Buyouts increase their stranglehold as investment in Europe reaches a new high.

2000 was the year of the technology bubble in Europe. According to figures from the European Private Equity and Venture Capital Association (see chart below), that year saw a record €35 billion ($43 billion) of investment across the continent. The total was not threatened until last year, when a new high water mark of €36.9 billion was reached. In retrospect, might 2004 been seen as the year of the buyout bubble?

As we find in our cover story (see p. 39), buyout strategies have gone mega-large – and this is reflected in the latest figures. Buyouts accounted for 70 percent of total private equity investment in Europe last year, up from 63 percent in 2003, and helped Europe to a 27 percent increase in the amount of capital invested compared with the previous year's €29.1 billion.

The impact of just a handful of extremely large deals is starkly illustrated by the fact that the number of buyouts last year accounted for just 18 percent of the overall deal total, with small and mid-market buyouts making up 97 percent of that number. The average size of buyout transactions remains modest at €14 million, up from €11.7 million in 2003.

While buyouts continue to gather momentum, venture capital gives cause for concern. Although the amount of capital invested in European venture deals increased slightly from €2 billion in 2003 to €2.2 billion last year, venture transactions as a proportion of completed deals declined from seven percent to six percent over the same period.

The global private equity investor has made a £150 million (€225 million; $274 million) commitment to I2, a UK infrastructure fund in which Barclays Private Equity and SG Corporate & Investment Banking have also invested £150 million. With total capital of £450 million, I2 is now the largest fund operating in the secondary PFI market. Launched in November 2003, I2 has built a portfolio of 29 operating infrastructure projects in the health, education, transport and ministry of defence (MOD) sectors, with a total investment value of £150 million. The fund invests in projects that benefit from long-term government-backed income streams that demonstrate low volatility. The allocation to I2 is the fourth investment in external funds made by 3i over the last year.

The two Munich-based private equity firms have closed Europe's first subordinated debt fund of funds structure aimed at German investors. VCM Golding Mezzanine closed on €200 million ($244 million), surpassing its original €150 million target. The fund has made 12 investments in mezzanine partnerships in Europe and the US and 40 percent of the fund is already committed. Prior to launching VCM Golding Mezzanine, the two managers teamed up with the Center of Private Equity Research (CEPRES) at the University of Frankfurt to build a database of approximately 1,500 mezzanine transactions completed in Europe and the US between 1986 and 2002, which reported that mezzanine investments offer an average return of approximately 10 percent.

The Fonds de réserve pour les retraites (FRR), French Pensions Reserve Fund, a publicly owned, state-funded pensions manager with assets under management approaching €20 billion ($24 billion), is preparing to enter the private equity asset class for the first time. Set up in 2001, Paris-based FRR has so far concentrated on investing in bonds and public equity instruments. The fund has appointed Campbell Lutyens, the ([A-z]+)-based private equity advisory specialist, to help it devise a strategy to move a portion of its assets into private equity. The FRR's target allocation to private equity has not been disclosed. Under the mandate, Campbell Lutyens will act as a financial consultant and advise FRR on a planned request for proposal process in order to select suitable private equity fund managers. The FRR plans to launch the first stage of the manager selection process in the third quarter of this year.

F&C Asset Management has made a strategic entry into the private equity fund of funds market by acquiring the investment unit of Edinburgh-based fund manager Martin Currie Management. The value of the deal was not disclosed. Martin Currie's three-person private equity fund of funds team, led by Hamish Mair, will remain intact after its relocation to F&C's Edinburgh office. At F&C, Mair's team will be managing assets of more than £90 million (€135 million; $165 million). Ross Leckie, a director at Martin Currie, said: “It was get big or get out. F&C have much greater resources, so if the team doesn't thrive there, it can't.” Friends Provident, F&C's parent company, is to provide £20 million for new investment.

FSN Capital, the independent ([A-z]+)-based mid-cap buyout fund, has held a second closing of its latest fund on €114 million. The fund, which has a final target of €150 million, posted a first closing in January 2005 on €76 million. Investors in FSN Capital II include Norwegian institutions Argentum, KLP, Nordea, DnB NOR, Storebrand and Hoegh Capital Partners. In addition, the second closing saw the first two international commitments to the fund from Swiss bank Lombard Odier Darier Hentsch & Cie and Icelandic financial group Landsbanki Islands. FSN portfolio company Kongsberg Automotive, a developer of automotive systems, has announced plans to list on the Oslo Stock Exchange by the end of June. FSN acquired a 77 percent stake in Kongsberg from Industri Kapital in July 2001.

The New York State Common Retirement Fund has committed £3.75 million (€5.6 million; $6.9 million) towards the final close of Northern Irish venture capital firm Crescent Capital's second vehicle. Alan Hevesi, comptroller of the $120 billion NY State fund, said about the decision: “We're here [in Northern Ireland] to make money, help the economy and encourage the peace process.” Other LPs in the fund included Invest NI, Ulster Bank, Queen's University of Belfast, European Investment Fund and the Northern Ireland Local Government Officers' Superannuation Committee. Crescent intends to deploy up to 80 percent of the £22.5 million fund in local, early-stage tech businesses and has made two investments to date.

Verona-based Unicredit Banca d'Impresa (UBI), a subsidiary of Italian banking group UniCredito, has announced the formation of a new private equity fund dedicated to investing in small and medium sized Italian companies. The €100 million ($123 million) Idea Industria Fund will be managed by 21 Partners SGR, a division of Italian private equity firm 21 Investimenti, to avoid any potential conflicts of interest for the bank. The fund was set up to provide the bank's customers with the chance to participate in private equity opportunities. Of the €100 million allotted by UBI, €99.5 million was immediately subscribed. The fund will take minority stakes in small and medium sized Italian companies across all sectors and has a lifespan of 12 years.

Coller Capital's Global Private Equity Barometer (Summer 2005) asked 104 global private equity investors to rank the most attractive investment opportunities for GPs in the coming 12 months.

1European buyouts2Asia-Pacific buyouts3North American venture4North American buyouts5Asia-Pacific venture6European venture1Central & Eastern Europe2Germany3Spain4France5UK & Ireland6Nordic (Denmark, Finland,Norway & Sweden)7Benelux (Belgium,Netherlands & Luxembourg)8Italy