PE and VC-backed firms see rapid European growth, reveals new report

BY Fraser Tennant

European private equity (PE)- and venture capital (VC)-backed companies are growing rapidly and significantly outperforming privately owned firms, according to a new report by Gain.pro.

In its 2023 ‘Finding Growth in Europe: A Private Equity Perspective’, it is revealed that over the past decade, PE- and VC-backed companies achieved growth rates of 10 to 12 percent – double that of privately owned companies at 5 percent.

Among the key takeaways from the report, PE- and VC-backed companies are more active in buy-and-build than their privately-owned counterparts. An active buy-and-build strategy is applied by 28 percent of PE- and VC-backed companies, meaning they acquire at least one company per year. This compares to only 12 percent for privately owned companies.

In terms of organic growth rates, the report notes that the technology, media and telecommunications (TMT) sector is performing best, showing an average organic growth rate of 8 to 10 percent. TMT is followed by the financial services and science & health sectors. The report also showcases that there are plenty of growth opportunities in the lower-growth industrials, materials & energy and consumer sectors.

“With high-interest rates here to stay, growth is only going to get tougher,” said Sid Jain, head of insights at Gain.pro. “But what we see in the data is that PE-held businesses continue to demonstrate resilience. It is clear that even in today’s lacklustre macro-environment, investors can expect significant opportunities within the European PE landscape.”

According to the report, European investors need to be more vigilant to find growth opportunities, seeking out multiple arbitrage opportunities that do not rely on overall market multiples, but more on buy-and-build and operational improvements.

Mr Jain concluded: “The next decade will be challenging for PE investors, but those who work hard and use smart data-driven sourcing strategies will be well-positioned to succeed.”

Report: Finding Growth in Europe: A Private Equity Perspective: 2023 Edition

European PE and VC weak but optimistic, reveals new reports

BY Fraser Tennant

Amid high inflation and interest rates, slowing economic growth, constricted financing markets and uncertain geopolitical conditions, private equity (PE) and venture capital (VC) activity across Europe weakened in the first half of 2023, according to a new report by Invest Europe.

In its ‘Investing in Europe: Private Equity Activity H1 2023’ report, the association reveals that PE and VC capital funds invested €32bn in the first half of 2023, 54 percent lower than 2022’s strong figures and in line with levels last seen in 2016.

Moreover, a total of 3524 companies received backing in the first half, a more moderate 26 percent decline from last year, reflecting smaller average investment sizes across buyouts, growth and VC. Fundraising also weakened from last year’s record level to €33bn. A total of 370 funds raised capital from investors, 15 percent below the average of the last five years. However, VC fundraising was relatively robust and in line with levels recorded in early 2020.

However, while this activity data provides insight into the impact of challenging market conditions on PE and VC in the first half of 2023, a second report released this week, ‘The Insight: State Of The European Private Equity Industry’, in association with global management consultancy Arthur D. Little, gives a more optimistic view of industry expectations over the short and medium term.

“Conditions are as challenging as they have been at any point since the financial crisis,” said Eric de Montgolfier, chief executive of Invest Europe. “Nonetheless, the industry is resilient and adaptable.

“Fund managers are clearly supporting companies through volatile markets while making preparations for the future, not only in terms of increased activity, but also in sustainability,” he continued. “This incldes greener funds for long-term investors, as well as new vehicles that can bring the benefit of PE and VC returns to a wider group of individuals.”

Reports: Investing in Europe: Private Equity Activity H1 2023 / The Insight: State Of The European Private Equity Industry 

European VC investment €96bn over last 10 years, reveals new report

BY Fraser Tennant

Venture capitalists (VCs) invested €96bn in almost 27,000 European companies over the past decade, including more than €18bn in 2022 alone, according to a new report by Invest Europe.

In its ‘Venture Capital: Fuelling European Innovation’ report, Invest Europe highlights VC’s contribution to a stronger European economy and a better society – digging deep into the data on fundraising, investment, returns to investors and job creation, among others.

The report shows the step change in European VC fundraising over the five years to 2022, including an eight-fold increase in capital raised by Nordic VCs and a three-fold increase in the Germany, Austria and Switzerland (DACH) region, as capital committed to funds reached a record €23bn last year.

In addition, Invest Europe highlights European VC’s 12 percent net return since inception, far outperforming the Morgan Stanley Capital International (MSCI) Europe benchmark, which returned 7.67 percent per annum over the same period.

Furthermore, recent performance has accelerated, with European VC delivering a net return of 23.07 percent over 10 years, creating wealth for long-term investors including funds of funds investing on behalf of pension funds, family offices and corporate investment divisions.

“European VC is the fuel that keeps the engine of innovation running,” said Eric de Montgolfier, chief executive of Invest Europe. “With the help of VC investment and expertise, European start-ups are at the forefront of developments in software and cloud computing, driving deep tech advances in artificial intelligence and robotics, creating cutting-edge biotech treatments for cancer and infectious diseases, and pushing the boundaries of cleantech solutions for a cleaner, greener future.”

The report also outlines the role of venture capital as a cornerstone of European economies and communities, with the ecosystem providing jobs for nearly 900,000 people at the end of 2021. Companies backed by VC have generated double-digit employment growth in most years since 2018, including 15.3 percent net new jobs in 2021, compared to 1.2 percent growth for all European companies.

Mr de Montgolfier concluded: “Europe’s VC and start-up ecosystem is not only producing transformative technologies that will change people’s lives; it is also generating social and economic benefits that can improve livelihoods, from new jobs to wealth creation for long-term investors.”

Report: Venture Capital: Fuelling European Innovation Report

Market turmoil hits European VC in Q3, reveals new report

BY Fraser Tennant

European venture capital (VC) dealmaking fell significantly in Q3 amid uncertain macroeconomic conditions and market turmoil across the continent, according to new analysis by Pitchbook.

In its ‘European Venture Report’, Pitchbook reveals that venture dealmaking across Europe dipped in Q3 2022 as market conditions become increasingly challenging, with deal value falling 36.1 percent quarter-over-quarter to €18.4bn – the lowest figure since Q4 2020.

However, against this backdrop, non-traditional investors have remained active in Europe’s start-up scene, with several types of non-traditional investors completing deals through Q3 2022. These include private equity giant Advent International which invested €250m into Spain-based artificial intelligence advertising company Seedtag to fuel expansion into the US.

“Despite markets entering correction territory globally, non-traditional investors have continued to participate in VC rounds,” said Nalin Patel, lead analyst, EMEA private capital at Pitchbook. “However, with overall deal value falling in Q3, and anticipated to flatten further, we believe non-traditional investor involvement will mirror wider market sentiment.”

The Pitchbook report also reveals resilient VC exit activity, with exit count on track for its second-best year ever with 878 year to date (YTD). “Given that we have moved from a macroeconomic environment beneficial to VC exits in 2021 with low interest rates, low inflation, and high valuations to one with increasing interest rates, stagflation, and dropping valuations in 2022, VC exits have remained resilient,” added Mr Patel.

In terms of VC fundraising activity, the market remains healthy, with 145 closes totalling €19.7bn in aggregate – a pace which, should it continue, will see fund count finish below, and capital raised land above, figures from 2021 at the year’s conclusion.

“While pace throughout 2022 YTD kept up with 2021, Q3 has delivered the decline in dealmaking activity many analysts anticipated this year,” concluded Mr Patel. “We believe capital efficiency, rather than growth at all costs for latestage investments, has established greater importance in recent months and expect this to continue until 2023.”

Report: Q3 2022 European Venture Report

VC slowdown in Greater China lingers, reveals new report

BY Fraser Tennant

Venture capital (VC) activity in Greater China dropped significantly in the first half of 2022, continuing a slowdown since late last year, according to a new report by the Apex Group.

In the ‘Greater China Venture Report H1 2022’, the Apex Group reveals that VCs invested only $28.6bn in the region in H1 – below the Q3 2021 figure – a figure which reflects the many hurdles the region has faced over the past year, including regulatory headwinds, supply chain issues and macroeconomic challenges.

“It has been a challenging period for (VC) in China, with activity in the market slowing significantly in early 2022 as the macroeconomic environment became less favourable for venture investors,” said Debbie Lee, managing director, China at the Apex Group. “Restrictions relating to technology and the coronavirus (COVID-19) pandemic, coupled with ongoing geopolitical risks, have exacerbated the challenges facing many investors.”

Drilling down, the report shows that only 56 mega-rounds of $100m or more were completed in the first six months of 2022, off pace from 2021’s regional record of 261, while exit value totalled just $40.6bn across 64 deals – a significant year-over-year slowdown, especially for initial public offerings (IPOs).

The report also notes that fundraising continued to fall in H1 2022, with the region’s dry powder ebbing to $122.7bn, raising concerns about long-term capital availability, especially if investors outside the region face more hurdles to entering the market.

“The current VC market landscape in China is seeing a slowdown in fundraising activity due to a fundamental change in the market landscape,” said Ms Lee. “In the last decade, the VC community has found opportunities created by the mobile internet increasing efficiency and disrupting traditional business models. Investors are becoming more cautious and need real returns on investment instead of just buying into the digitalisation narrative. Meanwhile, private equity (PE) managers are more inclined to find earlier-stage projects, thus creating more competition for VC investors.”

In another trend noted by the report, there has been a further expansion of the scope and depth of Chinese investment markets for foreign investors in 2022.

“The trend of continuous inflows of foreign capital in 2022 will continue, and we expect to see more international VC managers investing in Chinese businesses under the QFLP scheme,” added Ms Lee. “As a result, international service providers for financial services and talent in the China market will continue to be in demand.”

Report: Greater China Venture Report H1 2022