Medium-sized businesses will be the focus of private equity investment this year, as the country's annual venture capital and private equity survey reveals activity in the sector is picking up.
The 2009 New Zealand Private Equity and Venture Ca
Medium-sized businesses will be the focus of private equity investment this year, as the country’s annual venture capital and private equity survey reveals activity in the sector is picking up.
The 2009 New Zealand Private Equity and Venture Capital Monitor, released this morning, recorded private equity deals increased in volume and value in this country last year, compared with 2008.
The monitor valued overall private equity activity at $645.1 million for 2009, more than double the amount of $224.6 in 2008
Total private equity investment for 2009 was $177.6 million, representing 108 deals. Average deal size fell to $1.6 million for the year, from $2.2 million in 2008 – reflecting the significant growth in angel investment activity.
Now in its seventh year, the New Zealand Private Equity and Venture capital Monitor is an annual survey of New Zealand’s private equity and venture capital funds, undertaken by the New Zealand Venture Capital Association and research partner Ernst & Young.
It showed mid-sized private equity deals were resilient to recession in 2009, with investment levels remaining steady at $50 million.
Five mid-market divestments with a total value of $58.9 million were reported in 2009, rising from $46.5 million in 2008.
Top-end private equity activity, where deals have an enterprise value of more than $150 million, was quiet in the first half of 2009. But the second six months saw three investment deals completed, with one representing the investment of Quadrant Private Equity in Summerset Retirement.
Two significant divestments were also recorded in the top-end private equity segment, with a combined deal value of approximately $390 million.
These included the Kathmandu dual IPO, jointly listed on the New Zealand and Australian securities exchanges by Goldman Sachs JB Were and Quadrant Private Equity.
Australian private Equity fund Archer Capital also divested its holding in Onesource Group.
Ernst & Young partner Andrew Taylor said the results showed confidence was returning to capital markets with optimism high in the sector. Looking ahead, 93% of respondents optimistic or neutral about the next six months, up from 46% in the previous year.
The mid-market was where Mr Taylor expected to see the most activity over the next few years, on the back of successful capital raising by a number of private equity firms.
One significant mid-market fund raising completed during the period was the close of Direct Capital IV fund at about $325 million.
Mr Taylor said angel-led venture capital activity revealed promising young companies were finding investment capital, the results also indicated the need for more venture capital investment to support companies through the early stage pipeline.
Chair of the New Zealand Private Equity and venture Capital Association Franceska Banga said the survey results suggested baseline overall capital investment was around $200 million and provides a good platform for growth over the next few years.
“We are seeing confidence in private equity from experienced institutional investors attracted by the industry’s successful track record. We would like to see new funds emerging at the venture capital stage and more large institutions, like the pension funds, following the example of the New Zealand Superannuation Fund and allocating investment capital to private equity,” said Ms Banga.
“With so many New Zealand companies in private ownership, private equity is a crucial source of capital. There are attractive investment opportunities, particularly as we emerge from the recession and, as the recent Capital Markets Development Taskforce noted, more private equity investment is needed to support the growth and expansion of the New Zealand economy.”
Overall private equity activity was now back at the levels of around 2003 and
2004 and Ms Banga said the billion-dollar years of 2006 and 2007 stood out as
abnormal aberrations, as reflected in other parts of the world.
The value of European private equity deals, for example, fell by three-quarters last year to a 15-year low of €17.3bn, according to recently published data. At the peak
of Europe’s cycle in 2007, €170bn of deals were completed.
The NZVC Monitor is based on the responses of 19 firms, from New Zealand and Australia, participating in New Zealand’s venture capital and private equity market.
