Private equity activity improves, AVCAL 2011 Yearbook

4 November 2011

Private equity (PE) and venture capital (VC) fundraisings, investments and divestments have grown over the past year, according to the latest analysis of annual industry data.

The Australian Private Equity and Venture Capital Association (AVCAL) has today released the 2011 Yearbook, an annual report of the primary activities of Australian PE and VC firms for financial year 2011.

The amount invested by PE and VC fund managers in Australian companies is the highest in the past three years at $3.6 billion dollars, with over 40% invested into one deal (Healthscope). The number of companies acquired in FY2011 at 150 is the lowest in recent years, reflecting greater investment selectivity and an increasing concentration of activity within the industry.

AVCAL CEO Dr Katherine Woodthorpe said: “2011 has seen more funds raised but by fewer fund managers, marking a period of consolidation within the industry. However, there has been an increase in the number of exits and many of them have generated excellent returns. Overall the data is encouraging, demonstrating the strength and stability of the industry in times of wider economic volatility and uncertainty.”

The importance of foreign capital in funding Australian businesses is clearer than ever, with around half of all new commitments to Australian fund managers sourced from overseas. Businesses funded by PE mostly comprise small and medium-sized enterprises, which make a significant contribution to Australia’s current economic growth story. The innovative, high-growth companies funded by VC are potential key drivers of our economic competitiveness in the future.

“The trend of declining VC activity has continued at the very time Australia should be building better pipelines to accelerate innovation and commercialise research and development investments by the Australian taxpayer. Australia desperately needs a policy framework to do this so that we have an ongoing process to give our nation a competitive edge in the years to come,” Dr Woodthorpe said.

Ernst & Young Oceania Managing Partner, Private Equity, Bryan Zekulich said: “We believe the private equity and venture capital industry needs access to accurate and detailed information about the performance of the industry to help explain to stakeholders how important this industry is to Australia's economy. As AVCAL's research partner, we are pleased to support the industry, and are delighted to be sponsoring the 2011 Yearbook.”

2011 Yearbook highlights

  • After three years of consecutive declines in PE and VC fundraising, total commitments increased by 72% y-o-y to $2,342m in FY2011.
  • Companies in the expansion/growth stage accounted for over a quarter of total companies receiving investments.
  • The life sciences sector (including healthcare) was the primary recipient of PE and VC investment in FY2011, accounting for almost half of the total amount invested and 29% of the total number of companies invested in.
  • Five of the top 10 deals by amount invested were secondary deals to other PE funds. Secondary deals grew nearly seven-fold by amount invested compared to FY2010.
  • There were 89 exits of 73 companies in FY2011, a 46% y-o-y increase by number of companies.
  • As in previous years, divestments via trade sales continued to be the preferred means of exit, accounting for 42% of all companies divested.
  • PE backed companies were held for an average period of investment of five years, while VC-backed companies were held for seven years on average, prior to a full/partial exits in 2011.

Fundraising activity in FY2011 was mixed. PE and VC funds raised $2,342m over the year: 72% more than the previous year, although 77% was raised by three funds alone. The challenging fundraising climate saw a number of PE fund managers shelving or delaying their fundraising plans. This resulted in the number of fund managers raising new commitments in FY2011 decreasing 39% y-o-y to 14.

Investments by PE and VC funds increased 44% y-o-y to $3,638m, however much of this was due to funds raised before the global financial crisis, reflecting on-going difficulties in raising new funds. The top 10 deals accounted for 74% of total investment amounts in FY2011. However, the number of companies receiving investments declined to 150 from 183 the previous year. Of the 213 investments completed in FY2011, 63% or 135 investments were follow-on deals. VC investments saw a 35% y-o-y decrease to $120m, with follow-on rounds accounting for 70% of this.

Divestments gained momentum in FY2011, with a total of 89 full/partial exits of 73 companies, an increase from 62 divestments of 50 companies in FY2010. Similarly to the previous year, trade sales remained the most popular method of exit, accounting for 42% of all companies divested. There were also more secondary sales to other PE firms, accounting for 11% of all companies divested. There were no full exits via IPOs (but one partial exit). VC exits generally performed well, with more divestments and higher net proceeds recorded compared to the previous two years.

AVCAL 2011 Yearbook

Media contact: Stuart Snell, ph +61 (0)2 8243 7001, (0)416 650 906, stuart.snell@avcal.com.au