02_EVCA_Javier Echarri

Institutional Investing in Private Equity

Investor Forum

Overview of the Private Equity Industry

November 6, 2007 Bucharest

November 7, 2007 Prague

Javier EcharriSecretary General, EVCA

The European Private Equity and Venture Capital Association

Introduction to EVCA

Established in 1983 and based in Brussels

Represents the European Private Equity and Venture Capital (PE/VC) industry and promotes the asset class both within Europe and throughout the World

1200 members, mainly European 2/3 Full Members: PE/VC fund management companies

1/3 Associate Members:

Institutional investors (banks, pension funds, insurance companies, family offices)

Professional advisors (lawyers, placement agents, investment banks)

National (European) Trade Associations

Introduction to EVCA

EVCA key focus areas

Professional Standards

Public & Regulatory Affairs

Statistical Research

Economic & Industry Analysis

Conferences & other Networking events

Professional Development and Training

Publications

Help Desk

Team: 33 people

What is Private Equity?

Seed Start-up

ExpansionReplacement Capital Buyout

Venture Capital

Early stage

Private Equity

What is Private Equity?

Early Stage Later Stage

Stages Seed Start-up Expansion/ Development

Buyout Replacement capital/ secondary purchase

Company Age

1 to 2 2 to 3 3 to 5 5+ 5+

Next step of company

Develop and finalize initial business concept

Launch business activity and start selling the product commercially

Expansion and growth of company

Bring company to the next level

Bring company to the next level

Capital is used to

Finalize research and develop business plan

Finalize product and start initial marketing

Finance increased production capacity, new market or product development

Acquisition of business or business unit with new/existing management

Acquisition of a business from a private equity or other financial owner

Investment Methods

1. Through a private equity fund 2. Through a Fund of Fund or Advisor3. Directly in private company

Investors Fund of Funds

PE Fund

Company

Company

Company

Company

PE Fund

PE Fund

2

1

3

Investment Methods

Institutional investors

(bank, insurance, pension funds, …)

Fund of funds

Individuals & Family Offices

Corporates(e.g. Intel, Sony, …)

Fund A

Fund B

PE investment management

company

Portfolio/investee co 1



…

€ € € €

advis

es

€

LP

GP

12 – 20 investments

Private Equity in numbers

Evolution Activity Flows5 consecutive years of investment growth

112.3

20.0

40.0

27.5

71.8

20.3

25.4

48.0

27.027.5

47.0

9.7

25.1

14.5

35.0

35.027.6 29.1

36.9

71.2

19.6

29.8

13.610.7

12.59.1

33.1

8.65.8 7.0

0

10

20

30

40

50

60

70

80

90

100

110

120

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Funds Raised

Investments

Divestments

€ billion

2006 European Private Equity SurveyConducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA

Fundraising Highs also Mirrored in the Americas

5443

139

160

4 38

14 10

28

112

27 28

7269

0

20

40

60

80

100

120

140

160

2002 2003 2004 2005 2006

Europe

Americas

Asia

Sources: EVCA / Thomson Financial / PricewaterhouseCoopers for EuropeThomson Financial for other regions

€ billions

Global Private Equity Funds Raised

Sources of New Funds Raised

Academic Institutions

3.6%

Capital Markets1.2%

Other4.1%

Corporate Investors3.7%

Private Individuals8.9%

Fund of Funds18.2%

Insurance Companies

10.1%

Pension Funds27.1%

Banks14.4%

Government Agencies

8.7%

2006 2005

Corporate Investors5.1%

Private Individuals6.0%

Government Agencies

9.9%

Other8.7%

Insurance Companies

11.1%

Fund of Funds13.1%

Pension Funds24.8%

Banks17.6%

Academic Institutions

2.5%

Capital Markets1.2%


Fundraising for CEE Private Equity, 2003-2006

312

496

1,293

2,254

0

500

1000

1500

2000

2500

2003 2004 2005 2006

€ m

illi

on

Source: EVCA

€71 Billion InvestedRecord Level

8.514.4 15.3 12.1

17.9 20.726.6

34.4

52.4

4.16.0

10.7

19.7

12.2

9.88.4

10.3

12.7

18.7

5.60

10

20

30

40

50

60

70

80

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

€ billion

Venture CapitalBuyout


8,583 Private Equity Deals in 2006

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Preliminary

Number of Investments*

Venture Capital

Buyouts and Replacement Capital

6,252

2,331


*Each syndication partner is counted once

Annual Investment Value in CEE, 2005-2006 (amounts in €m)

€ 1

09

.0

€ 1

47

.2

€ 1

07

.8

€ 7

0.0

€ 1

9.5

€ 8

.7

€ 1

4.4

€ 1

2.7

€ 0

.0

€ 1

9.1

€ 5

08

.3

€ 3

54

.2

€ 7

34

.4

€ 3

03

.6

€ 1

10

.0

€ 1

9.3

€ 0

.0

€ 1

8.1

€ 4

.0

€ 3

5.8

€ 8

7.6

€ 1

,66

7.0

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

CzechRep.

Hungary Poland Romania SlovakRepublic

Latvia Lithuania Estonia Bulgaria Other* TotalCEE

EU

R m

illio

n

2005 2006

Source: EVCA

*Croatia, Slovenia, Bosnia and Herzegovina, Serbia and Montenegro

Stage Distribution of InvestmentsAmount Invested

Buyout68.2%

Replacement Capital4.8%

Expansion21.8%

Seed0.2%

Start-up5.0%

Buyout68.6%

Replacement Capital5.0%

Expansion16.0%

Start-up8.0%

Seed2.4%

2006 2005


Type of Investment in CEE vs. Europe, 2006 (Amounts in € th)

€ ' 000 Total CEE % of total Total Europe % of total 2006

Seed 1,190 0.1% 236,084 0.3%

Start-up 45,064 2.7% 6,777,776 10.0%

Expansion 95,361 5.7% 10,417,704 15.4%

Replacement Capital 8,220 0.5% 3,478,698 5.1%

Buyout 1,517,177 91.0% 46,897,279 69.2%

Total 2006 1,667,013 100.0% 67,807,541 100.0%

Total 2005 508,320 47,107,024

Source: EVCA

Type of Investment by CEE Country, 2006 (Amounts in € th)

€ ' 000 Bulgaria Czech Republic Hungary Poland Romania Slovakia Baltic States Others*

Seed - - 890 - - - 300 -

Early Stage - 318 2,277 - 31,339 3,999 7,132 -

Expansion 7,000 780 28,673 7,000 38,150 221 2,517 11,020

Replacement Capital - 211 - 5,875 2,134 - -

Buyout 28,812 352,899 702,520 296,621 34,592 12,994 12,185 76,554

Total 2006 35,812 354,208 734,360 303,621 109,956 19,348 22,134 87,574

Total 2005 - 108,953 147,247 107,818 70,000 19,467 35,730 19,105

*Croatia, Slovenia, Bosnia and Herzegovina, Serbia and Montenegro

Source: EVCA

Size of companies financed

Exposure to companies of different sizes and sectors

Company size Amount invested 2005 (in mil €)

In % of total No. of investments

In % of total

0 - 19 2,876 6% 3,551 33%

20 - 99 4,617 10% 3,059 28%

100 - 199 2,245 5% 699 6%

200 - 499 3,568 8% 550 5%

500 - 999 2,961 6% 229 2%

1000 - 4999 14,106 30% 311 3%

5000 + 11,041 23% 96 1%

Subtotal 41,414 88% 8,496 78%

Unknown 5,587 12% 2,419 22%

TOTAL 47,000 100% 10,915 100%

2005 European Private Equity Survey

Conducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA

Buyouts totalled €48.9 billion

Buyout Deal Size (no bank leverage included)

Total Invested

2006

Total Invested

2005

No. of Deals2006

No. of Deals2005

Avr. Deal Size 2006

Avr. Deal Size 2005

Small < 15 4,714 4,081 1,890 2,034 2.5 2.0

Mid-market15<X<150

17,947 13,926 398 281 45.1 49.6

Large150<X<300

7,113 7,929 36 39 197.6 203.3

Mega > 300

19,077 6,161 40 15 476.9 410.7

Total 48,851 32,097 2,364 2,369 20.7 13.6

€ million


Buyouts totalled €48.9 billion in 2006


Please note no bank leverage included. Legend: Small < €15 m

Mid-market €15m<x<€150m

Large €150m<x<€300m

Mega >€300m

0

5,000

10,000

15,000

20,000

25,000

Small Mid- Market Large Mega

Am

ount

invest

ed

in €

mill

ion

0

500

1,000

1,500

2,000

2,500

No o

f D

eals

2006 Total Invested 2005 Total Invested 2006 No.of Deals 2005 No.of Deals

Private equity Investments as a Percentage of GDP for Europe, CEE and Selected European Countries, 2006*

Source: EVCA

1.4

37

%

1.2

58

%

1.0

48

%

0.8

83

%

0.6

07

%

0.5

52

%

0.4

45

%

0.3

94

%

0.3

67

%

0.3

35

%

0.3

33

%

0.3

15

%

0.3

13

%

0.2

82

%

0.2

58

%

0.2

33

%

0.2

18

%

0.1

50

%

0.1

43

%

0.1

30

%

0.1

18

%

0.1

15

%

0.1

15

%

0.1

03

%

0.0

76

%

0.0

55

%

0.0

45

%

0.0

35

%

0.0

33

%

0.0

31

%

0.0

00

%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

Swed

en

Unite

d Kin

gdom

Nethe

rland

s

Hunga

ry

Fran

ce

Tota

l Eur

ope

Belg

ium

Irel

and

Spain

Denm

ark

Italy

Czec

h Re

publ

ic

Germ

any

Switz

erland

Norway

Finl

and

Tota

l CEE

Serb

ia a

nd M

onte

negr

o*

Bulg

aria

Slov

enia

Poland

Rom

ania

Portu

gal

Aust

ria

Lith

uani

a

Bosn

ia a

nd H

erze

govina

Slov

ak R

epub

lic

Croa

tia

Greec

e

Esto

nia

Latv

ia

* based on GDP figure for 2005

€33bn European Divestment at Cost

11.0 14.1 17.5 18.0% 18.2%3.9

6.02.9 4.0% 5.4%

8.4

15.921.3

23.3% 17.1%

3.9

20.213.1

18.4%

16.6%

30.0

11.69.7

4.7%

3.8%5.3

6.27.0

4.5%

7.2%6.6

5.64.8 4.5%

9.0%

30.9%

20.4%23.7% 22.6% 22.7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006

Trade Sale

IPO

Sale of Quoted Equity

Write- Off

Sale to Another Private EquityHouse

Repayment of Shares/Loans

Sale to Financial Institution

Other


Exits in CEE vs Total Europe, 2006 (Exit Value at Investment Cost in €th)

Exit value at investment cost, € '000 Total CEE % of total 2006 Total Europe % of total 2006

Divestment by trade sale 209,291 47.4% 7,652,225 23.0%

Divestment by public offering 80,028 18.1% 5,348,614 16.0%

Divestment by write-off 930 0.2% 1,255,760 3.8%

Repayment of principal loans 36,040 8.2% 5,664,889 17.0%

Sale to another private equity firm 56,098 12.7% 5,529,199 16.6%

Sale to financial institution 300 0.1% 1,783,683 5.4%

Sale to management (MBO) 36,276 8.2% 2,048,871 6.1%

Divestment by other means 22,679 5.1% 4,044,112 12.1%

Total 2006 441,641 100.0% 33,327,352 100.0%

Total 2005 421,693 19,562,478

Source: EVCA

Divestments at Cost by CEE Country, 2005-2006 (Amounts in €m)

€ 61

€ 37

€ 10

7

€ 88

€ 70

€ 22

€ 16

€ 21

€ 42

2

€ 11

5

€ 32

€ 13

8

€ 63

€ 8

€ 59

€ 20

€ 7

€ 44

2

0

50

100

150

200

250

300

350

400

450

500

CzechRepublic

Hungary Poland Romania SlovakRepublic

Bulgaria BalticStates

Other Total CEE

2005 2006

Source: EVCA

Economic impact of Private Equityand Professional Stnadards

The Virtuous Financing Cycle of Private Equity and Venture Capital Investment

repayments+ capital gains

commitments

divestments

pensions savings

savings and pensions

investments

Private Equity Funds

High-potential companies

Institutional investors(Insurance companies,

pension funds, banks…)

Private Equity Funds

Institutional investors(Insurance companies,

pension funds, banks…)

Saving accounts, Pension plans,

Insurance contracts…

Economic contribution

Over 6 million people employed by PE/VC backed companies in 2005

1+ million new jobs created between 2000 to 2004

420,000 in buyouts 630,000 in venture backed companies

Annual average employment growth in buyout financed companies of 2.4%

Annual average employment growth in venture backed companies of 30.5%

Annual EU25 employment growth 0.7%

Source: CEFS/EVCA

EVCA Professional Standards

EVCA believes that transparency is a key factor in the success and growth of PE/VC and has developed the highest Professional Standards.

• Code of Ethics

• Governing Principles

• Corporate Governance Principles

• International Valuation Guidelines, endorsed by 35 associations worldwide and managed by an independent Board

• Reporting Guidelines

Private Equity has become a mainstream asset class on most investor portfolios

Growth market with further strong potential compared to other markets.

It requires undertanding and a committed team for the investment program

It can be access in different ways: funds, funds of funds, quoted vehicles...

It is an superb and exiting industry

In short

Thank you

For more information

www.evca.com

Documents

02_EVCA_Javier Echarri