Upload
phamnguyet
View
216
Download
0
Embed Size (px)
Citation preview
29th March 2004 pwc
Private Equity in EuropePrivate Equity in Europe
2Private Equity in Europe PricewaterhouseCoopers
Agenda
• Introduction and welcome – Angela Crawford-Ingle• Latest trends in European Private Equity – Keith Arundale• The EU Savings directive – Bob Harland• Private Equity deal structuring in Europe – Duncan Cox
29th March 2004 pwc
Latest trends in European Private Equity activityKeith Arundale
Latest trends in European Private Equity activityKeith Arundale
4Private Equity in Europe PricewaterhouseCoopers
Latest Trends in European Private Equity
Activity
• Global private equity overview• Latest European private equity and venture capital activity• European investment trends • Where are we in the private equity cycle?
5Private Equity in Europe PricewaterhouseCoopers
The World View:
Investment and fund raising trends
90
159
206
103 102
132 152
250
165
88
0
25
50
75
100
125
150
175
200
225
250
1998 1999 2000 2001 2002 2003
InvestmentsFunds Raised
(US$b)
Source: The PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree™ Survey / Buyout Newsletter / Private Equity Analyst / CVCA Annual Statistical Review / EVCA Yearbook / AVCJ Guide to Venture Capital in Asia / Latin American Private Equity Analyst / SAVCA Private Equity Survey
Investment: Compound average growth rate = 3.39%Funds Raised: Compound average growth rate = -9.58%
Source: PwC/3i GPE Rpt 2003
(1st half)
57
24
6Private Equity in Europe PricewaterhouseCoopers
The World View:
% Distribution of Investments
Note: % share based on 3 main regions – North America, Western Europeand Asia Pacific
2835
6374
1010
7
9
4136
231221 18
8 5
0
20
40
60
80
100
2000 2001 2002 2003
Early stage (inc.seed/start-up)
Expansion
Late Stage
Buyout
Total Invested $100.5$155.0 $199.4 $57
(1st half)
(%)
Source: The PricewaterhouseCoopers / Venture Economics / National Venture Capital Association MoneyTree™ Survey / Buyout Newsletter / CVCA Annual Statistical Review / EVCA Yearbook / AVCJ Guide to Venture Capital in AsiaSource: PwC/3i GPE Rpt 2003
7Private Equity in Europe PricewaterhouseCoopers
The World View: Top 20 Countries - Based
on Investment
2. United Kingdom (2)3. France (5)4. Italy (7)6. Germany (3)8. Netherlands (11)10. Sweden (9)14. Spain (17)17. Finland (-)20. Belgium (19)
1. USA (1)9. Canada (4)
Middle East & Africa13. Israel (12)18. South Africa (-)
Central & South America
1%2%
25%
<1%Asia Pacific
5. Japan (6)7. Korea (10)11. Australia (14)12. India (15)15. Hong Kong (8)16. Indonesia (-)19. China (13)
Note: There is no published data on Asia Pacific countries for 2002, therefore estimates from the AVCJ are shown
63%9%
Note: (-) indicates that the country was not in the top 20 last year.
Source: PwC/3i GPE Rpt 2003
North America Western Europe
8Private Equity in Europe PricewaterhouseCoopers
The World View: Top 20 Countries - Based
on Growth (CAGR 98-02)
2. Sweden (57%)3. Denmark (50%)7. France (29%)8. Italy (24%)9. Spain (22%)10. Finland (19%)14. Netherlands (8%)15. Switzerland (5%)16. UK (5%)17. Belgium (4%)18. Germany (2%)19. Norway (1%)
13. Canada (9%)20. USA (<1%)
Middle East & Africa11. Israel (14%)
Central & South America
Asia Pacific1. India (82%)
4. Australia (39%)
5. South Korea (39%)
6. Japan (31%)
12. China (11%)
Note: There is no published data on Asia Pacific countries for 2002, therefore estimates from the AVCJ are shownOnly Countries with investments of at least $0.225 billion in 2002 are shown
Source: PwC/3i GPE Rpt 2003
North America Western Europe
9Private Equity in Europe PricewaterhouseCoopers
The EVCA European Private Equity Survey
• 21 countries surveyed included in European tables, including 4 Central European : Poland, Hungary, Czech Republic and Slovakia
• Overall response rate of around 70% based on 1,600 private equity firms surveyed
• 7 additional Central European countries included as pilots• Only investments derived from private equity funds are included• All secured debt is excluded, unless derived from PE funds.
Unsecured debt is included, if derived from PE funds
Source: EVCA/PwC
10Private Equity in Europe PricewaterhouseCoopers
Types of European private equity
organisations
• Independents - raise funds from more than one source - not legally connected to sources
• Captives - owned by banks, pensions funds, other financial institutions
• Semi-captives - as captives, but also manage independently raised funds
11Private Equity in Europe PricewaterhouseCoopers
European PE Funds Raised in 2003
(preliminary : €27.7 billion)
0
10,000
20,000
30,000
40,000
50,000
60,000
1995 1996 1997 1998 1999 2000 2001 2002 2003
€ m
Amount Raised byCaptives and CapitalGains Independent FundsRaised
Prel
imin
ary
Source: EVCA Survey of Pan-European Private Equity and Venture Capital Activity 2003. Conducted by Thomson Venture Economics and PricewaterhouseCoopers
12Private Equity in Europe PricewaterhouseCoopers
Europe: Origin of Funds Raised by Country
2001-2002
9,594
5,105
6,817
6,664
4,339
2,444
4,197
2,803
1,662
1,984
1,616 2,063
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
€m
USA UK Germany France Italy Netherlands
2001 2002
Source: EVCA/PwC
13Private Equity in Europe PricewaterhouseCoopers
Sources of New Funds
Government Agencies
6.0%
Academic Institutions
2.2%
Capital Markets0.5%
Other3.7%
Banks24%
Pension Funds26.8%
Private Individuals
6.6%
Corporate5.8%
Fund of Funds12.2%
Insurance Companies
12.3%
2002
2001
Insurance Companies
13.8%
Fund of Funds13.1%
Banks26.3%
Corporate7.3%
Pension Funds16.3%
Private Individuals6.0%
Other4.3%
Academic Institutions
1.6%
Capital Markets0.1%
Government Agencies11.1%
Source: EVCA/PwC
14Private Equity in Europe PricewaterhouseCoopers
European PE Investments in 2003
(preliminary : €23.1 billion)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
1995 1996 1997 1998 1999 2000 2001 2002 2003
€ m
BuyoutVenture Capital
Prel
imin
ary
Source: EVCA Survey of Pan-European Private Equity and Venture Capital Activity 2003. Conducted by Thomson Venture Economics and PricewaterhouseCoopers
15Private Equity in Europe PricewaterhouseCoopers
Europe: Stage Distribution of Investments
by Amount
Buyout67%
Replacement Capital
5%
Expansion21%
Start-up6%
Seed1%
Buyout65%
Replacement Capital
2%
Expansion23%
Start-up9%
Seed1%
2003
2002
Source: EVCA Survey of Pan-European Private Equity and Venture Capital Activity 2003. Conducted by Thomson Venture Economics and PricewaterhouseCoopers
16Private Equity in Europe PricewaterhouseCoopers
Europe: Stage Distribution of Investment by
Number of Investments
2003
2002
Source: EVCA Survey of Pan-European Private Equity and Venture Capital Activity 2003. Conducted by Thomson Venture Economics and PricewaterhouseCoopers
Buyout21%
Replacement Capital
3%
Expansion45%
Start-up28%
Seed3%
Buyout14%Replacement
Capital3%
Expansion45%
Start-up33%
Seed5%
2003
2002
17Private Equity in Europe PricewaterhouseCoopers
Europe: Amount Invested by Country 2000-
2002
13,180
6,92610,385
5,3043,287
5,851
2,9692,185
2,626
4,767
4,435
2,506
1,9161,887
1,722
2,300
2,0431,468
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
UK France Italy Germany Netherlands Sweden
2000 2001 2002In €m
Source: EVCA/PwC
18Private Equity in Europe PricewaterhouseCoopers
Annual Funds Raised and Investment
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
€m
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Funds RaisedInvestment
PRELIMINARY
Source: EVCA/PwC
19Private Equity in Europe PricewaterhouseCoopers
European PE Divestments by Amount
(at cost) in 2003 (preliminary : €9.5 billion)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1995 1996 1997 1998 1999 2000 2001 2002 2003
Divestments (IPOs, trade sales etc)
Write-off
Prel
imin
ary€m
Source: EVCA Survey of Pan-European Private Equity and Venture Capital Activity 2003. Conducted by Thomson Venture Economics and PricewaterhouseCoopers
20Private Equity in Europe PricewaterhouseCoopers
European PE Divestments by Number
of Companies in 2003 preliminary : 3,037)
0
1,000
2,000
3,000
4,000
5,000
6,000
1997 1998 1999 2000 2001 2002 2003
No o
f co
mpan
ies
Divestments (IPOs, trade sales etc)
Write-off
Prel
imin
ary
Source: EVCA Survey of Pan-European Private Equity and Venture Capital Activity 2003. Conducted by Thomson Venture Economics and PricewaterhouseCoopers
21Private Equity in Europe PricewaterhouseCoopers
Preliminary EVCA data for 2003
In summary:
• Fundraising steady at € 27.7b• Investments down 16% at € 23.1b• Buyouts continue to dominate• Divestments down 23% at € 9.5b• Write-offs getting back towards “normal” levels
Source: EVCA Survey of Pan-European Private Equity and Venture Capital Activity 2003. Conducted by Thomson Venture Economics and PricewaterhouseCoopers
22Private Equity in Europe PricewaterhouseCoopers
But what are the trends?
23Private Equity in Europe PricewaterhouseCoopers
Total European PE Investment
by Quarter in 2003 (preliminary)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Q1 Q2 Q3 Q4
€m
Source: EVCA Survey of Pan-European Private Equity and Venture Capital Activity 2003. Conducted by Thomson Venture Economics and PricewaterhouseCoopers
24Private Equity in Europe PricewaterhouseCoopers
USA Venture Capital Investments
Q1 1997 – Q4 2003
$4.9$4.4$4.5
$6.0$6.7
$26.5$28.3
$28.5
$23.8
$13.1$11.1
$6.6$6.1
$5.4$5.7$4.1$4.5
$3.6$3.7
$3.0
$22.6
$12.9$11.2
$8.5$7.9
$4.3$4.2$4.7
$0.0
$8.0
$16.0
$24.0
$32.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
($ in billions)1997 1998 1999 2000 2001
# ofDeals
2002 2003
768 747 852 916 923 1,444 2,151 1,975 1,306 814 6761,048 650 685769 901 924 1,003 1,337 1,904 2,161 1,795 1,258 988 721824 701 679
Source: PricewaterhouseCoopers/Thomson Venture Economics/ National Venture Capital Association MoneyTree™ Survey
25Private Equity in Europe PricewaterhouseCoopers
Volume of large global M&A transactions
0
25
50
75
100
125
150
175
200
1998 1999 2000 2001 2002 2003
Num
ber o
f dea
ls
0
10
20
30
40
50
% o
f tot
al v
alue
Deals >€500m Deals >€1bn Top ten deals as % total value
26Private Equity in Europe PricewaterhouseCoopers
Number of European IPOs
36
66
3537
14
23
37
69
0
10
20
30
40
50
60
70
80
Q1 Q2 Q3 Q42002
Q1 Q2 Q3 Q4
2003Source: PwC IPO Watch Europe 2003
27Private Equity in Europe PricewaterhouseCoopers
Summary : Key points for European PE
• Europe’s significance in the world private equity market continues to increase
• Despite so-called “wall of money”, European funds available are currently around 1 ½ years’ supply
• Investments held up well in 2003, mainly due to buyouts• Portfolio rationalisation and write-offs now largely complete• Improving M&A market, IPOs in pipeline, increased spending
forecast on IT• European PE industry well positioned for increase in activity in
2004.
29th March 2004 pwc
EU Savings DirectiveBob Harland
EU Savings DirectiveBob Harland
29Private Equity in Europe PricewaterhouseCoopers
Aim of the Directive
“The ultimate aim of the Directive is to enable savings income in the form of interest payments made in one
Member State to beneficial owners, individuals, resident for tax purposes in another Member State to be made
subject to effective taxation in accordance with the national laws of the latter Member State.” [Article 1]
30Private Equity in Europe PricewaterhouseCoopers
Territorial Scope
• EU Member States• EU Accession countries• EU Members’ dependant territories
– Jersey, Guernsey, Isle of Man, Cayman Islands, Anguila, Montserrat, British Virgin Islands and the Netherlands Antilles
– Switzerland, Liechtenstein, Andorra, San Marino, Monaco• BUT NOT• Bahamas, Bermuda, The United States
31Private Equity in Europe PricewaterhouseCoopers
Scope of the Directive
• Only interest payments• Only to EU resident individuals (if they
are beneficial owners)• Only when made by EU paying agents• Only when payment is cross-border
Total EU savings income
Savings incomewithin the scope of
the Directive?
32Private Equity in Europe PricewaterhouseCoopers
When might it apply?
Fund receives an interest payment
and it has investorswho are or it has
Executive RemunerationArrangements (Co-investment
or Carried Interest)
Individuals
or
Residual entities
NB A fund may be a Partnership, Trust or Company or other corporate entity
33Private Equity in Europe PricewaterhouseCoopers
Directive operate?
ReportingWithholding
Member State ITax authority
Member State IITax authority
75% of withholding
beneficial ownerinformationPaying Agent
“established” in Member State I
withholding Member State ITax authority
(annual, automatic)
Member State IITax authority
beneficialowner
information
interest payment
Individual beneficialowner “resident” in
Member State II
Domestic WHT or reporting regimes continue to apply
34Private Equity in Europe PricewaterhouseCoopers
Illustration of possible impact on Private
Equity Structures
Limited PartnershipCo-Investors
Equity Debt
Lux. Hold co
Equity Debt
Investment
35Private Equity in Europe PricewaterhouseCoopers
Key Dates
• June 2003 – Agreement and final draft of Directive • December 2003 – Target date for each EU state to have
implemented Directive in local law • January 2004 – new information requirements for new customers• June 2004 – final decision on Directive timing based on 3rd
country readiness• January 2005 – Directive expected to apply to interest
payments from this date• June 2005 – first reports due from UK paying agents• Spring 2006 – first reports due from other EU paying agents• 2005 to 2007 (for WHT countries) – 15% tax (rising ultimately to
35% in 2011)
36Private Equity in Europe PricewaterhouseCoopers
Typical Reactions so Far
• Is this really going to happen?• Surely the BVCA can do something about this?• What is everybody else doing?• Can’t I lay this off onto someone else?• Can’t I just wait until the next big deal?• What is the least I can get away with?
37Private Equity in Europe PricewaterhouseCoopers
Key questions to address – internal issues
Can the Private equity house’s current systems:• Segregate corporates, residual entities and individuals within its fund
structures and investors• Identify all reportable interest payments• Produce required identity and tax residence information about payees• Identify interest payments to residual entities• Handle both withholding and reporting requirements• Generate the required reports on time for the revenue authorities in the
UK and elsewhere• Handle both withholding and reporting requirements• Generate reports for paying agents on origin and nature of income
38Private Equity in Europe PricewaterhouseCoopers
Key questions to address – internal issues
• How should a Private equity house manage its relationship with other organisations that may be paying agents:
– fund custodians– payers of interest on deposit/loans– fund administrators
39Private Equity in Europe PricewaterhouseCoopers
Key questions to address – external issues
• What is the potential impact of the Directive on:– investment returns– executive remuneration– the attractiveness of funds to individuals
• What should Private equity houses be telling their customers about the Directive
• How should terms of business with investors and information suppliers be amended
• Is there a commercially acceptable way for Private equity housesto avoid/mitigate the effects of the Directive on their own business and on customers
40Private Equity in Europe PricewaterhouseCoopers
What can go wrong?
• Failure to file return– fine £3,000 pa– Higher penalties elsewhere
• Risk of reputational damage with– Inland Revenue– suppliers of services– investors
• Cost of remedying/enhancing systems later• Differing classifications by member states of the same entity• Unexpected tax withholding in complex structures
41Private Equity in Europe PricewaterhouseCoopers
Action required
• Review the entities and investors in your fund structure– which entities in the structure do, or may, pay interest– is the UK view of non-UK fund vehicles the same as that
under local law– are any of your investors individuals or residual entities
• Identify the paying agent (eg fund or administrator) if your fund is not paying agent, understand the relationship with the paying agent (eg funds of funds)
• Decide how to deal with residual entities• Understand what are your obligations if your funds make
payments to other residual entities
•• TAKING CONTROLTAKING CONTROL
42Private Equity in Europe PricewaterhouseCoopers
The European Savings Directive – Project
stages - I
Stage 2 Stage 3 Stage 4 Stage 5Stage 1
Scoping the scale of the project
ImplementationActionplan
ImpactStudy
Analyse the Directive
TIMESCALE
3 – 5 days ? Your choice
You have a lot to think about….
29th March 2004 pwc
Private Equity deal structuring in EuropeDuncan Cox
Private Equity deal structuring in EuropeDuncan Cox
44Private Equity in Europe PricewaterhouseCoopers
Private Equity Deal Structure
• Main objectives of Private Equity Deal Structure;– Ability to pay interest – Reduce effective tax rate going forward– Exit strategy– Limit withholding tax leakage– Minimise tax costs of setting up structure– Ensure tax attributes are maintained– Investor requirements considered
• Debt push down is key to nearly all of these points
45Private Equity in Europe PricewaterhouseCoopers
Why does debt push down help?
Impact on the effective tax rate• It is not possible to apply a flat tax rate of say, 35%, to cross
border European deals due to the complexity of profits and losses arising in different countries.
ABC plcUK France Germany Spain US Group
EBIT 200 - 50 100 10 360
Interest (100) (100) - (25) (70) (295)
Profit/(Loss) 100 (100) 50 75 (60) 65
Tax rate 30% 34% 40% 35% 39% -
Tax 30 - 20 26 - 76
Effective Rate of Tax 117%
46Private Equity in Europe PricewaterhouseCoopers
How do we complete a debt push down?
Four main ways• Refinance existing borrowing• Borrow to pay out a dividend• Borrow to redeem share capital• Sale to a new local holding company which is debt funded
47Private Equity in Europe PricewaterhouseCoopers
How do we complete a debt push down?
Key Issues• Distributions• Thin capitalisation• Transfer pricing• Tax grouping
48Private Equity in Europe PricewaterhouseCoopers
Risks on debt push down
Distributions• Disallow tax deductions for interest • Certain types of instrument are particularly at risk in the UK;
– Convertible debt– Debt with warrants attached– Debt which is “linked” to the company’s equity
49Private Equity in Europe PricewaterhouseCoopers
Risks on debt push down
Thin Capitalisation and Transfer Pricing• Finance should be on on arm’s length terms, such that gearing
levels are commercially justifiable and not abusive. • If a company is deemed to be thinly capitalised, the interest may
be disallowed, reclassified as a dividend and potentially liable to additional withholding tax.
• Very topical• New legislation being introduced all over Europe in response to
EU legislation
50Private Equity in Europe PricewaterhouseCoopers
Risks on debt push down
Tax Grouping• Usually the majority of senior and mezzanine debt is received by
investment companies that do not have trading activities. It is important to be able to offset interest expenses against trading profits to utilise the tax shield.
• Different countries have different rules to achieve this.
• Excess interest (i.e loss) of Debt Co surrendered to Target Co
• Debt Co and Target Co file one joint tax return, so interest automatically offsets trading profit
• No tax grouping, so excess interest in Debt Co may not be offset against profits in Target
UK France Switzerland
Target Co(profit)
Debt Co(loss)
Debt Co(loss)
Target Co(profit)
Target Co(profit)
Debt Co(loss)
Losssurrendered
One taxgroup
Co
51Private Equity in Europe PricewaterhouseCoopers
Local Issues
Local Issues• France – Interest rate on debt is capped• Switzerland – Rulings procedure allows you to agree on the
treatment of debt deductibility and mergers etc• Sweden – No thin capitalisation but cannot erode company’s
equity to below 50% of ordinary share capital• Belgium – Major differences in withholding tax rates • Netherlands – Thin capitalisation calculated on consolidated
basis but does not allow leverage against newly acquired Dutch participations
• UK – Thin capitalisation between UK companies
52Private Equity in Europe PricewaterhouseCoopers
Tax Efficient Exit
Holding Companies• A good holding company location will usually have certain tax
attributes;– Favourable capital gains legislation– Dividend income received from subsidiaries is exempt from
tax– Wide network of tax treaties to benefit from reduced
withholding tax rates– Withholding tax not applied to distributions to shareholders
• Must be able to demonstrate that it is managed and controlled inthe territory.
• Key that ongoing management ensure the tax residence of these companies.
53Private Equity in Europe PricewaterhouseCoopers
Tax Efficient Exit (cont’d…)
Popular Holding Company Jurisdictions Belgium Sweden
Luxembourg Netherlands Switzerland UK
Capital gains exemption Dividend income exempt No thin capitalisation rules
Tax grouping No Capital Duty
Notes: All the above reflect what can be achieved. To benefit from these exemptions the company is likely to have to meet various conditions (e.g hold certain percentage of shares for a certain period of time).UK - The capital gains exemption in the UK is very difficult to achieve and is not usually available in a private equity exit.
54Private Equity in Europe PricewaterhouseCoopers
EU Legislation – current issues
• Withholding tax on dividends and interest• Thin capitalisation• Losses exchanged cross border between EU companies