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Private Equity and Venture Capital Investment Trends in Financial Services Industry in Europe
Frost & Sullivan, June 2012, Pages: 74
The study aims to analyse private equity and venture capital trends in the financial services industry in Europe. All related private placement transactions between 2006 and 2011 have been included for analysis. The study covers a general overview of private equity industry and financial services industry before delving deep into the investment trends in various sub-sectors such as banks, insurance, real estate and diversified financials. The study also includes trends and challenges faced by industry participants and highlights opportunities and best practices for investment in Europe. The study concludes with recommendations for investors taking into consideration the nature of the industry and the current economic scenario.
Market Overview
Financial Technology Space Offers Glimmer of Hope Amidst Falling PE Activity in Financial Services Industry
2011 has been a roller coaster year for private equity (PE) with the first half continuing the momentum from the previous year and the second half being affected by the global economic scenario. Fears of a double dip recession and credit downgrades in the West affected the PE industry in terms of fund raising, deal activity and exits. Private placements in the financial services sector in Europe declined 30 per cent in 2011 compared to 2010. The average deal size of the sector has declined, indicating decreased investor confidence. “Banking and insurance witnessed a decline in PE activity in 2010-2011,” says the analyst. “However, diversified financials and real estate funds are attracting investments. Financial technology is most the attractive opportunity for PE activity in this space.”
Since 2008, most investors have either reduced or ceased commitments in the PE industry due to a combination of high fees and erratic returns. The average time taken to raise funds has also significantly increased by more than 80 per cent (11 months to 20 months) from 2006 to 2011. Additionally, there were fewer number of funds raised in 2011, compared to the fund raising cycle of 2005–2008. With sluggish growth and increasing risk in developed economies, fund raising would continue to be a challenge in 2012–2013. “With unsustainable amount of dry powder funds, PE firms are facing increasing pressure to use the money raised in the previous fund cycle,” remarks the analyst. “However, distressed companies are reluctant to sell out during the current economic uncertainty owing to problems regarding correct valuations of their companies.”
Emerging Economies will Provide an Attractive Avenue for Divestment for Investors who are willing to Broaden their Scope
The trend of private placements deal activity in financial services mostly resembles that of the overall PE market. Although there has been significant rebound in deal volume post the 2008 crisis, overall investments in financial services have been on a downward trend since 2008. “The reasons for the decline in PE activity are weak financial and capital markets, low investor confidence, credit downgrades and the Euro zone crisis, all of which have resulted in investors looking out for new avenues and other sectors for investment,” comments the analyst. With many limited partners reassessing their current investment allocation in the PE industry, it is becoming increasingly important for general partners to look beyond their usual sources of capital.
Fund raising statistics for 2011 indicate that Asia and the rest of the world have accounted for 22.4 per cent of the annual PE funds raised globally. This is in comparison to 8.6 percent in 2003 and about 15.9 percent of committed capital in 2006 from the same region. Moreover, studies show that investors from these regions may increase their allocations to PE asset class over the next 10 years. This would reinforce the increasing role that this region would play in the PE industry in future. Hence, PE funds need to broaden their scope of fund raising to new regions and scout for potential investors in economies outside Europe and North America. “Emerging economies provide an attractive avenue for divestment to investors who are willing to broaden their scope,” advises the analyst. “These countries have greater fund raising opportunities and greater scope for growth when compared to developed countries in the current economic scenario.”
1. Executive Summary
2. Introduction
3. Definition
4. The General Partner's Perspective
5. Overview: Private Equity and Venture Capital Market in Europe
6. Private Equity Challenges: The changing Landscape
7. Private Equity Trends: Adapting to Ever Growing Challenges
8. Private Equity Outlook: A Shrinking Universe?
9. Overview: Financial Services Industry
10. Financial Services Industry: Private Placements in Europe
11. Sector Analysis: Financial Services Industry in Europe
12. Conclusion
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