European Private Equity Research Articles

Prolonged Private Equity Holding Periods: Six Years Is the New Normal

The high internal rates of return sought by private equity funds are highly sensitive to portfolio company holding periods. The authors examine the determinants of holding periods for a sample of European buyouts from 2000 to 2015. Their results establish that the average holding period has lengthened to 5.8 years in the period after the Global Financial Crisis. What explains this fact? The European sample allows the authors to control for both portfolio-company-level and fund-level differences. They first rule out that the increase is fully driven by changes in exit markets. Increased competition in European private equity markets remains a plausible complementary mechanism.

Involvement of venture capital companies in innovative companies

Previous work on venture capital proves an essential role for the investor, which goes beyond that of a simple proxy for funds. To better manage their investments, venture capital firms must specify the level of venture capital activism which fluctuates according to the composition of the completed investments, thus the investor is required to guarantee an appropriate contribution as a specific investor (EVCA, European Private Equity & Venture Capital Association, 2016). Studies on this subject show that the main characteristic of VCCs is their active involvement in the companies they finance. The aim is to target the intention and establish the satisfaction of business leaders with the in-kind contribution provided or imposed by venture capital firms. The organizational and decision-making structure of the company leads us to study the different perceptions taking into account the characteristics of SMEs and their great complexity. To achieve this goal, we conducted a questionnaire that we sent to several Tunisian companies financed by venture capital. This relationship between firms and venture capitalists can be visualized by the hypothesis results of our study. To ensure the reliability and accuracy of our work, we tried to take a sample that was very varied and included a fairly large number of companies. Â

Atlas Copco to acquire Wangen Pumpen

Atlas Copco has agreed to acquire the German industrial pump manufacturer Pumpenfabrik Wangen GmbH from the European private equity firm Silverfleet Capital.

Performance determinants of European private equity real estate funds

PurposeThe paper aims to investigate the performance determinants of European non-listed private equity real estate funds between 2001 and 2014.Design/methodology/approachUsing a sample of 363 funds collected from the Inrev database, the analysis evaluated the impact of fees and other intrinsic characteristics of these funds, such as leverage, size and duration, on the funds’ performance, intending to enhance the understanding underlying their relationship.FindingsThe findings show a negative relationship between the return of the funds and redemption fee, performance fee and management fee. Conversely, marketing fees have a positive effect on performance. When analyzing the investment style, the results reveal inhomogeneous behaviors of leverage on funds’ performance. This variable has a positive impact on the return in core funds, while there is a negative relationship in value-added investments. Finally, the emphasis on the global financial crisis shows that the effects of the independent variables on the performance do not significantly change in different economic cycles.Practical implicationsThe practical implication of the research is to understand whether an investor can direct its resources in a fund, leveraging on certain intrinsic characteristics that can be observed a priori.Originality/valueEven if there is a considerable body of literature on determinants of performance in European non-listed real estate funds, little research has analyzed the role of fees in driving their results. Besides, this paper takes advantage of observations from different investment styles to emphasize the impact of higher or lower risk profiles and from the full economic cycle to understand the effects of the crisis period.

The Economic Growth and the Opportunity for the Private Equity Funds to Divest: An Empirical Analysis for Eastern Europe

Abstract The author studies the private equity divestments in Eastern Europe and tests a long-term relation between these divestments and the real GDP variation. This research paper focuses on a sample covering the period 2000-2013 which considers the dynamics of the private equity divestments during the last financial crisis. The empirical analysis follows the methodology developed by Granger (1969), Toda and Yamamoto (1995), Dufour and Renault (1998), Konya (2004), Foresti (2006) and Onuoha, Okonkwo, Okoro, Kingsley (2018). The analysis shows that Eastern European private equity divestment market is still emerging characterized by high volatilities. The results prove that GDP recession explains in at certain degree the evolution of private equity divestments during the crisis. However, the Granger causality test shows that the information provided by the past variation of the real GDP cannot allow us to predict the short-term movements of private equity divestments in Eastern Europe.

The Exit Behavior of Private Equity Firms in Eastern Europe: An Empirical Analysis of the Main Exit Strategies

The author examines the two main exit routes preferred by private equity funds, initial public offerings (IPOs) and mergers and acquisitions (M&amp;A), using quarterly data for Eastern European countries and covering the period 2000–2014. This article follows the work of Black and Gilson (1998), who confirmed the existence of a positive correlation between the number of IPOs (in year <i>t</i>) and the willingness of institutional investors to allocate funds to private equity firms (in year <i>t</i> + 1). Additionally, this article studies M&amp;A as a second exit strategy for private equity investors by mobilizing the economic techniques that are used in time series analysis. The results show that Eastern European private equity firms prefer M&amp;A exits followed by IPOs. The Granger causality test shows the existence of a unidirectional causality of the number of M&amp;A to the volume of private equity investments in Eastern Europe. <b>TOPICS:</b>Private equity, emerging, statistical methods, performance measurement

Policy, Regulation and Private Equity: A Rich Research Agenda? (Book Chapter)

Effective from 2013, the Alternative Investment Fund Managers Directive (or AIFMD) fundamentally altered the regulatory environment for European private equity funds, establishing – for the first time – a set of pan-EU rules for private equity and venture capital funds with assets under management that exceeded certain thresholds. For many fund managers this has entailed considerable change that has permeated most aspects of their business, including additional capital requirements, stricter conduct of business rules, enhanced disclosures to regulators, investors and the outside world and, for some, has even required amendments to remuneration policies. It is not easy to discern a clear policy objective for many of these changes, and it is therefore hard to assess whether they achieved their aims. Certainly, in relation to many of the new rules, there is scant evidence that investors wanted them, nor that they will benefit from them; it is also unclear how the rules will alleviate systemic risk, particularly insofar as they apply to private equity funds. This Chapter reviews the rules that were included in AIFMD, seeks to identify their policy objectives, and suggests a research agenda that could assist policy-makers in future reviews of the Directive and further regulatory interventions in the sector.

The structure and integration of the European buyout industry

Der europäische Markt für Finanzbeteiligungen ist in den letzten Jahrzehnten stark expandiert. In den Jahren 2010–2016 betrug das Marktvolumen durchschnittlich mehr als 50 Milliarden Euro im Jahr. Dieser Artikel untersucht Kapitalflüsse innerhalb Europas als auch zwischen Europa und dem Rest der Welt. Dabei wird zwischen zwei Ebenen unterschieden, nämlich einerseits der Bereitstellung von Kapital an Private Equity Fonds durch institutionelle Investoren und andererseits der Verwendung von zugeflossenen Mitteln durch diese Fonds. Diese Kapitalflüsse deuten darauf hin, dass der europäische Markt für Finanzbeteiligungen ein hohes Mass an Integration aufweist, wobei dem Vereinigten Königreich eine Drehscheibenfunktion zukommt. Gleichzeitig scheint die europäische Fondsindustrie relativ fragmentiert zu sein, was erhebliche Konsequenzen für die Konstruktion von Portfeuilles haben könnte.

Wpływ fluktuacji na rynku private equity i venture capital na innowacyjność w wybranych krajach Europy Środkowo-Wschodniej

The article looks at the level of innovation as measured by the Global Innovation Index and the level of investment through venture capital (VC) and private equity (PE) in Poland, Romania, Bulgaria, Hungary and Czech Republic. To measure the performance of innovation, data was taken from Global Innovation Index reports published by INSEAD; VC and PE were estimated using the accounts of European Private Equity and Venture Capital Association. The research verifies the argument that PE and VC investments have an impact on state innovation if the level of those investments is above the average of other contributors. We tested the correlation for the years 2009-2011, which are considered the peak of the economic crisis.

Performance of Non-Core Private Equity Real Estate Funds:A European View

This article examines the performance of European private equity real estate (PERE) funds from 1998 to 2009 using both absolute and relative performance metrics. The authors find that PERE fund absolute returns were significantly dragged down by the financial crisis and, on average, delivered only weak absolute returns. In relative terms, they find that private equity real estate funds underperform the public real estate equities market. They also evaluate the extent of systematic valuation biases of interim fund net asset values and find some evidence of systematic undervaluation of almost 20% of the fund investments, which, when taken into account in performance evaluation, substantially improves the returns.

What determines the exit decision for leveraged buyouts?

Abstract How and when to exit portfolio company investments are critical choices facing private equity funds. In this paper we analyze 1022 European private equity exits, using information on fund and portfolio company characteristics, and on conditions in capital markets. For over 43% of the exits, private equity funds sold to each other and we analyze why such secondary buyouts have gained in popularity relative to IPOs and sales to corporate acquirers. We find that the exit route depends on various portfolio company characteristics, and that conditions in the debt and equity markets have a strong influence on exit choice. The existing literature has tended to portray the IPO is the “preferred” exit route. However, our analysis suggests this is mistaken: private equity funds take advantage of ‘windows of opportunity’, and the exit route that maximizes value varies with market conditions.

Divestment of Private Equity in Europe in the Years 2007–2013

Using the data from the website of EVCA, the European Private Equity and Venture Capital Association, we provide an analysis of the divestment transactions made by Private Equity and Venture Capital in Europe in the period from 2007 to 2013. The purpose of the research is to verify whether the amount of divestments and the selection of exit strategies are influenced by the GDP growth rate of European Union and the performance of equity markets of European Union Member States. We also highlight the importance of divestment phase, because it is only through its success that venture capital and private equity firms can realize capital gains. The analysis has demonstrated a positive correlation between divestments realized in the period considered and the GDP growth rate of European Union, as well as between the amount of disposals made during the period analyzed and the development of the Eurostoxx50 index.

Taxonomic Analysis of the European PrivateEquity Market

Private equity and venture capital are still recognized as a modern source of companies’ funding. In this article, the data describing the European private equity market are provided across the scope of investment process stages: fundraising, investment, and divestment. To rank European private equity markets on the basis of chosen variables, a taxonomic method of analysis was used. As a result, we find that three countries are leading the European private equity market: the United Kingdom, Germany, and France. <b>TOPICS:</b>Private equity, developed, analysis of individual factors/risk premia, statistical methods

Rozwój rynku venture capital/private equity w Polsce

The aim of this article is to present, extensively analyse in an empirical way and assess the development of Polish venture capital and private equity market from its beginning up to the present day, taking into account the issue of capital acquisition, investment and disinvestment. The research was conducted on the basis of the empirical data provided by the European Private Equity and Venture Capital Association, the establishment engaged in gathering the statistics of the high risk capital market in Europe. Conclusions drawn from the empirical part of the article suggest the dynamic development of the venture capital and private equity market in Poland and its possible further advancement. The results of the research indicate the growing trust of European investors in the Polish venture capital and private equity market and the high investment attractiveness of our country, particularly in the East-Central Europe. The substantial support to the development of the Polish high risk capital market is provided by the dynamic expansion and high activeness of Warsaw Stock Exchange.

THE IMPORTANCE OF THE DEPTH OF THE CAPITAL MARKET ON INTERNATIONAL VENTURE CAPITAL AND PRIVATE EQUITY ALLOCATION DECISIONS: THE CASE OF POLAND

This paper addresses the issue of international Venture Capital and Private Equity allocation. The study provides a discussion of the key parameters that determine the international allocation process of private equity funds. This article aims to assess the impact of the depth of the stock market in Poland on international venture capital and private equity allocation decisions. The purpose of this paper is also to focus on the investigation of venture capital and private equity investment trends in Poland. The research methods used are based on systematic and comparative analysis of scientific literature, logical analysis and synthesis, and the analysis of statistical data and results of a questionnaire-based survey. The statistical data used in the article has been based on publications of the Polish Private Equity Association and reports of the European Private Equity and Venture Capital Association (EVCA). The information contained in EVCA reports was based on „PEREP Analytics” data. „PEREP Analytics” is a centralised, non-commercial pan-European private equity database. The „PEREP Analytics” statistics platform monitors the development of pri­vate equity and venture capital in 25 European countries. The article reveals that Poland is similar to the other Central and Eastern European countries with respect to the ratio of private equity investment to gross domestic product (GDP), but there is a major difference which ultimately leads to its attractiveness: this is the size, number of initial public offerings (IPO) and capitalization of the Warsaw Stock Exchange. The total number of IPOs (105) which took place in Warsaw represent 40% of all IPOs in Europe in 2012. The total value of IPOs (EUR 731 million) ranked the WSE in fifth position among those exchanges operating in Europe’s most developed capital markets. Research results indicate that in Poland the second most common exit route for PE funds was divestment by public offering - €36.7m in 2011. The results will be useful to fund managers in improving their private equity allocation decisions in Central and Eastern Europe. The study focuses on the most recent period of development of the VC/PE market in Poland. DOI: http://dx.doi.org/10.5755/j01.em.18.2.4225

International Capital Flows into the European Private Equity Market

In this paper, we explore the relationship between institutional investors and funds managers, a relatively little studied field in private equity. We study this relationship within the context of international investment flows. We address the following question: When building risk‐return exposure to European private companies, which US limited partners (LPs) are more likely to invest in US funds investing in European targets as opposed to in European funds investing locally? We build our research using a two‐level analysis. We first look at which US LPs are more likely to invest in funds focusing on Europe (regardless of whether a US or European fund) to identify the active global players. And second, using only the subsample of LPs investing in Europe‐focused funds, we study which types of LPs are more likely to provide capital to European funds investing locally as opposed to US funds with a European focus. We find that financial institutions with facilities in Europe, such as banks and insurance companies, are more prone to invest directly in European funds. This is consistent with the transaction cost hypothesis whereby LPs may benefit from lower costs to access valuable information to screen European funds. The presence of local facilities may further capture size effects. We also find that pension funds often invest directly in European funds although those funds do not possess local facilities in Europe. This may be due to their larger size that drives them to invest abroad or their increased experience in investing in private equity.

International Capital Flows into the European Private Equity Market

In this paper, we explore the relationship between institutional investors and funds managers, a relatively little studied field in private equity. We study this relationship within the context of international investment flows. We address the following question: When building risk-return exposure to European private companies, which US limited partners (LPs) are more likely to invest in US funds investing in European targets as opposed to in European funds investing locally? We build our research using a two-level analysis. We first look at which US LPs are more likely to invest in funds focusing on Europe (regardless of whether a US or European fund) to identify the active global players. And second, using only the subsample of LPs investing in Europe-focused funds, we study which types of LPs are more likely to provide capital to European funds investing locally as opposed to US funds with a European focus. We find that financial institutions with facilities in Europe, such as banks and insurance companies, are more prone to invest directly in European funds. This is consistent with the transaction cost hypothesis whereby LPs may benefit from lower costs to access valuable information to screen European funds. The presence of local facilities may further capture size effects. We also find that pension funds often invest directly in European funds although those funds do not possess local facilities in Europe. This may be due to their larger size that drives them to invest abroad or their increased experience in investing in private equity.

Private Equity in Family Firms: A Report on Private Equity Investments in Family Firms Across Europe

The European private equity market (management buy-outs and buy-ins) has grown in prominence over recent years with CMBOR figures showing the numbers of deals conducted rising from 1212 in 1998 to 1436 by the end of 2007. One of the most important features of this market has been the growth in buy-outs of family/private firms from 451 in 1998 to 559 in the past ten years with the combined value of these deals rising from €11.2 billion to €18.3 billion during the same period. This report aims to provide a detailed insight into the issues surrounding buy-outs of family firms using the unique data from the CMBOR database of over 26,000 European buy-outs in addition to three other detailed studies of the family buy-out market.The first section of this report is based on data from the CMBOR database and gives a detailed breakdown of aggregate market statistics for family buy-out in Europe. This includes data such as the value and volume of buy-outs, employee data, deal pricing and structuring data, industry sector analysis as well as the exiting of family firms.Section 2 looks at the problems faced by family firms when dealing with succession. In this part of the report issues covered include those surrounding the way that information flows between vendor and acquirer impact the transaction process and the level of planning undertaken by family owners with regard to succession.In the third part the emphasis is on strategic issues surrounding family firm buy-outs. We examine whether there are distinct differences in the strategy of family businesses post buy-out and relate these to the ownership and governance of the firm pre buy-out.The final part analyses the changes in managerial style which can occur after a family firm has undergone a buy-out. We examine whether there is a move away from the more family orientated stewardship form of management to an approach characterized by more formal governance with mechanisms of planning and control.

A Comparative Examination of Private Equity in the U.S. and Europe: Accounting for the Past and Predicting the Future of European Private Equity

A Comparative Examination of Private Equity in the U.S. and Europe: Accounting for the Past and Predicting the Future of European Private Equity

What drives leverage in leveraged buyouts? An analysis of European leveraged buyouts’ capital structure

AbstractThis paper examines leverage in European private equity‐led leveraged buyouts (LBOs). We use a unique, self‐constructed sample of 126 European private equity (PE)‐sponsored buyouts completed between June 2000 and June 2007. We find that determinants derived from classical capital structure theories do not explain leverage in LBOs, while they do drive leverage in a control group of comparable public firms. Rather, we document that leverage levels in LBOs are related to the prevailing conditions in the debt market. In addition, our results indicate that reputed private equity sponsors use more debt and that secondary buyouts have higher leverage levels.