Wednesday, May 30, 2012
Improved Outlook Seen In Middle-Market Mergers
The market for Mergers & Acquisitions (M&A) is clearly improving in valuations, financing availability, and deal volume and will continue to do so throughout 2012 according to a survey conducted by MBA students and Professor Kevin J. Mulvaney at Babson College in collaboration with members of The Association for Corporate Growth and Exit Planning Exchange.
Looming clouds on the horizon may include variations in the capital gains rate, estate changes, and uncertainty about economic growth and the effect of world events on the global economy. This is the 4th year of the Babson survey which has delivered “extremely accurate” projections in its previous years said Mulvaney.
Findings That Impact Business Owners
The environment for exit continues to improve. Valuations are rising and are projected to continue to rise. The market to sell a business or restructure capital is very good. Key is getting the company’s revenue growth and EBITDA (earnings before interest, taxes, depreciation, and amortization) to acceptable standards vs. the industry average and the expectations of the buyer.
• In 2011, valuations in most industries increased by 1-1.5 times EBITDA multiples. Most industries are still between 1-2 times EBITDA away from the peak valuations seen before the last recession
• More buyers will look for acquisitions and more strategic corporate buyers will seek out the lower end of the middle market ($10-100MM enterprise valuation companies)._• International buyers will increasingly target middle-market companies and this trend will continue if the recovery lasts.
• Financial buyers will become more active as financial institutions increase M&A loans. Most survey respondents expect a moderate improvement in contracts but better availability of funding.
• Equity requirements for financial buyers have stabilized but banks are looking for better performance from targeted companies. Financial backing for turnarounds continues to be very difficult.
• Seller’s challenge: get the deal done because the timeframe (10-12 months) is now longer from start to finish.
• A second challenge is ‘seller assistance’ for business owners. The survey shows that the percentage differs depending on the size of the deal - a low percentage in middle-market deals against a high-percentage in service industries and in smaller company transactions. Also influencing seller assistance is the financial condition of the seller’s company, the outlook for the economy and the seller’s industry in the view of the buyer.
Findings That Impact M&A Professionals
Volume continues to increase moderately and the largest concentration of activity is in service industries. A rollup strategy is sought in many service industries and service company owners are looking to combine or sell due to the challenge of rebuilding revenue bases in an industry sector that is in transformation.
• Manufacturing deals have increased (last 12 months) and will continue to rise through 2012 as more strategic buyers enter the marketplace.
• Finding qualified and real buyers continues to be the big challenge for advisors. Due diligence is dissecting current and near-term forecasted performance in great depth.
• Older populations of owners are waiting longer to sell. With age, the risk of performance interruptions rises and valuations may be impacted. Valuations decrease because owners begin to run companies for cash vs. growth. They may also have more health or partner issues.
• Deal volumes and valuations will continue to rise if Congress extends the capital gains rates and estate rules. Still, both owners and advisors must create strategies for multiple scenarios moving forward.
• Companies struggling with performance or that have not documented a turnaround from 2009-10, will not be saleable in today’s market. Companies should show four quarters of performance at or above the industry average in order to improve their chances for a successful exit.
About The Survey
Babson College MBA students, Babson Professor Kevin J. Mulvaney, and the Association for Corporate Growth and Exit Planning Exchange surveyed and conducted interviews with more than 200 leading national professionals involved in middle-market M&As. Their goal was to define current trends in the M&A market and project the outlook for the rest of 2012. Survey respondents included a national sample of leading investment banking professionals involved in middle-market and small business deals, CPAs and lawyers specializing in M&A, and other professionals who advise buyers and sellers in exit or recapitalization efforts.
Thursday, May 10, 2012
M&A - Strong deal fundamentals remain but corporates are cautious in the short-term
• Optimism for M&A in the US remains steady but expectations for acquisition plans falls 10 percentage points globally, despite a more positive economic outlook
• Boardroom balances buying opportunities with optimizing portfolio and divesting core business assets
• Pent up demand for deals persists as companies build cash piles and credit improves but caution remains
A more favorable deal making environment is not yet convincing corporations to engage in mergers & acquisitions (M&A), according to Ernst & Young’s latest Global Capital Confidence Barometer, based on a survey last month of more than 1,500 senior executives in 57 countries around the world. Only 31% of those surveyed globally said they expected to pursue an acquisition in the next 12 months, compared with 41% in October 2011 and the lowest figure since the barometer began in late 2009. In the US, expectations are steady with 34% of companies planning an acquisition in the next year, compared with 36% six months ago. The number of businesses looking to sell assets has also been consistent in the US with 34% planning to divest in the next 12 months compared with 30% in October 2011.
"Our Capital Confidence Barometer shows confidence in the economy as it continues to improve. Last October, we found dealmakers had cash on the books, and access to credit but were lacking the confidence to do deals. The current Barometer finds corporate executives with adequate cash and credit and in a more confident frame of mind, but still conservative about pulling the trigger on a deal,” said Richard M. Jeanneret, Vice Chair, Transaction Advisory Services at Ernst & Young LLP.
In terms of acquisitions, companies in the financial services, life sciences, oil and gas, technology and consumer products sectors said they were more likely to do deals. When US respondents were asked where they expect to execute deals, China, India, Canada, Brazil and the UK were their top five target markets.
US buyers shifting toward debt to fund deals; global buyers still using cash
A combination of stronger operating results, cost-reduction programs and risk aversion has meant that large companies globally have accumulated large stockpiles of cash. Growth remains a top priority for companies with excess cash and 50% of global respondents are focused on organic growth versus 43% of US respondents. Twenty-one percent of US respondents are focused on inorganic growth, compared with 16% of global respondents. Among global companies who say they either reengaged in M&A or are thinking about it, 43% say they will use cash as their primary source of funding. Debt saw an increase in popularity in the US as a means of deal funding due to low costs and improved confidence in credit availability. In the US 48% of companies would use debt to finance an acquisition compared with 33% six months ago.
More companies sold on divesting
The overall conservative nature of attitudes toward M&A is reflected in both global and US respondents focus on creating value through organic growth, portfolio optimization and divestment. Over a third (34%) of companies in the US are expected to divest in the next 12 months. Around the globe, there are as many companies looking to divest - 31% - as there are looking to acquire, also 31%.
“We continue to see divestitures move up the corporate agenda as companies more carefully manage their portfolio and look to asset sales such as carve-outs and spin-offs as a tool to raise capital for growth and build shareholder value,” added Jeanneret.
Sectors with companies most likely to pursue a divestment include: oil and gas, life sciences, consumer products, mining and metals, and power and utilities. Companies headquartered in Brazil, Japan, the UK, Germany and Canada are among the most inclined to sell assets.
Economic outlook brighter, with a marked shift in developed markets_
There were clear signs from the survey that the upswing in economic confidence is feeding overall business confidence. The proportion of those surveyed who thought that the global economic situation is improving has increased to 52% in April 2012 from 26% in October 2011. Only 20% remain pessimistic about the economy, compared with 37% six months ago.
"As the US and other mature economies show signs of economic improvement after years of challenges, emerging markets such as China, Brazil and India, which have commanded investment growth, are beginning to moderate, said Pip McCrostie, Global Vice Chair, Transaction Advisory Services, at Ernst & Young. “These key emerging economies are still growing much more quickly than developed markets, but their pace of expansion has slowed.”
Among broader business confidence indicators, there were improvements in sentiment across the board, with more positive figures for expected corporate earnings, employment growth, credit availability and the regulatory environment.
So what happens next?_
Despite the improvement in economic performance and modest uptick in business confidence, companies still remain cautious in their outlook, particularly over the short term.
Jeanneret concludes, "There is positive sentiment around credit conditions improving, companies’ focus on growth, and M&A valuations increasing that could potentially contribute to a healthier M&A environment. We remain optimistic about companies increasing deal activity in the long-term.”
China’s VC industry is set to hit record highs by the end of 2012 and surpass Europe as the second largest venture hub globally
Global venture capital (VC) investment trends will see a major shift by 2015 towards venture investment in China and India.
• The US maintains 70% share of the global VC market, followed by the UK and China
• 2011 also marks the fewest number of US funds closed in 18 years
• Fifty-seven percent of VC firms plan to increase investment outside their home countries by 2015
• India will see further VC investment coming from e-commerce, mobile applications, healthcare delivery, medical devices, clean technology and IT
Global venture capital (VC) investment trends will see a major shift by 2015 towards venture investment in China and India. Currently, the majority of VC firms still invest in their own local markets, however, more of them will start investing internationally in the next five years, according to Ernst & Young’s Global Venture Capital insights and trends report 2012.
The venture capital industry is experiencing a global shift, ranging from global fund-raising and cross-border investment, to exits on foreign stock exchanges or by foreign acquirer, to VC firms opening offices overseas and helping their portfolio companies, access markets in new regions.
The report also looks at the trends in fund-raising for VC funds, the different investment patterns in mature and emerging venture markets, the associated exit mechanisms by geography and the new funding sources.
Franck Sebag, Partner Ernst & Young Global Strategic Growth Markets comments:
“Attracted by exceptional growth opportunities that require substantial funding, VC and PE investors are currently shifting their focus from traditional VC and PE countries towards emerging countries. As Limited Partners consider where to allocate their capital, and PE and VC funds looking to make the right investments themselves, the investing landscape is evolving towards China and India.”
Currently, only about 20% of VC firms in Brazil, India, Israel and the UK invest outside their home countries. However, a number of VC firms in Canada (69%), France (82%), Germany (92%), and the US (49%) invest internationally. Of those VC firms investing outside their home countries, 57% plan to increase this activity during the next five years, while 35% plan to maintain their level of international investment.(1)
China’s VC industry reaches new heights while India is particularly active
China’s VC industry set record highs in 2011 in both value and number of investments. Due to its late-stage investment focus and new fund-raising record, China is likely to surpass Europe as the second-largest venture hub globally by the end of 2012. Given the favorable exit environment, the investment pace will likely continue.
“The government recently set new policies to stimulate the continued growth of the VC industry, and more investment is planned to increase VC investors’ appetite in energy conservation, environmental protection, next generation IT, biotech, advanced manufacturing, alternative energy, innovative materials and new-energy-powered vehicles. The IT and cleantech sectors are likely, however, to predominate VC activity in the years to come,”explains Franck Sebag.
The Chinese VC industry has seen strong growth in both 2010 and 2011. Investments in 2011 raised US$5.9b in 323 rounds, while 2010 saw US$5.5b raised in 290 rounds, exceeding the investment record peak of US$3.9b in 381 rounds 2007. Currently, Beijing is the leading Chinese VC investment hotbed, with companies raising the most capital (US$2.9b), followed by Shanghai, which raised US$1.3b.
The India venture capital industry has been particularly active since 2006.
In the first half of 2011, US$1.5b was raised in 155 rounds, while in 2010 US$1.1b was raised in 103 rounds. Over the next two years, India will see further VC investment coming from e-commerce, mobile applications, healthcare delivery, medical devices, financial inclusion, clean technology and IT.
US fund-raising continues to be challenging
Despite strong deal flow, market volatility has had an impact on the ability of the best VC firms to raise new funds. In 2011, total capital raised for US venture firms reached US$16.2b, a 4.5% rise from the same period last year (US$15.5b in 2011). However, the number of firms that closed fell to 19 funds representing a 38% drop. 2011 also marks the fewest number of US funds closed in 18 years with just 135 rounds and US$16.2b amount closed._Unsurprisingly, globally, the top four regions in the world with the most VC activity were all in the US – Silicon Valley retains the lead by (US$12.6b, 977 rounds), followed by Boston (US$3.9b, 369 rounds), the New York City metropolitan area (US$3b, 367 rounds) and then Southern California (US$3.3b, 286 rounds). However, all of these US hotbeds have experienced a decline in the number of active investors._Continues Franck Sebag: “Many VCs show reluctance to invest in untested early-stage companies. They are increasingly altering the investment objectives, seeking greater flexibility, growth equity opportunities and later-stage deals. However, thanks to highly valued internet companies, the early-stage market is still active.”
European VC trends analysis_The European VC industry showed signs of a tentative recovery after a particularly challenging 2009, though activity is still significantly below pre-crisis levels.
Comments Franck Sebag,
“In the next five years, equity will remain the principal source of capital, with more companies looking to VC to finance growth. European VC and PE firms hold a staggering US$138b of “dry powder” and seek opportunities before their investment periods end.”
2011 has seen the worst volume since 2004, as European fund-raising fell 11% year-on-year, to US$2.9b for 41 funds (compared to US$3b for 51 funds in 2010), in 2011 VC investments also declined to US$6.1b in 1,012 rounds (compared to 1,253 rounds worth US$6.7b in 2010).
The UK and Ireland continued to raise the most capital in Europe, with US$1.7b through 274 deals, (down from US$2.6b raised from 331 deals in 2010), while France raised US$1b in 217 deals in 2011.
Concludes Franck Sebag:
“Limited partners will continue to have a strong interest in funds that focus on rapidly developing and largely underserved markets. Although the US will maintain its leading position as the VC nation for a long time to come, the emerging growth nations will play an increasing role, with less risky, later-stage deals generally favored at first. Over 50% of VC funds in mature VC hotbeds are investing outside their home countries, with most of them maintaining or increasing their allocations abroad. New funding will come from experienced angel investors as well as increasingly active local corporate investors. These trends are part of the unprecedented paradigm shift under way in the global venture industry.”
(1) According to a June 2011 nine-country survey with 347 VC firms by the National Venture Capital Association (NVCA).
Wednesday, May 9, 2012
U.S. PRIVATE EQUITY FUND-RAISING CLIMBS 4%, EUROPEAN FUND-RAISING SPIKES 82%
Dow Jones LP Source: Small number of firms raise half the capital in each region; Established venture firms raise funds quickly
In the first quarter, U.S. and European private equity funds held more closings and raised more capital than in the same period last year, but more than half the capital raised in each region went to a small contingent of firms. U.S. private equity funds raised $38.1 billion for 136 funds, a 4% increase in capital raised and 5% increase in fund closings from the first quarter of 2011. In Europe, private equity fund-raising spiked to $22.3 billion raised for 43 funds, an 82% increase in capital and 10% increase in fund closings, according to Dow Jones LP Source.
The 11 largest U.S. fund closings and the three largest European closings accounted for more than half of the total capital raised in each region.
“U.S. fund-raising may not be off to a roaring start, but it’s also not stalled in the driveway,” said Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst. “P rivate equity firms have been actively focused on returning capital to their investors, which has helped some of them attract capital to new funds. Firms have learned that you must give in order to receive.”
Big Closes for Diversified Private Equity Funds Buoy Buyout Fund-Raising
In the U.S., 63 buyout and corporate finance funds raised $21.9 billion, a 7% increase in fund closings but a 6% decline in capital from the year-ago period. The drop in capital committed was kept to a minimum thanks to strong interest in the diversified private equity sector within buyouts, which raised $5.9 billion for 15 funds, up from $234 million raised by six funds during the same period a year ago.
In Europe, buyout and corporate finance funds drove the region’s overall increase in fund-raising by raising $18.4 billion through 22 closings, a 68% increase in capital collected for two fewer funds compared to the year-ago period.
Similar to the U.S., diversified private equity funds saw dramatic gains in Europe, raising $8.5 billion for four funds, up from $132 million raised for two funds a year ago.
Established Venture Firms Quickly Raise Funds in First Quarter
Several well-established venture firms made fund-raising look easy in the first quarter, holding first and final closes for their funds. These large closes helped push U.S. venture capital fund-raising to $7 billion across 47 funds in 2011, a 5% increase in capital raised and a 34% increase in fund closings.
European venture funds raised $954 million for 11 funds, an 8% increase in capital raised for the same number of fund closings compared to the first quarter of last year.
For more information on venture capital fund-raising, see the venture report http://www.dowjones.com/pressroom/releases/2012/04092012-VCFund-0029.asp.
Fund-Raising for Secondary Funds Spikes
U.S. secondary market funds raised $2.7 billion for five funds during the first quarter, triple the amount raised through eight funds during the same period last year. The difference, however, was the result of a single large closing by a Credit Suisse Private Equity fund, which accounted for 95% of the capital raised during the first quarter.
In Europe, four secondary funds raised $1.2 billion, a significant increase from the same period last year when two funds raised $210 million.
Fund-of-Funds Commitments Fall in U.S., See Continued Momentum in Europe
U.S. funds-of-funds saw the lowest quarterly commitments since the first quarter of 2003 as eight funds raised $733 million.
In Europe, fund-raising for funds-of-funds has already passed the 2011 total as five funds raised $1.6 billion in the first quarter. Throughout 2011, 11 funds raised $1.4 billion.
ESTABLISHED U.S. VENTURE FIRMS QUICKLY RAISE FUNDS IN 1ST QUARTER
Dow Jones LP Source: Fund-raising climate improves for smaller funds;European venture fund-raising rises 8%
Several well-established venture firms made fund-raising look easy in the first quarter, holding first and final closes for their funds. These large closes helped push U.S. venture capital fund-raising to $7 billion across 47 funds in the first quarter, a 5% increase in capital raised and a 34% increase in fund closings from the same period last year, according to Dow Jones LP Source.
European venture funds raised $954 million for 11 funds, an 8% increase in capital raised for the same number of fund closings compared to the first quarter of last year. The gain in capital raised tracks well behind the 82% rise in capital committed to European private equity funds overall, which includes venture capital.
“A few big firms continue to have no trouble raising large funds, as limited partners are sticking with what they see as safe bets when making their venture allocations,” said Zoran Basich, editor of Dow Jones VentureWire. “But small firms are also finding some receptive LPs interested in investing in niche spaces, such as education, or specific geographic areas.”
LPs Look at Smaller Funds in U.S.
Multi-stage fund-raising had a strong start to the year as 17 funds raised $5 billion, a 13% increase in fund closings and 19% increase in capital raised. Two firms—Andreessen Horowitz and Tiger Global Management—accounted for more than half of the capital raised despite the fact that both raised their last funds less than two years ago.
With no large fund-raisings to boost the total, capital committed to later-stage funds fell 77% to $449 million despite seven funds holding closings in the first quarter, compared to three in the same period last year.
LPs in European Funds Focus on Early-Stage Vehicles
Capital committed to multi-stage funds more than doubled to $105 million for two funds. One debenture fund raised $79 million during the first quarter.
Later-stage funds did not hold any closings, which is not uncommon for the region.
U.S. VENTURE INVESTMENT OFF TO A SLOW START IN 2012
Dow Jones VentureSource: U.S. Venture Companies Raised $6.3 Billion in First Quarter, an 18% Decline; Only IT Industry Saw Deals & Investment Increase
U.S.-based companies raised $6.3 billion through 717 venture capital deals during the first quarter of 2012, an 18% decline in capital and 9% decline in deals from the same period last year, according to Dow Jones VentureSource.
“The declines were pretty evenly spread across industries so there weren’t any big winners or big losers in the quarter, but there were some surprises. Investment in consumer Internet companies fell after two exceptional investment years, while the IT industry fared well thanks to strong interest in software start-ups,” said Jessica Canning, global research director for Dow Jones VentureSource.
The median amount invested in a financing round fell 13% to $4 million in the first quarter of 2012.
Investment in Consumer Internet Companies Falls
Investment in the consumer Internet sector, which includes social media, entertainment and shopping aggregators, fell 76% and deals fell 17% to $375 million raised for 88 deals during the first quarter. In the first quarter of 2011, however, the investment total was inflated by large closings from mature companies, including Zynga and LivingSocial which raised $870 million combined.
“Now that some of the mature Internet companies that soaked up billions in venture capital the last couple of years have gone public or are near an exit, we’ll see if venture investors approach a fresh crop of start-ups with the same zeal or if investment remains at the level we saw in the first quarter,” said Zoran Basich, editor of Dow Jones VentureWire.
Only IT Industry Saw Deals and Investment Increase
Information technology (IT) was the only major industry that saw a year-over-year increase for both deals and capital raised. IT companies raised $2 billion through 257 deals, a 14% increase in capital invested and a 2% increase in deals.
The software sector accounted for the largest proportion of IT deals as companies raised $1.3 billion for 196 deals, a 61% increase in capital raised and a 6% increase in deals.
Biopharmaceuticals Investment Declines; Health IT Stays Strong
In the first quarter, healthcare companies raised $1.5 billion for 165 deals, an 18% decline in investment and 9% decline in deals. Within healthcare, the biopharmaceuticals sector saw the most significant decline as 53 deals raised $523 million, a 31% drop in deals and 46% decline in capital raised.
Also during the first quarter, medical device companies raised $748 million for 83 deals, a 2% decline in investment and 14% increase in deals. Investors favored later-stage rounds, with more than half (51%) of the deals going to companies raising later-stage or restart rounds.
The health IT sector remained small but solid thanks to interest in technologies that manage health information and data. Health IT companies raised $102 million for 18 deals in the first quarter, a 75% increase in capital and one more deal than was completed in the same period a year ago.
Large Energy Deals Boost Investment Total
Several large rounds for later-stage energy companies boosted the capital invested in the energy and utilities industry, despite a decrease in deals. During the first quarter, $943 million was raised for 29 deals, a 44% increase in capital raised for one less deal than was completed in the first quarter of 2011.
As usual, renewable energy companies accounted for most of the deals, raising $513 million through 23 rounds.
Investment in Enterprise Start-Ups Slides
After two years of steady growth, deals for business and financial services start-ups fell. In the first quarter, 100 deals raised $947 million, a 29% decline in deals and 10% decline in capital raised from the same period a year ago. Investment in this area is largely driven by interest in data management, marketing and advertising companies and the decline is partly a result of the two- to three-year financing cycle of companies in the industry, which has resulted in fewer of them seeking financing this year.
Early-Stage Deals Garner a Larger Proportion of the Capital
Seed- and first-rounds accounted for 44% of deals and 21% of capital invested during the first quarter, the same proportion of deals as the corresponding period last year but an increase from 16% of capital raised in that quarter. Second rounds accounted for 19% of deals in the first quarter, on par with the year-ago period, and 17% of capital invested, a mild change from 18% during the same period last year. Later-stage deals accounted for 35% of the first quarter’s deals, the same as last year, and 61% of total capital raised, a change from last year when later-stage rounds collected 64% of the capital invested.
VENTURE CAPITAL INVESTMENT CONTINUES TO FALL IN EUROPE_
Dow Jones VentureSource: Deal activity continues steady decline; sharp drop-off in investment in first quarter
During the first quarter of 2012, the drop in venture capital deal activity for European companies was slight compared to the sharp drop in the amount of capital invested over the same period last year, according to Dow Jones VentureSource.
Venture-backed companies based in Europe raised €762 million for 241 deals, a 41% decline in capital raised and a 7% decline in deals over the same period in 2011. The first quarter’s deal figure of 241 matches the fourth quarter of last year as the weakest since VentureSource began tracking the region in 2000.
“The difficult fund-raising environment and shrinking number of exits means less money is flowing into venture firms and, therefore, less is flowing out,” said Jessica Canning, global research director, Dow Jones VentureSource. “But there are some positive signs. European venture fund-raising rose 8% in the first quarter and financing deals didn’t drop as significantly as investment which means VCs are still finding companies they want to support.”
The first quarter’s weakness in investments mirrored the exit environment, which was the weakest for venture-backed exits since the first quarter of 2000. During the first quarter, 27 European venture-backed companies were acquired, a 46% drop in deals from the same period last year, and two companies went public, down from three initial public offerings (IPOs) in the first quarter of 2011.
Consumer Services Deal Flow Up but Investment Declines
Consumer services companies raised €167 million for 67 deals in the first quarter of 2012, a 60% decline in investment despite a 10% rise in deals over the same period last year. More than 64% of the capital collected by the consumer services industry went to the consumer information services sector, which includes social media, online entertainment and search portals, but it was the retail and media companies that showed the most consistent growth over the same period last year. Both the retail and media sectors grew 100% in deal flow to 10 deals each; media showed a 90% growth in investments as €10 million was raised while investment in retail companies more than doubled to €39 million.
IT Sector Buoyed By Communications and Networking
Within the information technology industry, the software sector remained the most popular investment area, raising €105 million through 50 deals in the first quarter of 2012, a 30% decline in investment and 6% decline in deals. Although at smaller volume, the communications and networking sector showed strong gains as 10 deals raised €60 million, a 25% increase in deals and more than triple the capital raised in the same period last year thanks to a €30 million deal for Amplitude Systemes SA, a provider of lasers based in France.
Healthcare Down Across the Board
Healthcare, which is generally one of the two strongest investment areas along with IT, saw a dramatic drop in investment and placed third behind consumer services this quarter. Healthcare companies completed 40 deals that raised €137 million in the first quarter, a 25% drop in deals and a 67% decrease in investment. Deal activity and investment fell in all sectors of the industry. Biopharmaceuticals accounted for the majority of the industry’s investment with 26 deals raising €108 million, a 16% decline in deals and 66% decline in investment.
Enterprise Start-Ups Fare Well
The business and financial services industry fared moderately well this quarter, with a 3% increase in investment against a 9% decline in deals. The business support services sector, buoyed by interest in advertising and marketing companies, was the most active investment area as 23 deals raised €80 million.
All Energy Investment Goes to Renewables
Renewable energy companies accounted for all of the capital raised in the energy & utilities industry as these companies collected €46 million for seven deals, a 36% decline in deals but a 11% increase in investment.
Country Perspectives
There was a change to the line-up of major European countries for venture investment this quarter, with Belgium replacing Sweden in fourth place. Highlights include:
• The U.K. remained the favorite destination for venture capital investment in Europe during the first quarter of 2012. Companies in the U.K. raised €261 million in 71 deals, representing a 44% decline in investment from the same period last year despite a 3% increase in deals.
• France came second as companies raised €168 million for 50 deals, a 34% jump in investment compared with the same period last year, but a 9% decline in deals. More significantly, French companies received 22% of all venture investment in Europe during the quarter compared with just 10% during the first quarter of 2011.
• Germany came in third as companies raised €70 million for 29 deals, a 55% decline in investment and 17% decline in deals from the same period last year.
Belgium was the surprise in fourth place as companies raised €40 million in 6 deals, a 42% rise in investment and a 20% increase in deals from the same period last year.
VENTURE CAPITAL ACTIVITY DECLINES IN CHINA
Dow Jones VentureSource: Value and volume of deal activity drop sharply in first quarter; Decline consistent with other geographies
Venture capital equity financing of Chinese companies fell to its lowest level in more than five years in the first quarter of 2012, according to Dow Jones VentureSource, which tracks venture-backed companies.
During the quarter, 45 deals raised US$745 million, a 39% decline in deals and a 56% decline in capital invested compared to the first quarter of 2011. This marks the lowest quarterly volume since the first quarter of 2006.
Commenting on the data, Guido Schenk, APAC and EMEA sales director for Dow Jones VentureSource, noted: “Despite its continued GDP growth and relatively robust economy, China has not been immune to declining volumes and values in venture capital equity financing. While the decline suggests that less money is flowing into venture-backed firms, the robust median value of these investments demonstrates that investors remain confident about opportunities in China and have not cut back on deal sizes.”
Each deal represents a single case of equity financing by a professional venture capital firm, corporation, other private equity firm or individual.
The median value of completed deals, at US$9.8 million in the first quarter of 2012, was down significantly from last year’s first-quarter record US$15.2 million, although more broadly in line with the 2010 (US$8.8 million) and 2009 (US$7.6 million) median deal values.
Decline consistent with other geographies
The year-on-year decline in China in 2012 mirrors similar trends in the U.S. and across Europe. U.S.-based companies attracted US$6.3 billion through 717 venture capital deals in the first quarter of the year, down 18% and 9% respectively on the previous year.
Europe-based companies attracted €762 million across 241 deals in the first quarter of 2012, down 41% and 7% year-on-year respectively due to softening performance in the U.K. and Germany—typically the continent’s two largest destinations for venture capital equity financing. Investment values and volumes declined 44% and 3% respectively in the U.K., and 55% and 17% respectively in Germany. France saw a 34% jump in investment value, although the number of deals during the period fell 9%.
Sharp decline in investments in consumer services companies
The overall decline in investment volume and value in China was driven primarily by fewer investments in consumer services. The value of equity financing in these companies, which includes the Web-heavy consumer information services sector, media and content, retailers, and travel and leisure, fell 66% year-on-year to US$294 million while the volume of deals fell 58% to 16.
Most notably, investment in consumer information services saw the lowest volume on record, which extends to 2005, and the lowest value since the first quarter of 2007. The retail sector also showed a sharp decline, falling to two deals valued at US$45 million in the first quarter of 2012 from seven deals valued at US$161 million in the same period of 2011.
IT industry sees drop in investment value
The information technology industry experienced sharp decline, as well. Year-on-year, venture-capital equity financing in the industry fell to US$27 million for seven deals, led principally by a lack of appetite for financing opportunities involving software firms as well as electronics and computer hardware makers. The previous year saw US$369 million in investment activity in the first quarter. Despite this sharp drop in value, the number of deals declined by a more modest 42%, suggesting that median investment values remain buoyant despite declining interest.
Business and financial services’ relatively stable business support services and financial institutions sectors saw modest decline. In the first quarter of 2012, those sectors attracted nine investments valued at US$75 million, down from 10 deals valued at US$98 in the previous year.
Dow Jones VentureSource helps venture capitalists, corporate development executives, investment bankers and service providers find deal and partnership opportunities, perform comprehensive due diligence and examine trends. It provides accurate, comprehensive data on venture-backed companies and their investors and executives around the globe.
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