An Overview Of The European Private Equity Industry

Private equity is an alternative form of financing companies, besides classical methods (bank loan or bonds), which is done in exchange of a part of the share capital of the company. This funding is realized by investors interested in the company that also offer portfolio companies expertise in order to increase their value. Private equity is viewed as the most expensive form of financing because is done against a stake in the company’s share capital and gains from selling the shares at a higher price than the buying price. The operations can be divided into two main categories, regarding the owned stake in the company. There are venture capital investments, that are made in the early stages of company development, the involvement of investors is mainly consulting and the percentage of owned share capital is under 50%. The other category is buyout investments, that are made in more mature companies, the percentage owned is more than 50% and the involvement of investors goes to complete restructuring of the company. The article is structured in four parts. The first part is the introduction and presents the private equity activity. The second part is a brief presentation of the present state of the industry at a global level. The third part presents the European private equity market, with a focus on European fundraising, investments and divestments. The data is gathered from European Private Equity and Venture Capital Association (www.evca.eu) and represents the evolution of the market in the last five years, between 2007 and 2011. The last part represents the conclusions of the research. We present the state of the industry globally, with US representing more than half of total activity, followed by Europe and Asia-Pacific. The European market is dominated by the United Kingdom, with more than 40% of total activity, followed by France and Germany. The funds are raised primarily from pension funds and banks and are invested in different sectors, depending on the type of operations: venture capital or buyout. We also find that the preferred exit routes for investments are trade sale and secondary sale.