Does the end of cheap debt spell the end of Europe's exit boom?

A record year for private equity exits. We've got used to saying it, and in 2007 it applied once again. The latest Annual Exit Analysis produced by Swiss alternative assets advisory firm SCM Strategic Capital Management reveals that global exit volumes reached about $320 billion last year, a 40 percent jump compared with the $230 billion total recorded in the prior 12 months.

The figures also continued the trend seen in recent years of European out-performance on the exit front. The region's exit volume was up 54 percent during the year compared with 20 percent in the US.

However, a disproportionate amount of Europe's cash windfall has resulted from the exploitation of cheap and freely available debt through the recapitalisation market. A glance at the charts (right) reveals that recapitalisations accounted for 31 percent and 16 percent of the total exit value in Europe in 2006 and 2007 respectively, compared with equivalent numbers of nine percent and 11 percent in the US.

As a result of this strong reliance on the credit markets, SCM chief executive Stefan Hepp expects Europe's exit environment to suffer most from the credit crunch.“The out-performance of European buyouts relative to US buyouts will be put into perspective,” he predicts. “There have been so many recaps in Europe, which means many more highly and cheaply geared companies in portfolios and a higher proportion that will suffer from the lowering of debt multiples.”

Hopes of another record year in 2008 would appear to be odds against.

SL Capital Partners has held a fourth close for its most recent private equity fund of funds on €520 million en route to a March 2009 final close. European Strategic Partners 2008's limited partners hail from 24 countries in North America, South America, Asia and Europe. Each LP has the choice of either committing 100 percent of their capital to private equity funds or to a mix of 70 percent private equity funds and 30 percent direct co-investments. SL Capital's 15th fund of funds invests in funds that target buyouts valued between €100 million and €1.5 billion with a focus on Western Europe. The group's previous European fund of funds closed on its €900 million cap in June 2007. The most recent North American fund closed on its $300 million cap in January 2007.

Crédit Agricole Private Equity (CAPE), the private equity arm of French commercial bank Crédit Agricole, is expanding into private equity co-investing via two new coinvestment funds with committed capital of €100 million. The coinvestments will be targeted at mid to large-scale LBO and development capital deals across all sectors, with investment capacity of €15 million per deal. “We want to be able to offer all the private equity services we possibly can [to our LPs] and that includes co-investment,” said Frantz Paulus, the director in charge of co-investment at CAPE. Paulus joined CAPE in March from a French family office specifically to start up the group's private equity co-investment business, which CAPE decided to enter last year.

The Riverside Company will soon go to market for its fourth European fund, expected to be at least double the firm's third European fund, which closed on €320 million at the beginning of 2007. Following the investment of its Europe Fund III, Riverside intends to commence fundraising for Europe Fund IV in the last quarter of 2008. The private equity firm, which is focussed on the smaller end of the mid-market, also recently acquired UK queuing products manufacturer, Tensator, for an undisclosed sum. The deal represents Riverside's eighth investment this year on behalf of its third European fund, Europe Fund III, and the firm's 19th globally.

Bancroft Private Equity has opened a Bulgarian office as it raises its third fund, targeting €250 million. Fund III, looking to raise more than double its predecessor, will target investments primarily in the Czech Republic, Hungary, Poland, Slovakia, the Baltics, Balkans, Turkey and Greece, the firm said. It will invest in later-stage mid-market companies benefiting from regional growth as well as high quality manufacturing exports. The Central European firm has hired Valeri Petrov to lead its push into Southeastern Europe. Petrov was formerly a director at Southeastern European-focussed private equity firm Global Finance, where he led its Bulgaria activities.

UK lower mid-market firm Darwin Private Equity has received total commitments of £217 million (€270 million; $381 million) for its maiden fund. The total is less than the £250 million it had been targeting, but represents a successful fundraise for a first-time fund given current market conditions, partner Jonathan kaye claimed. The fund's limited partners include AIG Investments, Goldman Sachs and Swiss alternative asset manager LGT Capital Partners. Half its LPs are UK-based, with the remainder from the US and Europe. Darwin was founded in 2007 by kaye, formerly of CVC Capital Partners, and Derek Elliott and kevin Street, both formerly of Permira.

European secondaries specialist ARCIS has held the final close on its fourth fund, ESD Fund IV, on €354 million. More than double the size of its predecessor, the fund will focus exclusively on the European secondaries market. Existing ARCIS Group investors comprised two thirds of the investor base, which was evenly weighted between US and non-US investors, the firm said. London-based managing partner Mark Birch said in a statement the firm is relishing the current market conditions. “Private equity is expected to suffer from the effect of the recent credit crunch, and the current environment – which is challenging for valuations and liquidity – represents an attractive opportunity for us,” he said.

Enterprise Investors, the largest private equity firm exclusively focused on Central and Eastern Europe, has closed its first venture fund on €100 million. The firm, which has raised six private equity funds, established a four-person venture team, which is supported by the firm's senior partners. The fund's limited partners include international financial institutions that have worked with Enterprise Investors over its 18-year history, the firm said. Its largest LP is the George kaiser Family Foundation. Enterprise Venture Fund I will make investments of €1 million to €5 million in technology sector “as well as in traditional sectors”. It will predominantly invest in Poland during the first year of its life, and then expand to other countries in the region, the firm said.

Italian firms Cape Natixis and Helio Partners hope to raise €70 million for solar power investment in Italy and Mediterranean Europe.“This fund will allow us to take advantage of the increasing number of investment opportunities with private equity type returns, but less risk,” Simone Cimino, founder and chairman of CapeNatixis, said in a statement. Dubbed Cape Helio, the fund is being raised by London-based placement agent Acanthus Advisors. “There is a window of opportunity to build solar power plants in Italy. Italy is one of Europe's sunniest countries and first movers will receive one of the highest incentives,” Massimo Sapienza, founder of photovoltaic development firm Helio Partners, said in a statement. “We currently have over 170-megawatts authorised and scheduled for construction by 2010.”

Altor, the Nordic mid-market firm, has closed its third fund on its hard cap of €2 billion after just two months of marketing. Repeat investors provided 95 percent of the commitments. Monument Group acted as placement agent for Altor Fund III, having also done so for Altor's previous two funds. The fund will have broadly the same focus as its two predecessors, focusing on Nordic companies with enterprise values of between €50 million to €500 million. There have, however, been some marginal adjustments to the fund's mandate: it will have the option of holding portfolio companies for a longer timeframe and will be explicitly allowed to make investments in publicly listed companies.