another fi nancial institution 31
chapter 4 Enterprising equity More write-downs, fewer strategic sales A total of 252 million in divestments were made by means of write-downs. This is considerably higher in absolute terms than in 2008. Most other types of exit decreased in 2009 compared to 2008, both in absolute and in relative terms. Divestment through sales to third parties, or strategic parties, dropped sharply to 46 million, from 284 million and thus accounted for only 9% of the total value of exits. Sales of shares back to portfolio companies ( 60 million) and sales to other investors ( 84 million) were also limited in 2009. This was largely due to the poor economic climate and the great uncertainty with respect to valuations. Trade via the securities market showed a modest revival ( 38 million) compared with 2008, when the contribution from this exit method was zero. In 2009, divestments via the stock market accounted for 7.2% of the total divestments. 4.2 Method of divestment 2007-2009 ( million) 2009 2008 2007 Sales to third parties* 46 9.2% 307 29.6% 321 16.8% Trade through stock market** 36 7.2% 7 0.7% 106 5.6% Sales to other investors*** 84 16.8% 314 30.2% 936 49.2% Reselling to shareholders (incl. repayment loans) 60 12.0% 231 22.3% 344 18.1% Bankruptcies / provisions 252 50.1% 78 7.5% 40 2.1% Other/Non-specified 23 4.6% 101 9.7% 156 8.2% Total 502 100.0% 1,038 100.0% 1,903 100.0% * General by sales to strategic players ** Both flotation (IPO) and sale of quoted equity *** Both sales to another private equity firm and to another financial institution 32
the dutch private equity market in 2009 chapter 4 4.3.a method of divestment (industry-analysis) 24.8% 5.1% 21.0% Sales to third parties* Trade through stock market** Sales to other investors*** 7.0% Reselling to shareholders (incl. repayment loans) 6.4% Bankruptcies / provisions 35.7% Other/Non-specified 4.3.b method of divestment (market-analysis) 25.2%. 6.1% 20.4% 3.4% 8.2% Sales to third parties* Trade through stock market** Sales to other investors*** Reselling to shareholders (incl. repayment loans) Bankruptcies / provisions Other/Non-specified 36.7% * General by sales to strategic players ** Both fl otation (IPO) and sale of quoted equity *** Both sales to another private equity fi rm and to another fi nancial institution 33
chapter 5 Enterprising equity Outlook 5 Buy-out funds have sufficient capital available The year 2010 is expected to be a transitional year in the Dutch private equity market. The buy-out funds have sufficient capital available to make investments in 2010. It will be a time of cautious recovery of the investment activity. Slight improvements in the economic conditions and reduced uncertainty will fuel an increase in the number of investments. An increase in the amounts invested is also expected. Activities in divestment and capital acquisition will follow this trend, though perhaps with a slight delay and these may not be visible until after 2010. At the same time, private equity firms will continue to restructure their own portfolios. They will therefore continue to invest in companies with healthy fundamentals, while further reducing debt positions where necessary. We will not see a return to the times of major liquidity in third-party capital in the near future. This focus on shareholders equity means the venture capital market, already more stable in 2009, will once again be more visible in 2010. The economic road forward will have to be built on innovation and entrepreneurship. Venture capital will inevitably play a fundamental role in this. More investments In 2010, investment activity is expected to increase compared with 2009. The slightly improved economic conditions and the increased confidence among entrepreneurs will contribute to this development. In addition, most private equity firms have sufficient capital available to make fresh investments. The deals activity noted in the first quarter of 2010 is a good indication of this development. Expansion investments remain stable The number of expansion investment is likely to remain stable. On the one hand, private equity firms continue to review their portfolios while on the other hand the focus will increasingly return to new investments. Healthy companies with a lot of potential in particular can expect extra growth investments. 34
The Dutch private equity market in 2009 chapter 5 Cautious increase in exits The exit market is expected to follow the rise in the number of investments, albeit with some delay. Private equity firms will not sell their interests immediately, but are likely to wait until restructuring is complete. This type of exit is likely to continue to focus on the secondaries market, which can be a good alternative to the lock on public markets. The public market as an exit channel is likely to show a slight recovery, however. FUND acquisition diverse Relative over-allocation among institutional investors, partly due to its outperformance, will make it difficult for private equity firms to raise capital from that group of investors. Fund raising from family offices and banks is likely to be more positive than in 2009. The slightly more positive economic outlook will be a contributing factor. However, the focus is likely to be primarily on buy-out funds and less so on venture capital funds, which are often subject to slightly greater volatility. Providing capital for later stage venture funds will therefore remain problematic, which will have an impact on the development of innovative products in the Dutch corporate sector. 35
36 Enterprising equity
ANNEX 37
annex 1 Enterprising equity Set-up of the survey Annex 1 Objective The survey was conducted by PricewaterhouseCoopers Advisory N.V. - Corporate Finance, at the request of the NVP. The aim is to gain insight into the funds raised, the investments and divestments by private equity firms with head offices in the Netherlands (analysis of the Dutch private equity industry, or industry analysis in short) and of the investments and divestments in companies with head offices in the Netherlands (analysis of the Dutch private equity market, or market analysis in short). This survey is conducted in the same way in all European countries. Approach Since 2007, the research has been based on PEREP_Analytics, a new pan-european database, supported by the European Private Equity & Venture Capital Association (EVCA), NVP and 17 other European associations. In January 2010, 92 private equity firms with head offices in the Netherlands were invited to participate in an online survey. In addition, we included a number of foreign parties with independently-operating offices in the Netherlands, to complete the picture of the Dutch market. A total of 75 parties completed the survey or validated data collected from public sources (response rate of 82%). The respondents together represented 23.3 billion of capital under management. The survey provides a representative picture of the developments in the Netherlands, since the majority (95%) of the amount invested by private equity firms that are active in the Netherlands is represented, as well as 95% of the private equity invested in Dutch companies. The survey gathered data about: the profile of the private equity firm, the number of investment professionals, the type of private equity firm (independent or captive); 38
The Dutch private equity market in 2009 annex 1 funds raised in 2009 (volume, source and expected spending target); investments in 2009 (total size, number of companies and number of investments, divided into financing stages, country and sector); divestments in 2009 (total size, number of companies and number of divestments, divided according to the method used for the divestment). In addition, we gathered information about individual portfolio companies and the individual investments and divestments. A list of words and phrases was added to the survey to ensure that all respondents replied to the questions in the same way. The data gathered was analysed by PricewaterhouseCoopers Advisory N.V. Corporate Finance and tested for consistency. Where necessary, the respondents were contacted to ensure the correctness and completeness of the data. Measurement method For the industry analysis, we measured all funds raised, investments and divestments of all private equity companies with Dutch head offices. For Dutch offices of foreign private equity firms, only the Dutch activities are taken into account. For the market analysis, we measured the private equity investments and divestments in companies in the Netherlands or with head offices in the Netherlands. For capital raised, we measured how much new capital the private equity firms attracted. For independent private equity firms, all newly raised funds were included. For captives, the survey counted both the investments financed by the parent company in 2009 and any funds raised by the captive externally. The size of the (dis)investments applies only to the investments in private equity. All securitised loans have been excluded from the survey results. Measurements in other surveys often relate to the total transaction value of participations, which may be a multiple of the investment in private equity. The transaction value covers the value of 100% of the shares and the debts of the company. The capital under management is the fund capital for which a private equity firm is responsible, at cost price: it consists largely of the amount invested that has not yet been divested and to a lesser extent capital committed by investors which has not yet been invested. The latter portion is not published by all parties. 39