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2009 EVCA Buyout Report
An EVCA Research Paper - December 2009

EVCA
The European Private Equity & Venture Capital Association

EVCA is the voice of European private equity and venture capital. We promote and protect the interests of close to
1,300 members, thereby ensuring they can conduct their business effectively.

EVCA engages policymakers and promotes the industry among key stakeholders, including institutional investors,
entrepreneurs and employee representatives. EVCA develops professional standards and research reports, as well as
holding professional training and networking events.

EVCA covers the whole range of private equity, from early-stage venture capital to the largest buyouts.
For more information, please visit www.evca.eu.

Table of Contents 1

Editorial 4

Executive Summary 5

1. Introduction 7

2. Impact of the Economic Environment on Deal Making 8

2.1. Overview 8
2.2. Debt market 9
2.2.1. Leveraged loan market activity 9
2.2.2. Leveraged loan pricing 10
2.2.3. Maturity schedule of outstanding leveraged loans 11
2.3. Debt-to-EBIT ratios 11
2.4. Deal structures 12
2.5. Deal pricing 14

3. Evolution of Buyout Activity 2007 - Q3 2009 15

3.1. Fundraising market 15
3.1.1. Overview 15
3.1.2. Fundraising by type of investor 16
3.1.3. Geographic sources of fundraising 17
3.1.4. Final closings 18
3.2. Investments 21
3.2.1. Overview 21
3.2.2. Stages of financing 24
3.2.3. Buyouts by deal size 27
3.2.4. Sector overview 28
3.2.5. Initial versus follow-on investments 30
3.2.6. Investment syndication 32
3.2.7. Investments by number of employees 34
3.3. Divestments 35
3.3.1. Overview 35
3.3.2. Divestments by exit method 37
3.3.3. Divestments by sector 38
3.3.4. Write-offs by sector 39

2 Table of Contents

4. Buyout Performance Reported in 2009 40

4.1. Overview 40
4.2 Top-quarter and upper-half IRR 41
4.3. Performance by vintage year groups 42
4.4. Short-, medium-, and long-term returns reflected by net horizon IRRs 43
4.5. Performance by sector 45

5. Appendix 46

5.1. Fundraising 46
5.2. Investments 48
5.3. Divestments 50

6. Methodology and Definitions 51

6.1. Economic environment section 51
6.1.1. Standard & Poor’s LCD data 51
6.1.2. CMBOR data 51
6.2. Activity section 51
6.2.1. Coverage 51
6.2.2. Fundraising 52
6.2.3. Investments 52
6.2.4. Divestments 53
6.2.5. Number of companies 53
6.2.6. Data updates 53
6.2.7. Definitions 54
6.3. Performance section 56

Figures and Tables

Figure 1: EU GDP growth and index of buyout investment activity by amount 8
Figure 2: Senior loan volume - LBO transactions 9
Figure 3: Rolling three-month weighted average spreads of all European new-issue LBOs 10
Figure 4: Maturity schedule by par outstanding 11
Figure 5: Debt-to-EBIT ratios for private-equity-backed buyouts 12
Figure 6: Average deal structures for European private-equity-backed buyouts 13
Figure 7: Regional fundraising - % of European total 16
Figure 8: Funds raised by type of investor 17
Figure 9: Fund closings by region - % number of funds 19
Figure 10: Final closings by fund size range 20
Figure 11: Investments by European private equity houses - evolution 21
Figure 12: Investments into European portfolio companies - evolution 22
Figure 13: Average investment size per company by region 23
Figure 14: Investments by region and stage in Q1-Q3 2009 25

2009 EVCA Buyout Report - An EVCA Research Paper - December 2009

3

Figure 15: Average investment size by stage of financing - 2007-Q3 2009 26
Figure 16: Equity versus transaction value by buyout deal size - Q1-Q3 2009 27
Figure 17: Average investment size per company by sector 29
Figure 18: Initial versus follow-on investments - % of number of companies 31
Figure 19: Initial versus follow-on investments by region - Q1-Q3 2009 32
Figure 20: Syndication by stage 33
Figure 21: Syndicated versus non-syndicated deals by region - Q1-Q3 2009 34
Figure 22: Investments by number of employees 35
Figure 23: Divestments at cost - evolution 36
Figure 24: Divestments by location of the private equity firm - Q1-Q3 2009 36
Figure 25: Divestments by exit method - % of number of companies 37
Figure 26: Divestments by sector - % of amount 38
Figure 27: Write-offs by sector - % of amount 39
Figure 28: Net IRR since inception per quarter 42
Figure 29: Five-and 10-year rolling IRRs 44

Table 1: Average P/E* ratios for European private-equity-backed buyouts 14
Table 2: Buyout funds by fund stage focus 2007-Q3 2009 15
Table 3: Ranking of top limited partners by location 18
Table 4: Funds closed by stage focus 18
Table 5: Funds closed by sector focus 20
Table 6: Investments by geographic origin 23
Table 7: Investments by region 24
Table 8: Investments by stage of financing 25
Table 9: Buyouts by deal size range 28
Table 10: Annualised net pooled IRR since inception to 31 December 2008 40
Table 11: Top-quarter and upper-half net pooled IRR 41
Table 12: Annualised net pooled IRR by vintage years as of 31 December 2008 43
Table 13: Horizon IRRs to 31 December 2008 43
Table 14: Performance by sector focus 45


4 Editorial

“The buyout boom is over”. So it was reported last year in the 2008 EVCA Yearbook.

Certainly the writing was on the wall. The economic slowdown, impending credit crisis and declining stock markets
did not augur well for private equity. However, the full extent of the crisis only became apparent in 2009, as European
and North American economies moved into severe recession, bringing with it the near collapse of the banking system
and the closing down of the credit markets. As confidence dried up, investors sought refuge in cash and other liquid
investments, retreating from longer term illiquid asset classes, such as private equity, which drew a growing and
significant risk premium.

Most of us involved in private equity, whether as general partner practioners, limited partner investors, bankers,
service providers or employees of private-equity-backed companies, will agree that 2008 and 2009 have been very
challenging years for the European buyout industry. It will be important to understand the full impact of the crisis on
European buyouts, to appreciate the effects across the various facets of the asset class and to draw measured
conclusions on the standing of the industry and its way forward.

The publication of the 2009 EVCA Buyout Report is, therefore, particularly relevant. It can help us identify, quantify and
draw conclusions on investment activity, divestments, and fundraising. The report also addresses the issue of buyout
performance, comparing investment returns as of end 2008 with those of prior years. Unfortunately, it is still too early
to have performance data for 2009 but it is certain that net IRRs will be significantly lower than those recorded in 2008.
These themselves were markedly lower than those of 2007 and earlier years. Performance in 2009 will clearly be
influenced by the significant slowdown in private equity divestments, by the rise in the number and aggregate value
of write-offs and by the effects of depressed economic activity.

Is there now light at the end of the tunnel, are there grounds for future optimism, is the demise of European buyouts
now over? The 2009 EVCA Buyout Report may help us learn lessons from the past and anticipate future developments.

Maybe 2010 will herald the news that “the return of the buyout is near”.

David Chamberlain

About Capstone Partners

Founded in 2001, Capstone Partners (www.csplp.com) is a leading independent placement agent focused on raising
capital for private equity and real estate firms. Its experienced team of over 25 professionals, working from offices in
North America, Europe and Asia, is well placed to assist investment firms in the international development of their
investor base and complete successful fund raisings in a timely and efficient basis across different cycles.

For additional information about Capstone Partners, please contact:

North America Europe and Middle East Asia
Tripp Brower David Chamberlain Sheng Lu
Partner Partner Partner
+ 1 972-980-5800 + 41 22 365 45 00 + 86 21 5213 6959
tbrower@csplp.com dchamberlain@csplp.com slu@csplp.com

For more information, please visit www.csplp.com.


Executive Summary 5

Impact of the economic environment on deal making
• EU GDP shrank starting Q2 2008
• Liquidity dried up
• Prices of leveraged loans increased
• Purchase and leverage multiples fell

Fundraising activity 2007-Q3 2009
• European buyout, mezzanine and growth funds jointly raised €140bn, of which 90% was dedicated to
buyout funds
• The first three quarters of 2009 witnessed a strong decrease in fundraising and fund closings
• The funds with final closings in 2009 were considerably smaller in size than in previous years. Only two funds
of above €1bn have had final closings so far in 2009
• In 2007-Q3 2009, pension funds were the main source of capital (29%), followed by funds-of-funds (17%) and
banks (11%)
• Investors in the UK and the US were among the top five limited partners each year

Investment activity 2007-Q3 2009
• The worsened economic and financial environment took its toll in terms of reduced investment values in the
buyout segment. However, as more firms moved towards the lower end of the market, investment activity in
terms of number of businesses financed held up better
• In 2008, the total amount invested in European companies dropped by 27% from the peak level of 2007,
although the number of companies financed grew by 13%. In the first nine months of 2009, the total amount
invested came to only about a quarter of the value for the whole of 2008, although the number of businesses
financed in 2009 was around half that of 2008
• Throughout 2007-Q3 2009, most of the amount invested came from domestic players (72%), while only a
small share (4%) came from private equity houses outside Europe
• Replacement capital was the only stage that saw growth in investment amount during the first three quarters
of 2009, driven by refinancing deals
• Mid-market deals were most common in terms of amount invested, with an average equity-to-transaction-value
ratio of over 50% in 2009
• Nearly 80% of the businesses invested in were growth deals or small buyouts
• Business & industrial products was the most targeted sector throughout the period, followed by consumer
goods & retail, then communications
• In line with the difficult economic environment, considerably more companies received follow-on investments
in Q1-Q3 2009
• In Europe overall, most deals were not syndicated. France was the exception, where over half of the amount
was syndicated
• The majority of the companies receiving private equity backing were SMEs

Divestment activity 2007-Q3 2009
• Trade sales were the most popular type of exit
• The business & industrial products sector recorded the most divestments
• Most companies divested from so far in 2009 were domiciled in the DACH region
• Companies written off in 2009 represented 1.3% of the aggregate number of companies invested in over the
previous five years


6 Executive Summary

Performance reported in 2009 (as of 31 December 2008)
• As of the end of 2008, the long-term performance of the buyout industry remained steady with an overall net
pooled IRR since inception at 12.6%
• Large buyout funds achieved the highest net return, at 19.2% while mega funds registered the lowest return
of 8.7%
• Top quarter returns remained very strong with an overall net pooled return since inception of 31.9%
• Downward pressure on valuations impacted the interim short-term performance, with all fund sizes recording
one-year returns in the negative territory
• Mega buyout funds were most impacted by the crisis with -34.9% net IRR over the one-year horizon, while
small buyout funds were the least affected with a net return of -11.0%. However, private equity is a long-term
investment strategy and the interim short-term figures are not indicative of the final fund performance
• Funds with vintages in early 1990s and 2000s achieved the highest returns suggesting that buyout
investments during downturns generated superior performance results


1. Introduction 7

The slowdown in the European economies and the increased reach of the financial crisis in the second part of 2008
had a clear, adverse impact on European buyout activity in 2008 and 2009 (1). In the last quarter of 2008, buyout
investment halved compared with Q3 2008, and remained oriented downwards throughout the first half of 2009.

Fundraising, which remained very strong until the end of 2008, fell sharply in the first quarter of 2009 (down by 88%
compared with the last quarter of 2008). Since then, the fundraising environment has remained challenging, with total
funds raised so far in 2009 representing only 8% of the total funds raised in 2008. In addition, the size of individual
funds raised was smaller than in the past, with the average size of buyout funds reaching final closings in 2009
(€472m) just half the size of the average 2008 fund (€881m).

On the investment side, the crisis led to a sharp decrease in the amount invested (-77%), although the number of
businesses financed was more resilient to the crisis (-49%). More firms moved towards the lower end of the market,
with an increasingly larger share of small buyouts and growth in the total number of companies financed.
Accordingly, the average investment size per company decreased from €36m in 2007 to €23m in 2008 and €11m
so far in 2009. Unsurprisingly, replacement capital grew in 2009, driven by a sharp increase in refinancing deals,
which reached €2bn.

With the decrease in valuations, the exit market continued to fall in 2009. So far, divestments (excluding write-offs)
represented only 26% of the 2008 exit market by amount divested at cost, and 40% by number of companies.
As anticipated, the IPO window remained closed in 2009. The number of companies written off in 2009 so far was
2.5 times the number in 2007 or 1.3% of the aggregate number of companies invested in during the previous
five years.

Despite the currently depressed activity levels, the outlook for the industry remains positive. First signs of a recovery
appeared in the third quarter of this year. Similar to the European Union GDP, which went up by 0.2% from its Q2
2009 level, buyout activity seemed to rebound as investment value increased by 10.0% from the previous quarter.
In addition, GDP in the European Union is expected to grow by 0.7% in 2010, and increase further in 2011 by 1.6%,
after an estimated -4.1% in 2009 (2). Moreover, performance data indicates that the highest returns were produced by
vintages in periods of depressed economic activity. This is a positive sign for buyout investments made in 2009.

(1) The buyout segment includes: buyout, growth, rescue/turnaround and replacement capital.
(2) European Commission Economic Forecast, Autumn 2009: http://ec.europa.eu/economy_finance/publications/publication16055_en.pdf.


8 2. Impact of the Economic Environment on Deal Making

2.1. Overview

The economic turbulence during 2008 and 2009 had a major impact across the investment, financial and corporate
worlds. From an institutional investment perspective, investment boards were faced with a wholesale re-pricing of
assets and a global recession, causing liquidity restraints, and a general move towards defensive positions.

In the European Union, GDP began to shrink in the second quarter of 2008, decreasing by 0.3% on a quarterly basis.
This marked the beginning of the recession in Europe, which reached a trough in Q1 2009, with GDP falling by 2.5%.
Throughout this period, the main driver of the recession was the decrease in industrial production, which contributed
up to 1.4 percentage points to the decrease in GDP in Q1 2009, caused by the decline in global demand.

The combined effect of the slowdown in the real economy, declining profitability, reduction in debt availability and asset
re-pricing had a clear, adverse impact on European buyout activity in 2008 and 2009 (3). Similar to other investors,
buyout firms were very cautious with their investment decisions. Accordingly, in the last quarter of 2008, buyout
investment decreased by about 50% on Q3 2008, and continued to fall throughout the first half of 2009.

Figure 1: EU GDP growth and index of buyout investment activity by amount

1.0 105

95
0.5
85
0.0
75
-0.5 65
%

-1.0 55

45
-1.5
35
-2.0 25

-2.5 15
Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009

n GDP growth EU 27 (% q/q) n Buyout investments by amount (Index Q1 2007=100)
Source: EVCA calculation based on Eurostat and PEREP_Analytics

However, first signs of a recovery appeared in the third quarter of this year. According to preliminary figures from
Eurostat, the European Union GDP grew by 0.2%, with a rebound in industrial production expected to be the main
driver of this growth. Like the European Union GDP, buyout activity seemed to rebound, with investment value
increasing by 10.0% on the previous quarter. Further brightening in the European economic outlook is likely to drive
a more pronounced recovery in the buyout segment.

(3) The buyout segment includes: buyout, growth, rescue/turnaround and replacement capital.


9

2.2. Debt market

In line with the overall asset re-pricing, the European leveraged loan market experienced a substantial re-pricing
of risk in 2008 and 2009, evidenced by a contraction of market liquidity and significant spread-widening.

2.2.1. Leveraged loan market activity

After a relatively slow start in the early 2000s, leveraged loan activity in both the US and Europe picked up during the
years 2004-2007, fuelled by a combination of a favourable economic environment, low real interest rates due to
monetary policies, increased investment activity and strong competition among financial intermediaries. In this period,
the compound annual growth rate of the senior loan volumes for leveraged buyout transactions was 41% in the US
market and 48% in the European market. On the back of this robust four-year growth, senior leveraged loan volumes
reached €215bn in the US and €140bn in Europe in 2007. However, as the financial environment started changing
with the onset of the credit crunch in the second half of 2007, leveraged lending plummeted across the globe.
Worsening market conditions and liquidity dry-up significantly depressed leveraged loan levels in 2008 with US senior
loan volumes in 2008 dropping to €38bn, less than one-fifth of their 2007 level, and European loan volumes falling by
65% to €49bn. The first three quarters of 2009 saw another 80% decrease in the US loan volumes compared with
their level in the whole of 2008, and a 95% drop in European loan volumes. At just €10bn combined in the US and
Europe, new LBO loan activity during the first three quarters of 2009 was significantly lower than the previous trough
in 2001.

Figure 2: Senior loan volume - LBO transactions

400

350

300
140

250 116
€ billion

200
104
150

15 44 215
100 187
19 30
117 49
50 26 28 92
79 65 2
55 8
37 35 38
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009*

n US market n European market
* first nine months of 2009 only
Source: Standard & Poor’s LCD

This chart reflects the estimated primary volume to the US and European loan markets. Includes all private equity related transactions,
including refinancings and recapitalisations.



2.2.2. Leveraged loan pricing

The impact of the financial crisis is also reflected in a widening of the average pricing spreads on new leveraged
buyout loans. Due to a general liquidity dry-up, tightening lending standards and decreased risk appetite, in August
2007 the prices of leveraged loans set off on an upward trend.

As figure 3 shows, when the financial crisis began to spread more widely, the average pricing spread over Euribor for
European RC/TLa loans widened to 233 basis points, and the spread over Euribor for European TLb/TLc loans
increased to 304 basis points in December 2007 from an average of 216 basis points and 277 basis points
respectively over the period January 2005 to 31 July 2007. It widened still further to 278 basis points for RC/TLa and
365 basis points for TLb/TLc in October 2008. After a slight dip in the last two months of 2008, the spread over
Euribor turned upward again, reaching 421 basis points for RC/TLa and topping 500 basis points for TLb/TLc in the
summer of 2009. The levels reached in July 2009 are thus higher than the average spread values in the period January
2005 – 31 July 2007, with a factor of 1.9 for RC/TLa and 1.8 for TLb/TLc.

Figure 3: Rolling three-month weighted average spreads of all European new-issue LBOs

E+600

E+500

E+400

E+300

E+200

E+100

0
Dec-98
Mar-99
Jun-99
Sep-99
Dec-99
Mar-00
Jun-00
Sep-00
Dec-00
Mar-01
Jun-01
Sep-01
Dec-01
Mar-02
Jun-02
Sep-02
Dec-02
Mar-03
Jun-03
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09

n RC/TLa n TLb/TLc

Wtd. Avg. ProRata spread (WAPR) is the average RC/TLa spread weighted by the sizes of the RC and TLa tranches.
Wtd. Avg. Institutional Spread (WAIS) is the average TLb/TLc spread weighted by the size of the TLb and TLc tranches(4). E refers to Euribor.

(4) An amortising term loan (TLa or A-term loan) is a term loan with a progressive repayment schedule. These loans are normally syndicated to banks along
with revolving credits as part of a larger syndication. An institutional term loan (B-term, C-term or D-term loans) is a term-loan facility with a portion carved out
for nonbank, institutional investors. These loans are priced higher than amortising term loans because they have longer maturities and bullet repayment schedules.


11

2.2.3. Maturity schedule of outstanding leveraged loans

The below maturity schedule shows that 80% of outstanding European leveraged loans are expected to mature in the
period 2013-2015, with 15% maturing in 2013, 28% in 2014, and 36% in 2015. Only a small amount of the
outstanding credit matures in the next three years, which should give some breathing space for portfolio companies
to weather the economic storm.

Figure 4: Maturity schedule by par outstanding

2017 2010
1% 0%

2011
1%
2016
13% 2012
5%

2013
15%

2015 2014
36% 28%

Based on all facilities in the European Leveraged Loan Index (ELLI) universe, priced and unpriced.

2.3. Debt-to-EBIT ratios

In the years preceding the onset of the credit crunch, ample liquidity, low interest rates and a healthy business
environment drove up debt-to-EBIT ratios, especially for large transactions. The amount of debt as a multiple of EBIT
for deals across all size ranges peaked in 2007, at 11.9 for buyouts above €100m, 6.8 for deals in the €10m-€100m
range and 4.6 for transactions below €10m. As expected, the debt-to-EBIT multiple recorded a drop in 2008.
The steepest decline was registered by €100m-plus deals, down to 7.6. However, the debt-to-EBIT multiple for this
range of the market picked up slightly in the first three quarters of 2009, reaching 8.0 while the debt-to-EBIT multiple
for deals under the €100m threshold continued to decrease. This trend implies that while it was commonly perceived
that larger deals were overheated, it seems that these same deals are also expected to be in a better position to
weather the storm.



Figure 5: Debt-to-EBIT ratios for private-equity-backed buyouts

14

12

10

8
€ million

6

4

2

0
2004 2005 2006 2007 2008 2009*

n €0m-€10m n €10m-€100m n Over €100m
Source: CMBOR/Barclays Private Equity

2.4. Deal structures

The credit crisis also brought a change in the structuring of buyout transactions. In the years 2004-2007, the average
debt level in European private-equity-backed buyouts was 57% for transactions above €100m and 47% for deals
below €100m. However, with less debt available, in 2008 average debt levels decreased to 45% for deals above
€100m, and to 36% for transactions in the sub-€100m range. The first three quarters of 2009 saw the share of debt
in the average deal structure going down further, to 36% for the larger end of the market and 31% for the lower end.

As figure 6 shows, the reduction of debt in the structuring of buyout deals was substituted by an increase in equity.
For transactions above €100m, the share of equity jumped from an average of 32% in 2004-2007 to 43% in 2008,
and almost 60% in the first nine months of 2009. The equity share in sub-€100m deals also increased, although less
sharply, from an average of 44% in 2004-2007 to 51% in 2008 and 65% in 2009.

Therefore, the difference in equity shares between deal sizes (below and above €100m) halved. Between 2004 and
2007, the equity contribution in deals smaller than €100m was on average 12 percentage points higher than in
transactions above €100m. This came down to six percentage points in the first three quarters of 2009.

In deals above €100m, mezzanine was more commonly used throughout 2004-2008 (9% on average), but declined
substantially in 2009, to a mere 4%.


13

Figure 6: Average deal structures for European private-equity-backed buyouts

Deals below €100m

100%
n Equity
80% 41% n Mezzanine
45% 45% 44%
51%
n Debt
65%
60% n Loan note
4%
3% 3%
5% n Other finance
3%
40%
2%
48% 47%
47% 45% 36%
20% 31%

3% 5%
3% 2% 4% 2% 3% 4% 2% 4% 2%
0%
2004 2005 2006 2007 2008 2009*

Deals above €100m

100%
n Equity
30% 31% 32% 34%
80% n Mezzanine
43%
59% n Debt
10% 10% 9%
60% 7% n Loan note
9% n Other finance
40% 4%
57% 56% 56% 58%
45%
20% 36%

1% 2% 1% 2% 1% 1% 1% 2% 1% 1%
0%
2004 2005 2006 2007 2008 2009*




2.5. Deal pricing

As the market and economic environment worsened, acquisition multiples generally declined sharply. This was most
evident in the case of transactions over €100m, which saw record deal prices in 2007, namely an average EBIT
multiple of 18.5 for €250m-plus deals and 16.6 for buyout transactions in the €100m-€250m range. In 2008, the
price-to-earnings (P/E) ratio for the largest deals decreased by 9%, and by a further 37% in 2009, reaching 16.9 and
10.7 respectively. Similarly, average EBIT multiples for deals in the €100m-€250m size bracket dropped by 7% in 2008
and another 24% in the first three months of 2009.

Surprisingly, deals in the €50m-€100m range experienced an increase in P/E ratio throughout the crisis, reaching 14.2
in 2008 (an increase of 19% on 2007) and a 14.8 in 2009 (up 4%).

Table 1: Average P/E* ratios for European private-equity-backed buyouts

Deal size range 2004 2005 2006 2007 2008 2009**
€10m-€25m 9.2 10.5 9.5 9.8 9.8 7.0
€25m-€50m 11.4 10.3 11.2 11.8 12.4 10.0
€50m-€100m 12.8 15.0 9.7 11.9 14.2 14.8
€100m-€250m 14.0 13.9 14.9 16.6 15.4 11.7
Over €250m 13.6 18.2 18.6 18.5 16.9 10.7
* P/E ratios here are defined as deal price divided by EBIT
** first nine months of 2009 only


3. Evolution of Buyout Activity 2007 - Q3 2009 15

3.1. Fundraising market (5)

In 2008, fundraising reached €69bn, up 5% from the 2007 level but then experienced a steep decline in 2009
(-92%) with only €6bn raised during the first three quarters of the year. Throughout 2007-Q3 2009, European
buyout, mezzanine and growth funds jointly raised over €140bn. Over 90% of this amount was raised by buyout
funds, while mezzanine and growth funds each accounted for an equal share of about 4%. Pension funds were
the main source of capital, contributing 29% to the funds raised. Funds-of-funds and banks altogether allocated
another 28% to the total funds raised. At a regional level, the UK and Ireland combined accounted for the lion’s
share (62%) of the European buyout fundraising market. The share of the French fundraising market increased
during this period, to reach 13% of the total funds raised in the first nine months of 2009.

3.1.1. Overview

The financial crisis swung hard at the buyout industry in 2009. Preliminary figures showed an extremely challenging
fundraising environment in the first three quarters of 2009, with only €6bn raised in Europe, a dramatic decrease
compared with the whole of 2008 (€69bn) and 2007 (€66bn). No new funds above €1bn have been raised so far in
2009; in 2008, €1bn-plus funds represented 65% of total incremental funds raised.

In 2008, the total amount of funds raised was up 5% on the 2007 level, at €69bn, driven by a doubling in growth
funds and a 8% increase in buyout funds.

In Q1-Q3 2009, 88% of the funds raised were accounted for by buyout funds, slightly less than in 2008 (93%) and
2007 (90%). Growth funds continued to increase as a proportion of total fundraising, accounting for 10% of the total,
while mezzanine funds represented 2% of the total, only a quarter of their share of the 2007 total. The low share of
mezzanine funds may be a consequence of the continuing risk aversion of investors, as in times of debt scarcity, one
would expect mezzanine funds to become a valuable debt provider.

Table 2: Buyout funds by fund stage focus 2007-Q3 2009

Amounts in €m 2007 2008 Q1-Q3 2009
Funds raised by fund stage focus Amount % Amount % Amount %
Growth capital 1,694 2.6 3,708 5.3 541 9.5
Buyout 59,212 89.8 64,711 93.3 5,045 88.2
Mezzanine 5,037 7.6 979 1.4 130 2.3
Total buyout funds raised 65,943 100.0 69,397 100.0 5,716 100.0
Source: EVCA/PEREP_Analytics

As in previous years, the UK accounted for the largest share of the total funds raised in Europe (56%) in Q1-Q3 2009,
with 90% of the capital committed going to buyout funds.

(5) Throughout this report, “total fundraising” refers to funds raised by buyout, growth and mezzanine funds.


16 3. Evolution of Buyout Activity 2007 - Q3 2009

France came second in Q1-Q3 2009, with 13% of the European total, followed closely by the Nordic region with 9%.
Over 60% of the funds raised from France went to buyout funds, while growth funds represented nearly one-quarter
of the total. In the Nordic region, fundraising activity was almost entirely prompted by buyout funds (96%).

After a drop of 9 percentage points in 2008 on 2007, Southern Europe increased its share in the European fundraising
to 8% in Q1-Q3 2009. Belgium & The Netherlands and the CEE region doubled their shares in the first nine months
of 2009 to 6% and 2% respectively. Despite the increase, CEE remained the smallest fundraising market in Europe,
with all funds raised in the region focused on buyout investments.

The fundraising share of the DACH region in the European total remained relatively stable in Q1-Q3 2009, at just over
5%. However, contrary to previous years, no growth and mezzanine funds have been raised in 2009 so far in the
DACH region.

Figure 7: Regional fundraising - % of European total

100%
4% 1% 3% 1% 6%
7% 6% 2% n Belgium and The Netherlands
5%
6% 13%
80% 7% 13% n CEE region

12%
12%
9% n DACH region
% of European total

3%
60% 8% n France
n Nordic region
40% n Southern Europe
62% 63%
56%
n UK and Ireland
20%

0%
2007 2008 2009*


3.1.2. Fundraising by type of investor (6)

According to preliminary figures, banks became the main source of capital in the first three quarters of 2009,
accounting for 21% of the funds raised, compared with 7% in the whole of 2008. Pension funds had previously been
the main source of capital for European funds, accounting for 29% of the funds in the period 2007-2008. In 2009, the
share of pension funds declined to 19%. As in 2008 and 2007, funds-of-funds kept their second position as a source
of capital, accounting for slightly over 19% of the total.

Although it is too early to draw a definitive conclusion, the decline in allocations by the traditional investors into private
equity could perhaps be explained by the impact of the denominator effect on those portfolios that had a larger
exposure to public equity and the subsequent need to rebalance the asset allocation.

(6) Percentages are calculated on the funds raised for which the source was known.


17

Figure 8: Funds raised by type of investor

100%
7% 1%
14% 2% 1% n Academic institutions
6% 21%

80% 11% 5% n Banks
3% 1%
2%
1%
2% 18% 9% n Capital markets
60% 15% n Corporate investors
% of amount

6% 19%
7% 8% n Endowments and foundations
7%
40% 11% 10% n Family offices
7%
11% n Fund-of-funds
33% 6% n Government agencies
20% 24%
19% n Insurance companies
5% 6% 2% n Other asset managers
0%
2007 2008 2009* n Pension funds
n Private individuals

At a regional level, preliminary figures for 2009 showed that banks were the main contributor to funds managed from
the DACH region. Nordic funds received most commitments from funds-of-funds (27%), followed by family offices and
other asset managers (7), with 19% and 14% of the total respectively. For French funds, nearly 60% of the
commitments came from insurance companies and banks.

Family offices were the main source of capital for funds managed from Southern Europe, accounting for 29% of
the total, outranking funds-of-funds. While funds-of-funds accounted for one-third in 2008, they represented only 18%
of the total in Q1-Q3 2009.

As regards funds managed from the UK, pension funds continued to dominate the investor base with a 27%
contribution. Government agencies took a more prominent role, accounting for 20% of the total so far in 2009
(compared with only 7% in 2008), followed closely by funds-of-funds, which accounted for 19% in Q1-Q3 2009.

3.1.3. Geographic sources of fundraising

In the first nine months of 2009, most investors in European funds were located in the UK, followed by France. These two
countries combined accounted for over half of investor commitments. Preliminary figures for 2009 showed that the
contribution of international investors to European fundraising was substantially lower than in the previous two years.

In 2008, just over one-third of the committed funds originated from the US. Commitments from European investors
represented only half of the total funds raised, with the UK and France contributing 15% and 7% respectively to the
total. Outside Europe, Australasian and Canadian investors were significant sources of capital, with a 9% and 7%
share in European buyout funds respectively.

(7) Financial institutions (other than banks, endowments, family offices, foundations, insurance companies or pension funds) managing pools of capital by
investing them across asset classes with the purpose of generating financial returns. These may include private equity direct funds that occasionally do
indirect investments, but excludes funds-of-funds that are a stand-alone option.



In 2007, 35% of the capital originated from outside Europe, led by US investors, with 20% of the total. UK investors
once more outpaced their European peers with a 20% share in overall commitments to European buyout funds.

Table 3: Ranking of top limited partners by location

Ranking 2007 2008 2009*
1 USA USA United Kingdom
2 United Kingdom United Kingdom France
3 Greece Australasia Germany
4 Australasia Canada The Netherlands
5 Germany France USA

3.1.4. Final closings

In total, 159 funds reached final closings from 2007 to the end of Q3 2009, raising €129bn. Buyout funds represented
almost 80% of the total number of funds that reached final closings, with 125 funds and an average fund size of about
€1bn. The 23 growth funds and 11 mezzanine funds that reached final closings during this period raised a total of
about €10bn.

Because of the financial crisis and global economic downturn, a much smaller number of funds managed to reach
final closings in the first nine months of 2009. In total, 19 funds had final closings, among which 13 pure buyout funds
accounted for 95% of the total amount raised. Also reflecting the current fundraising environment, these funds had a
considerably lower average fund size compared with previous years. Growth funds experienced the steepest decline
in average fund size from 2008, falling 78% to €67m in the first nine months of 2009. The average size of mezzanine
and buyout funds dropped to €87m (-38%) and €656m (-37%) respectively. However, the average size of mezzanine
funds had already plummeted by 80% year-on-year in 2008.

Table 4: Funds closed by stage focus

Amounts in €m 2007 2008 Q1-Q3 2009
Funds closed by Number Average Number Average Number Average
fund stage focus Amount of funds fund size Amount of funds fund size Amount of funds fund size
Growth 1,675 8 209 3,298 11 300 269 4 67
Buyout 56,361 60 939 54,423 52 1,047 8,530 13 656
Mezzanine 4,212 6 702 419 3 140 174 2 87
Independent buyout
funds raised 62,248 74 841 58,140 66 881 8,973 19 472


19

About half the funds that reached final closings in Q1-Q3 2009 were managed from the UK (up from one-third in 2007
and 2008), accounting for 68% of the total amount raised in Europe. Southern Europe came next, accounting for 16%
of the total number of European funds with final closings. France and the Nordic region each accounted for 11% of
the European total, while all other regions only represented 5% each. This was a significant decline for the DACH
region, which had accounted for about 20% of the total number of funds at final closing in 2007 and 2008.

Figure 9: Fund closings by region - % number of funds

100% 5% 5%
3% 1% 3% 5% n Belgium and The Netherlands
19% 5%
80% 21% 11% n CEE region
% of number of funds closed

14% 11%
n DACH region
60% 18% n France
18% 16%
n Nordic region
12%
40% 11% n Southern Europe
8%
n UK and Ireland
47%
20%
35% 33%

0%
2007 2008 2009*


Most funds reaching final closing so far in 2009 fall into the €50m-€149m range, with an average size of €93m.
Relative to 2008 and 2007, the distribution of final closings in 2009 was more concentrated in the lower end of the
fund size range. Almost half the funds with final closings in the first three quarters of 2009 were sub-€149m, compared
with slightly over one-third in 2008 and less than one-fifth in 2007.

As expected, fewer funds were closed in almost all the size ranges in 2009 than in the previous two years. Two sub-
€50m funds, raising a total of €85m, reached final closings in Q1-Q3 2009, compared with seven funds in 2008.
Similarly, only two large (€500m-€1bn) and two mega funds (€1bn-plus) were closed in the higher end of the market
– significantly down on the eight large and 14 mega funds raised in 2008. Note that the two mega funds with final
closings in 2009 raised only 10%-20% of their total size in the course of this year; most of their capital was raised in
2008. These two funds were established in the UK and France. In other regions, most funds with final closings fell into
the €50m-€149m and €250m-€499m size brackets.



Figure 10: Final closings by fund size range

100%
11%
18% 21% n >=€1bn
11%
80% n €500m-€999m
18% 12% n €250m-€499m
% of number of funds

26%
60% n €150m-€249m
17%
27% 5% n €50m-€149m
14% n <€50m
40%
18% 37%
26%
20%
9%

11% 11% 11%
0%
2007 2008 2009*


Of the 159 funds that reached final closings throughout 2007-Q3 2009, most funds (139) had no sector focus.
Most of the funds with a sector focus were pure buyout funds (70%).

In 2007, most funds closed with a focus on consumer products, services & retail, while in 2008, ICT and business &
industrial products & services were the main sectors. In the first nine months of 2009, only one fund had a specific
sector focus: financial services. In many ways, this can be perceived as a high risk investment strategy. Therefore, the
fact that only one fund closed with a specific sector focus shows that sophisticated investors perceive investment
opportunities through buyouts even in the most challenging environment.

Table 5: Funds closed by sector focus

Amounts in €m 2007 2008 Q1-Q3 2009
Funds closed by Number Average Number Average Number Average
sector focus Amount of funds fund size Amount of funds fund size Amount of funds fund size
Agriculture, chemicals
and materials 24 1 24 0 0 0 0 0 0
Business and industrial
products and services 83 2 42 127 3 42 0 0 0
Consumer products,
services and retail 2,613 4 653 50 1 50 0 0 0
Energy and environment 200 1 200 0 0 0 0 0 0
Financial services 0 0 0 116 1 116 575 1 575
ICT 523 1 523 980 4 245 0 0 0
Life sciences 0 0 0 1,000 1 1,000 0 0 0
Generalist 58,806 65 905 55,867 56 998 8,398 18 467
Independent buyout
funds raised 62,248 74 841 58,140 66 881 8,973 19 472


21

3.2. Investments

3.2.1. Overview

Industry statistics – by location of private equity firm

Investments by European private equity houses were highest in 2007 (€65bn) and started declining
thereafter to reach only €11bn in 2009, a 76% decrease on 2008. Overall, European private equity houses
invested €123bn over the period 2007-Q3 2009, in 4,660 companies (8), regardless of their location.
The average investment per company was €26m.

Historically, 2007 clearly stands out as a record year for investments by European private equity houses
(€65bn). Second was 2006, with €54bn invested, followed by 2008 with €47bn. Before the onset of the credit
crunch, the buyout market experienced significant growth, with a year-on-year growth rate of nearly 30%
between 2002 and 2007.

The financial crisis and worsening economic environment clearly took its toll in terms of reduced investment
levels in the buyout market in 2008 and 2009. However, although the total amount invested in buyout
transactions by European private equity houses in 2008 was about 30% lower than in 2007, it still represented
the third-highest year on record. The slowdown of investment in the first nine months of 2009 was more
pronounced, as the total invested came to €11bn – about a quarter of the full-year 2008 investment value.

Figure 11: Investments by European private equity houses - evolution

70

60

50

40
€ billion

65
30
54
47
20
34
27
10 18 21
14 15 12 11
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009*


(8) Throughout this paper “total amount invested” refers to investments in buyout, growth, rescue/turnaround and replacement capital.



Although the average investment amount per company decreased from €37m in 2007 to €25m in 2008 and
€11m in 2009, investment activity in terms of number of companies financed resisted the economic conditions
better. The number of companies financed in 2008 was actually slightly higher than the number of businesses
that received financing in 2007. In the first nine months of 2009, the number of companies invested in was just
over half the 2008 total.

Market statistics – by location of portfolio company

In line with the trend noticed in the industry statistics, 2007 was also a peak year by location of the target,
with €62bn invested. In 2008, investment declined by 27%, to €45bn, and then decreased even further to
only €11bn in the first nine months of 2009 (-77%). Throughout 2007-Q3 2009, €118bn was invested in
more than 4,650 European companies. This resulted in an average amount invested per company of
€25m. Most of the amount (71%) came from private equity houses located in the same country as the
portfolio company. Another 26% was provided by non-domestic European private equity firms, while the
remainder came from outside Europe.

In the first nine months of 2009, €11bn was invested in 993 European companies, with an average amount
invested per company of €11m. Total investment in Q1-Q3 2009 represented about a quarter of the €45bn
invested into Europe in the whole of 2008, but about half of the 1,942 companies invested in – meaning that
more smaller deals were done. Although total buyout investment value in 2008 was lower than the record level
reached in 2007 (€62bn), the number of companies invested in was 13% higher – 1,942 companies received
financing in 2008 versus 1,725 in 2007.

Figure 12: Investments into European portfolio companies - evolution

100% 2,200
1,942 2,000 n Amont
80% 1,800 n Number of companies
1,725 1,600
number of companies

1,400
60%
€ billion

1,200
993
1,000
40%
800
62
600
20% 45
400
200
11
0% 0
2007 2008 2009*



23

In the first three quarters of 2009, €7.5bn originated from domestic private equity houses (71%). Non-domestic
European private equity firms provided €2.8bn (27%), while firms located outside Europe provided 3.4%, up
0.4 percentage points from 2008 in terms of share percentage, but still down on the 2007 level (4.2%).

Across the years, 2008 was marked with the highest share in amount coming from domestic players, while
2007 saw the highest share originating from non-domestic European houses.

Table 6: Investments by geographic origin

Amounts in €m 2007 2008 Q1-Q3 2009
Geographic origin Number of Number of Number of
of investments Amount % companies % Amount % companies % Amount % companies %
Domestic 41,331 66.7 1,470 85.2 33,549 73.8 1,637 84.3 7,482 70.5 858 86.4
Intra-European 18,034 29.1 233 13.5 10,554 23.2 282 14.5 2,771 26.1 125 12.6
Outside Europe 2,628 4.2 22 1.3 1,341 3.0 23 1.2 357 3.4 10 1.0
Total investment 61,993 100.0 1,725 100.0 45,445 100.0 1,942 100.0 10,610 100.0 993 100.0

By region, the main field of investment activity in Q1-Q3 2009 was UK & Ireland (28% of the total), followed by
Belgium & The Netherlands (15%). However, in terms of number of companies financed, the DACH region took
the lead (23%). The average investment per company was highest for Belgium & The Netherlands, with €17m
per company, followed by UK & Ireland with €16m per company.

Figure 13: Average investment size per company by region

50
n 2007
40 n 2008
n 2009*
30
€ million

20

10

0
Belgium CEE DACH France Nordic Southern UK
and The region region region Europe and Ireland
Netherlands




In both 2007 and 2008, the DACH region came second in terms of amount invested, right after UK & Ireland.
However, by number of companies financed in 2008, France came first, with 24% of the European total,
followed by the DACH region, with 21% of the total. In 2007, France and the DACH region came in second
(21%) and third (17%) – UK & Ireland topped the list, recording 24% of companies financed.

Table 7: Investments by region

% of amount % of number of companies
2007 2008 2009* 2007 2008 2009*
Belgium and The Netherlands 11% 6% 15% 11% 8% 10%
CEE region 2% 4% 3% 4% 4% 4%
Dach region 19% 21% 12% 17% 21% 23%
France 17% 18% 14% 21% 24% 19%
Nordic region 10% 9% 14% 12% 12% 16%
Southern Europe 12% 16% 14% 13% 11% 10%
UK and Ireland 29% 26% 28% 24% 20% 19%
Europe 100% 100% 100% 100% 100% 100%

3.2.2. Stages of financing

During the period 2007-Q3 2009, €96bn was invested in pure buyouts – 82% of the total invested capital – in nearly
2,700 companies. Growth capital came second with €15bn – 13% of the total – invested in 1,460 companies.

In the first nine months of 2009, investment amounts were spread more evenly across stages than in the previous two
years, as only 53% went to pure buyouts, compared with more than 80% in 2007 and 2008. Growth capital and
replacement capital were more resistant to the crisis and experienced a slower decline in value than pure buyouts.
The reason for this was the increase in equity-financed deals due to the slump in debt availability, and the restructuring
of balance sheets. The proportion of growth capital in the total amount invested increased for two years in a row,
accounting for 27% of the total invested so far in 2009, compared with 16% in 2008 and only 8% in 2007.

The value of growth capital investments was down 40% on the level seen for the whole of 2007 to the first nine
months of 2009. However, the number of companies receiving growth financing went up by 46%. In 2009, the number
of businesses receiving growth capital actually surpassed the number of companies involved in buyout transactions.

Replacement capital not only took a larger share of the total investment pie in Q1-Q3 2009 (18%) but also registered
a 15% increase in the amount invested from its full-year 2008 level, reaching €1.9bn. This upward trend was driven
by refinancing deals, which increased more than threefold from their 2008 level, to €1.3bn. However, by number of
companies, replacement capital remained 36% below the 2008 level.

The remainder of investments went to rescue/turnaround deals, representing 2% of the total amount and 9% of all
companies financed. In terms of number of companies, 2008 saw 15% more companies receiving rescue/
turnaround financing than in 2007. The increase accelerated during the first three quarters of 2009, when nearly 40%
more companies received rescue/turnaround financing than in the whole of 2008.


25

Table 8: Investments by stage of financing

Amounts in €m 2007 2008 Q1-Q3 2009
Stage distribution Number of Number of Number of
Growth 5,055 8.2 315 17.8 7,039 15.5 686 34.4 2,849 26.9 460 45.3
Rescue/turnaround 468 0.8 55 3.1 283 0.6 63 3.2 245 2.3 87 8.6
Replacement capital 2,301 3.7 145 8.2 1,472 3.2 169 8.5 1,917 18.1 109 10.7
Buyout 54,169 87.4 1,252 70.9 36,652 80.7 1,078 54.0 5,599 52.8 360 35.4

In most regions, the lion’s share of investment in Q1-Q3 2009 went into buyouts. The CEE region and Belgium &
The Netherlands were the only two regions in which buyouts did not represent the majority of the amount invested.
In the CEE countries, only 13% of the total amount was invested in buyouts, while buyout investment represented
35% of the total in Belgium & The Netherlands. Most of the amount invested (41%) in Belgium & The Netherlands
went to replacement capital, while in the CEE region the majority of the investments went into growth capital (84%).
The latter reflected CEE fund managers’ shift towards growth capital transactions in a changing macroeconomic and
deal-making environment. In 2009, the average growth investment per company in CEE overtook the average buyout
investment, driven by two large growth deals that accounted for nearly three-quarters of the total amount.

By number of companies financed, the growth stage was the most active across most regions, with the exception of
France, where buyouts continued to dominate the activity (53%). Only 33% of the French companies received growth
capital, and another 13% benefited from replacement capital.

Figure 14: Investments by region and stage in Q1-Q3 2009

100%
15% n Buyout
26%
33% 32%
80% 35% 37% n Replacement capital
% of number of companies

19% 53%
5% n Rescue/turnaround
3%
7% n Growth
60% 13% 14% 9% 8%
14% 3%
6%
14%
40% 13%
66% 2%
53% 53% 49%
46%
20% 40%
32%

0%
Netherlands




Deals that took place in 2008 and 2009 were, on average, significantly smaller than the average investment in 2007.
As can be seen from figure 15, this applied across most stages, with replacement capital being the exception.

The average rescue/turnaround investment per company experienced the steepest decline between 2007 and 2008,
falling 47% to €4.5m. In 2009, the average investment size dropped further, to €2.8m. This significant decrease may
be an indicator that investors are generally more cautious with such transactions and also structure them so as to
prevent losses in case of unsuccessful deals.

The average buyout investment in 2008 was 20% lower than in 2007, at €34m. However, in 2009, average deal size
was less than half of the 2008 value, at €16m. Besides a drop in valuations, this decline is also due to the almost
complete disappearance of large and mega buyout deals from the investment scene in 2009 and the subsequent
concentration of activity in the small and medium-sized deal range.

Replacement capital was the only stage that registered an increase in terms of average investment per company in
2009, as compared to 2007 and 2008 values, reflecting the fact that more refinancing deals were completed, and at
a higher value.

Figure 15: Average investment size by stage of financing - 2007-Q3 2009

50
43
n 2007
40 n 2008
36
34 n 2009*
30
€ million

23

20 18
16 16 16

10 11
10 9 9
6
4 3

0
Growth Rescue/ Replacement Buyout Total
turnaround capital investment



27

3.2.3. Buyouts by deal size (9)

In the period 2007-Q3 2009, the total transaction value (10) for European buyouts was €348bn, while the total
amount of equity was €97bn, resulting in an average ratio of equity-to-transaction-value of 28%. Mega deals
accounted for half of the total transaction value (€173bn), followed by mid-market deals (€102bn or 29% of the
total). In terms of equity value, mid-market represented the largest share (€39bn or 40% of the total). However, by
number of companies financed, small buyouts were most common (1,865 companies or 68% of the total), while
mega and large buyouts accounted for less than 3% each.

In the first nine months of 2009, mid-market deals attracted the largest part of the capital invested in buyouts (44%).
However, the vast majority of companies (89%) were small buyouts (those with a transaction value of less than €50m),
attracting 37% of the total buyout investment value, considerably higher than the share of small buyout companies
in 2008 (69% of buyouts accounting for 10% of the value) and 2007 (62%, accounting for 14% of the value).

Figure 16: Equity versus transaction value by buyout deal size - Q1-Q3 2009

14 400
n Equity value
12 11.6 350
n Transaction value
300
10 Number of companies n Number of
250 companies
8
€ billion

200
6 5.6
4.6
150
4 3.3 100
2.5 2.5
2.0
2 1.2
50
0.5 0.6
0 0
Small Mid-market Large Mega Total buyout


So far in 2009 only one mega buyout (€1bn-plus) has taken place, in sharp contrast with 2007, when 51 companies
were €1bn-plus companies. With only 17 mega buyouts in 2008, the first signs of a slowdown at the highest end of
the market started to show, as the financial crisis reduced the availability of debt. This effect became even clearer in
the ratio of equity-to-transaction-value, as it doubled to 32% in 2008, from 15% in 2007.

(9) The deal sizes section only concerns pure buyout deals, so growth, rescue/turnaround and replacement capital are excluded from this breakdown.
(10) Transaction value includes the contributions of all co-investors in a deal and the leverage. Therefore, the difference between private equity funds’ contribution
(“equity value”) and transaction value consists of two parts: the contributions of syndication partners other than private equity firms (such as LP co-investors,
corporate co-investors, financial institutions) and leverage.



The share of equity (funds’ contribution) in the total transaction

4,567 39.3
%
3,350 28.9

1,229 10.6

11,606 100.0
2,461 21.2
value increased through 2008 and 2009 for all deal size ranges.
Buyouts within the €500m-€1bn transaction size bracket had an
action
value
Trans-

average ratio of about 30% in 2007, and this increased to almost
40% in the first nine months of 2009. Mid-market deals’ (between
€50m and €500m) average ratio of 35% in 2007 came up to 54%
10.2
%
89.0

0.6

362 100.0
0.3

in 2009. The equity-to-transaction-value ratio of small deals (sub-
Q1-Q3 2009

% companies
Number of

€50m) went up from an average of 44% in 2007 to more than 60%
37
322

2
1

in the first three quarters of 2009.
2,475 44.2
2,048 36.6

8.1
625 11.2
5,599 100.0

3.2.4. Sector overview
(equity
value)

451
Amount

Over the period 2007-Q3 2009, business & industrial products
attracted the majority of capital (17%). Consumer goods & retail and
communications ranked second and third by amount, accounting
43,913 45.5
%
10,806 11.2

13,221 13.7
28,569 29.6
96,509 100.0

for 14% and 12% respectively. By number of companies, business
action
Trans-

value

& industrial products again took first place, accounting for one-fifth
of all companies financed, followed by consumer goods & retail
(15%) and business & industrial services (12%).
28.1
%
68.6

1.7
1.6
1,078 100.0

In the first nine months of 2009, investment across sectors was
Number of
% companies

307
751

19
17

more evenly distributed than in 2008 and 2007, with six sectors
2008

attracting over €1bn each: business & industrial products; business
& industrial services; communications; consumer goods & retail;
17,283 47.0
5,209 14.2

5,231 14.2
9,029 24.6
36,752 100.0

consumer services; and life sciences. These sectors together
Amount
(equity
value)

accounted for nearly 70% of the total amount invested and a similar
share percentage of the total number of companies.
53,429 22.3
%
5.1

31,989 13.4
141,757 59.2
239,483 100.0

In Q1-Q3 2009, consumer services dominated the ranking,
attracting 14% of the total amount, despite financing only 9% of all
Trans-
action
value
12,308

companies. A company in this sector attracted €17m on average.
At a regional level, the amount dedicated to consumer services mainly
went to Belgium & The Netherlands (46% of the European total).
30.0
%
62.2

3.8
4.0
1,252 100.0
Number of
% companies

In terms of number of companies, business & industrial products
2007

792
382
48
51

was the most targeted sector, with 17% of all companies. The average
investment per company amounted to only €7m in this sector.
Table 9: Buyouts by deal size range

5,436 10.0
18,818 34.7
9,298 17.2
20,616 38.1
54,169 100.0

Most of these companies were located in the DACH region (39% of
the European total).
Amount
(equity
value)


The computer & consumer electronics recorded 10% of deals by
Buyouts split by
investment size

number, with each deal attracting an average of €7m – similar to
Amounts in €m

Total buyout

the financing attracted on average by companies in the business &
Mid-market

industrial products sector. Most computer & consumer electronics
Large
Mega
Small

companies that attracted financing were in the Nordic region (26%
of the European total).


29

In 2008, business & industrial products attracted most of the financing, both in terms of amount (19%) and number
of companies financed (20%). The average investment per company in this sector was €22m. Consumer goods &
retail ranked second, accounting for 14% of the total amount invested and 15% of the total number of companies
financed, with a €21m-per-company average. In terms of amount, communications came third (10%), while business
& industrial services was third in terms of number of companies financed (11%).

The sectoral trend in 2008 was similar to 2007, although the average investment per company was overall
considerably higher in 2007 (€36m) than in 2008 (€23m). Of the top three sectors, the largest difference in averages
was in the communications sector, where the average investment per company in 2008 was just over half that of 2007
(€33m versus €62m).

The decrease in the average investment size per company from 2007 to 2009 was largest in real estate, agriculture,
construction and chemicals & materials, each of which reduced by more than 80%. Energy & environment experienced
the smallest change (a drop of 12%) in the average size of investment from 2007 to 2009. However, this was due to
a surge in investments in this sector during 2008 that was not replicated in 2009.

By number of companies, it was computer & consumer electronics that experienced the smallest decline in deals from
2007 to the end of September 2009, falling from 116 to 103 companies.

Figure 17: Average investment size per company by sector

Agriculture

Business and industrial products

Business and industrial services

Chemicals and materials

Communications

Computer and consumer electronics

Construction

Consumer goods and retail

Consumer services: other

Energy and environment

Financial services

Life sciences

Real estate

Transportation

0 10 20 30 40 50 60 70 80

€ million

n 2007 n 2008 n 2009*



1. Consumer services - close-up
In 2007, the activity in consumer services was almost entirely prompted by buyouts, both by amount (95%) and
by number of companies (77%). In 2008, growth capital investment more than doubled, and accounted for a
quarter of the total invested and more than one third of the number of companies financed. In the first 9 months
of 2009, the share of growth capital in the total decreased to less than one fifth by amount invested, but by number
of businesses it represented about half of the total. The amount invested in replacement capital increased by
50% from the full-year 2008 level, to €334m.

2. Business & industrial products - close-up
In the period Q1-Q3 2009, the amount invested in business & industrial products was mostly driven by
replacement capital (38%), while in terms of number of companies financed, growth capital accounted for the
lion’s share (36%). The average replacement capital investment per company in 2009 nearly doubled to €21m,
three times the average across stages.

3. Consumer goods & retail - close-up
In the period Q1-Q3 2009, buyouts accounted for 42% by amount and 40% by value of companies financed in
this sector. Nevertheless, the share of growth funding increased on 2008, taking on a substantial share in amount
(36%) and in number of companies financed (39%). The trend towards growth financing in this sector took off in
2008, when one-third of the companies active in consumer goods & retail received growth capital.

4. Communications - close-up
Although on average, 82% of financing went into buyout deals over the years, we saw a rise in the number of
growth financings. In 2007, 25% of the companies active in communications received growth capital, growing
through 2008 to reach more than half of the companies (51%) in 2009 so far.

5. Energy & environment - close-up
The energy & environment sector had a peak year in 2008, when buyouts accounted for 88% of the amount
invested. The share of buyout investment was considerably lower in 2007 and Q1-Q3 2009. Growth drove energy
& environment investment in 2007, while most of the amount invested in 2009 was replacement capital (41%).

6. Life sciences - close-up
Life sciences investments had a consistent profile over the years, being mainly driven by buyouts (80% of the
amount on average), although from 2008 onwards, the share of companies receiving growth capital grew
significantly (to 47% of all companies on average for 2008-2009).

3.2.5. Initial versus follow-on investments (11)

This section considers initial investments by two approaches: initial investment for the company, being the first time a
company is financed by a private equity house; and initial investment for the private equity firm, where the portfolio
company is a new investment target for the private equity firm. Follow-on investments reflect portfolio companies that
get add-on rounds of financing from a private equity firm, regardless of whether or not that firm has already invested
in this company.

(11) Percentages are calculated on the amounts for which the breakdown was known.


31

In the period 2007-Q3 2009, most companies experienced their first private equity backing ever, although the share
of follow-on investments increased in 2008 and became more pronounced in the first nine months of this year.

During the first three quarters of 2009, for the first time, follow-on investments overtook initial investments, both in
terms of amount (55%) and number of companies financed (59%). The average amount invested per company was
€10m for follow-on deals, while companies receiving their initial backing received €12m on average.

Compared with previous years, there was a drop in new targets for private equity firms in the first three quarters of
2009 (50% compared to 70% in 2007 and 68% in 2008), confirming private equity houses’ willingness to support their
portfolio companies with add-on financing in difficult economic times.

While in 2008 most companies received private equity investment for the first time (55%), this share was already six
percentage points lower than in 2007. The average initial investment in 2008 was €26m, down from €37m in 2007.

In 2008, total follow-on investments came to €17bn invested in 763 companies (59%), resulting in an average
investment of €22m. In 2007, a total of €20bn was allocated to follow-on investments in 668 companies, meaning
the average investment per company was considerably higher (€30m).

Figure 18: Initial versus follow-on investments - % of number of companies

100% 100%
n Follow-on investment for the company
80% 39% 80% n Initial for the company
45%

59% l Initial for the private equity firm
60% 60%

40% 40%
61%
55%
20% 41% 20%

0% 0%
2007 2008 2009*




So far in 2009, Southern European companies have received more initial backing than their counterparts in other
regions, with an average initial investment per company of €23m. By contrast, companies domiciled in Belgium &
The Netherlands received significantly more follow-on financing, averaging €20m per company.

Figure 19: Initial versus follow-on investments by region - Q1-Q3 2009

Average investment per company

25
n Initial for the company
20 n Follow-on investment
for the company
n Initial for the private
15
equity firm
€ million

10

5

0
Netherlands


3.2.6. Investment syndication

Most of the deals done in the period 2007-Q3 2009 (60% of the amount invested and 71% of number of deals) were
not syndicated. Syndicated deals recorded a higher average investment per company (€34m) than non-syndicated
deals (€21m).

In Q1-Q3 2009, syndicated deals were even rarer, with 72% of financings (attracting 63% of the amount invested)
being non-syndicated. This may indicate that it is more difficult to find a syndication partner during the current crisis
period, or it may be due to the fact that the deals completed so far this year are smaller. In 2009, syndicated deals
had an average investment per company of €14m, 33% higher than non-syndicated deals (€9m). Most syndicated
deals had only one co-investor (57%), while just over a third had between two and four co-investors (36%) and only
a minority involved more than five co-investors (7%).

In the period 2007-Q3 2009, 44% of the amount invested in buyouts was syndicated, while only 23% of the amount
invested in growth deals was syndicated. Across the years, syndication of buyouts remained stable percentage-wise.
Growth deals, on the other hand showed a decrease in terms of amount, as only a 13% share was syndicated in the
first nine months of 2009 compared to about 25% in both 2007 and 2008.


33

Figure 20: Syndication by stage

Buyout deals Growth deals

100% 100%
13% n Syndication
25% 24%
80% 80% n No syndication
43% 45% 43%

60% 60%
% of amount

% of amount
87%
40% 40% 75% 76%

57% 55% 57%
20% 20%

0% 0%
2007 2008 2009* 2007 2008 2009*


At a regional level, syndication was most common in France, where more than half of the total amount invested
was syndicated. The highest amount invested per company for syndicated deals was registered in Southern Europe,
at €26m on average per company. Companies domiciled in UK & Ireland and Belgium & The Netherlands attracted
an average of €14m per non-syndicated deal, the largest average recorded across Europe’s regions.

In the CEE region, the average non-syndicated investment was higher than its syndicated counterpart, due to two
large growth deals that were not syndicated. In the Nordic region, the number of non-syndicated deals was triple that
of syndicated deals.



Figure 21: Syndicated versus non-syndicated deals by region - Q1-Q3 2009

Average investment per company

30
n Syndication
26
25 n No syndication
22 22

20
€ million

15 14 14

10 10 10
10 9
7 7
5 5 5
5

0
Netherlands


Non-syndicated deals represented the majority in both 2007 and 2008, accounting for 59% of the amount invested
and 70% of deals by number of companies in both years. The average deal size per company for syndicated deals
was €31m in 2008, while non-syndicated deals attracted an average of €19m. In line with the overall amount invested
being 27% higher in 2007, the average investment per company for syndicated deals was €48m, while non-
syndicated deals averaged €30m.

3.2.7. Investments by number of employees

In the period 2007-Q3 2009, 59% of European companies financed by buyout houses were SMEs (companies with
<250 employees), attracting an average investment of €8m, although nearly 60% of the amount invested went to
companies employing more than 1,000 people.

In 2009 so far, SMEs have accounted for 67% of deals, a greater share than in 2008 (61%) and 2007 (53%). In line
with the overall trends in the market, the average amount invested per SME decreased in the past two years, with an
average of €4m invested in Q1-Q3 2009 – the amount invested per SME in 2007-2008 was at least double that.


35

Figure 22: Investments by number of employees

% of amount % of number of companies

100% 100%
14% n Up to 250
21% 25% employees (SMEs)
80% 80%
n 250-1000
24% 53%
21% 60% employees
67%
60% 60% n Over 1000
35%
employees

40% 40%
27%
62% 58% 25%
20%
20% 40% 20%
20%
15% 13%
0% 0%
2007 2008 2009* 2007 2008 2009*


3.3. Divestments

3.3.1. Overview

In 2007, a total of €21bn was divested at cost from over 1,000 companies. In 2008, the total value divested, at
€11bn, represented only half of the 2007 level, however the number of companies exited declined by only 15%,
to 921. Divestments continued to decrease during the first three quarters of 2009, when only €5bn at cost was
realised from 418 companies. During the whole period, €37bn was realised at cost from divesting from European
companies. In total, over 2,400 companies were exited, of which 24% were trade sales, accounting for the
highest amount divested at cost. Secondary sales represented 17% of the total number of companies exited,
accounting for €11bn at cost (30% of the total). Repayment of preference shares/loans was the third-most
popular exit method.

In 2008 and 2009, the divestment window closed considerably due to the asset re-pricing triggered by the financial
crisis. As a result, private equity divestment activity slowed down significantly. Buyout houses chose to delay exits and
instead focused on various operational performance-improving activities to help companies weather the difficult
economic conditions.

In the first three quarters of 2009, only €4.8bn was realised at cost from 418 companies across Europe. Divestments had
already tailed off in 2008, to almost half their 2007 amount, although the number of companies exited only fell by 15%.
The strong decline in exits was evident in almost all regions, apart from CEE, where realisations fell by only 20%.
Divestments in UK & Ireland and the DACH region accounted for nearly half of the total amount exited at cost in
Europe in 2008.



Figure 23: Divestments at cost - evolution

25 1,200
1,080
n Amount
921 1,000 n Number of companies
20

Number of companies
800
15
€ billion

600
10 21
400
418

5 11
200
5

0 0
2007 2008 2009*


In the first nine months of 2009, most European companies were divested by private equity houses located in the
DACH region (42%). In terms of amount divested at cost, UK players divested the most (46%), followed by Southern
European private equity firms (17%) and French houses (13%).

Figure 24: Divestments by location of the private equity firm - Q1-Q3 2009

100%
4%
9%
9% n Belgium and The Netherlands
1%
80% 13% n CEE region

9% n DACH region
42%
60% n France
17%
n Nordic region
9%
40% n Southern Europe
11%
n UK and Ireland
46% 7%
20% n USA
21%

1% 1%
0%
% of amount at cost % of number of companies



37

In 2008, UK players were responsible for not only the greatest number of divestments, but also the bulk of amount
divested at cost, while French houses came second in terms of amount. In 2007, private equity firms in the DACH
region sold the most companies.

3.3.2. Divestments by exit method

Similar to other parts of the economy, one of the effects of the economic crisis on the buyout segment was an
increase in write-offs, especially in Q1-Q3 2009. During Q1-Q3 2009, the written-off companies represented 1.3% of
the aggregate number of companies invested in over the previous five years (12), an increase of 0.2 percentage points
on 2008. Most of the write-offs occurred in companies that were initially financed with growth capital (47%), while 39%
of the companies were initially backed through a buyout.

Write-offs aside, trade sales achieved the highest amount divested at cost, representing 24% of the Q1-Q3 2009 total
with 75 realised companies.

During Q1-Q3 2009, secondary sales saw a dramatic drop; their share of amount divested at cost fell to just 9%,
versus a third in 2007-2008. However, sales to other private equity players picked up again in Q3 of 2009 and more
than doubled on their Q2 2009 level.

With the IPO window practically slammed shut in 2008, only three IPOs were registered that year and only one
buyout-backed company has gone public so far in 2009 (in Q3 2009).

Figure 25: Divestments by exit method - % of number of companies

100%

23%
18% n Trade sale
28%
80% 3% n IPO

3% 3%
3% 2% 20% n Sale of quoted equity
6% 7%
60% 7%
n Write-off
16%
13%
18% n Repayment of silent partnerships
40% n Repayment of principal loans
17% 9%
18% n Secondary sale
6% 10%
20% 10%
5% 2% n Sale to financial institution
10% 13%
n Sale to management (MBO)
14%
9% 8%
0% n Unknown
2007 2008 2009*


(12) This is the approach used to estimate the number of portfolio companies held by buyout firms.



3.3.3. Divestments by sector (excluding write-offs)

In the period 2007-Q3 2009, €34bn was divested at cost from 2,236 European companies. Divestment activity was
highly concentrated in three sectors: business & industrial products, consumer goods & retail and business & industrial
services. Altogether, they represented 50% of both amount divested and number of companies exited.

During the first three quarters of 2009, most divestments came from companies in business & industrial products,
representing 29% of all companies exited and only 18% of the total amount at cost.

In terms of amount divested, consumer goods & retail ranked first with 28% of the total. Trade sales drove this trend,
accounting for 56% of consumer goods & retail exits by value. Business & industrial products came second with a
share of 18%, while consumer services represented 10% of the amount.

In 2008, the sectors that saw the sharpest year-on-year decrease in amount divested were agriculture, construction
and communications, with declines of 91%, 71% and 68% respectively. In Q1-Q3 2009, all sectors saw a decline,
but construction experienced the smallest decline compared to 2008 in terms of amount at cost (-40%), thanks to
secondary sales.

Figure 26: Divestments by sector - % of amount

100%
1%
21% 23% 18% n Agriculture
80% n Business and industrial products
10%
11% 12% n Business and industrial services
2%
4% 4%
5%
60% 7% n Chemicals and materials
% of amount

11% 7% 3%
5% 6% n Communications
2% 1%
40% 17%
28% n Computer and consumer electronics
17%
n Construction
7% 7%
10%
20% 6% 4% n Consumer goods and retail
2% 3% 8%
4% 8% 1% n Consumer services
5% 5%
7%
0% 5% 1% 5% n Energy and environment
2007 2008 2009* n Financial services
n Life sciences
n Real estate
* first nine months of 2009 only n Transportation
Source: EVCA/PEREP_Analytics n Unknown


39

3.3.4. Write-offs by sector

In Q1-Q3 2009, the three sectors where most write-offs took place were the same as the sectors most divested by
other exit routes, i.e. business & industrial products, consumer goods & retail and business & industrial services.

In terms of amount, transportation had the second-highest share (17%), right after business & industrial products
(37%). In 2008, consumer services accounted for the largest share of write-offs, with 25% of the amount.

In 2007, consumer goods & retail and consumer services each accounted for 30% of the total amount written off,
while 25% of all companies written off came from the business & industrial products sector.

Figure 27: Write-offs by sector - % of amount

100%
6%
13%
n Agriculture
14%
80% 11% 37% n Business and industrial products
4%

14%
7% n Business and industrial services
60% n Chemicals and materials
% of amount

16% 7%
4% 6% n Communications
30%
40% 15% n Computer and consumer electronics
24%
9% n Construction
20% 8% n Consumer goods and retail
30% 1%
25% n Consumer services
17%
0% 2% 1% n Energy and environment
2007 2008 2009* n Financial services
n Life sciences
n Real estate
* first nine months of 2009 only n Transportation
Source: EVCA/PEREP_Analytics n Unknown


40 4. Buyout Performance Reported in 2009

4.1. Overview

As of the end of 2008, the long-term performance of the buyout industry remained robust with an overall net IRR
since inception at 12.6%. Large buyout funds generated the highest net return of 19.2%, followed by mid-sized
funds with a 16.3% return. Mega funds achieved only 8.7% net return, the lowest among all fund sizes.

At the same time, the interim short-term performance fully reflected the impact of the crisis, with all fund sizes
recording one-year returns in the negative territory. Mega buyout funds were most impacted registering -34.9%
net IRR, while small buyout funds were the least affected with a net return of -11%.

As of 31 December 2008, buyout funds registered an overall net pooled IRR since inception of 12.6%, down
4.1 percentage points on the IRR registered at the end of 2007.

The best-performing funds were the buyout funds in the $500m-$1bn size bracket with a net IRR of 19.2% amounting
to a drop of about 1.5 percentage points from the IRR registered at the end of 2007.

Small buyout funds (sub-$250m), which represented 63% of all funds in the sample, generated a 12.6% net IRR as
of the end of 2008, just slightly below the December 2007 level of 13.4%

At the opposite end of the buyout segment, funds above $1bn achieved an 8.7% IRR – the steepest decline
(8.3 percentage points) seen across all segments.

In terms of multiples, the TVPI for all buyout funds decreased from 1.53 in 2007 to 1.31 in 2008 with 0.85 being the
distributed part (DPI) and 0.46 the unrealised part (RVPI) of the multiple. The decline of 14% in TVPI from the end of
2007 to December 2008 was primarily due to a decrease in RVPI from 0.63 in 2007 to 0.46 in 2008, while DPI
changed only slightly (from 0.90 in 2007 to 0.85 in 2008).

Across fund sizes, multiples were in line with the net returns, with the slight difference that mid-market funds registered
a TVPI of 1.59, surpassing the large funds’ multiple of 1.57. Cash-on-cash returns for small and large funds (both at
75% of TVPI) were higher than for the other two fund sizes.

Table 10: Annualised net pooled IRR since inception to 31 December 2008 (Funds formed 1980-2008)

Multiples Multiples (as % of TVPI)
Fund size Number of funds Pooled IRR DPI RVPI TVPI DPI RVPI
Small 280 12.6 1.14 0.39 1.53 75% 25%
Mid-market 65 16.3 1.08 0.51 1.59 68% 32%
Large 49 19.2 1.17 0.40 1.57 75% 25%
Mega 50 8.7 0.71 0.47 1.18 60% 40%
All buyout 444 12.6 0.85 0.46 1.31 65% 35%
Source: EVCA/Thomson Reuters


41

4.2. Top-quarter and upper-half IRR

As of the end of 2008, the net pooled IRR for the 102 buyout funds in the top quarter was 31.9%. Large buyout
funds achieved the highest top-quarter returns at 49%, followed by mid-market funds with 39.5%. Small funds
ranked third with top returns at 28.6% while mega funds came last with 26.3%.

Overall, funds had to produce a return of at least 17.5% to qualify for the top quarter. The thresholds for small and
mega buyout funds were lower, at 16.3% and 16.7% respectively. Mid-market funds had to achieve returns above
23.3% and large funds had to achieve more than 19.2%.

The 213 top-half funds achieved a net pooled IRR of 21.4% as of the end of 2008, down from 25.5% as of December
2007 and close to the 2005 level of 21.7%.

The threshold for all top-half funds was a minimum return of 7.4%. Only for mid-market funds, the median return
(11.3%) was higher than the overall median return.

Mid-market funds led in terms of net pooled IRR in the top half with a 28.6% return. Large funds came second with
a 24.4% net pooled IRR and mega funds were third with 24.0%.

Table 11: Top-quarter and upper-half net pooled IRR

Top quarter net pooled IRR Upper half net pooled IRR
(Top quarter funds formed 1980-2008) (Upper half funds formed 1980-2008)
Top quarter Overall upper Upper half Overall
Fund size Sample size pooled IRR quartile IRR* Sample size pooled IRR median IRR**
Small 68 28.6 16.3 138 21.2 7.2
Mid-market 15 39.5 23.3 31 28.6 11.3
Large 11 49.0 19.2 24 24.4 5.5
Mega 11 26.3 16.7 17 24.0 6.2
All buyout 102 31.9 17.5 213 21.4 7.4
* Entry point that funds have to meet or exceed as return in order to become part of top-quarter funds.
** Entry point that funds have to meet or exceed as return in order to become part of upper-half funds.



When ranking the net since-inception returns of all Figure 28: Net IRR since inception per quarter
funds as of the end of 2008, the following quartile
returns were obtained: upper quartile return of
Percentile Net IRR
17.5%; median return of 7.4%; and lower quartile
100%
return of -2.7%. The returns registered in the
respective quarters were: 31.9% in the top quarter, 31.9%

12.7% in the second quarter, 2.8% in the third
75% 17.5%
quarter and -30.6% in the lowest quarter.
12.7%

50% 7.4%

2.8%

25% -2.7%

-30.6%

0%
Net pooled for the quarter


4.3. Performance by vintage year groups

Overall, the highest returns were produced by funds with a vintage in the periods 1990-1994 and 2000-2004.
Large parts of these time periods were characterised by depressed economic activity, suggesting that buyout
investments during downturns generate superior performance results.

The normal life cycle of private equity funds requires at least six years to deliver significant returns. The returns in the
early years of a typical fund are generally negative, as companies are being funded and exits are only expected some
years down the line. This explains the low DPI ratios for the funds within the 2005-2008 vintage group. The impact of
the current economic downturn and, specifically, the drop in valuations is also reflected in the low IRRs of this vintage
group and especially in the strong negative returns registered by the $1bn-plus funds (-23.9%).

Nevertheless, in the 2000-2004 vintage group, funds above $1bn achieved the highest returns (21.6% IRR and 1.26 DPI).

Small buyout funds with a vintage year between 1990-1994 were more successful than other vintages, with an
18.5% return. In that same vintage group, they were surpassed by large buyout funds with 25.9% IRR and a record
2.68 cash-on-cash return.


43

Table 12: Annualised net pooled IRR by vintage years as of 31 December 2008
(Funds formed 1980-1984, 1985-1989, 1990-1994, 1995-1999, 2000-2004, 2005-2008)

1980-1984 1985-1989 1990-1994 1995-1999 2000-2004 2005-2008
Fund size IRR DPI IRR DPI IRR DPI IRR DPI IRR DPI IRR DPI
Small 9.2 1.88 10.5 1.60 18.5 1.95 8.1 1.07 13.6 1.01 0.5 0.18
Mid-market 17.8 1.69 8.5 1.22 32.0 1.64 19.0 1.15 3.3 0.17
Large 25.9 2.68 16.7 1.53 13.0 0.94 -0.2 0.14
Mega 11.2 1.34 21.6 1.26 -23.9 0.11
All buyout 9.2 1.88 13.6 1.65 18.7 2.04 12.6 1.34 19.1 1.19 -19.1 0.12

4.4. Short-, medium-, and long-term returns reflected by net horizon IRRs

As of the end of 2008, buyout performance remained strong over the five- and 10-year horizons. The 10-year horizon
IRR stood at 11.1% for buyout funds overall, 0.2 percentage points higher than the five-year IRR. The three-year IRRs
were strongly impacted by the economic crisis, with buyouts overall registering net performance of 3.0% and mega
funds returning only 0.1%.

One-year returns fully reflected the negative impact of the crisis, with funds of all sizes recording negative returns.
Mega buyout funds suffered most, registering -34.9% net IRR, while small buyout funds were least affected with a
-11.0% net return.

Table 13: Horizon IRRs to 31 December 2008 (Funds formed 1980-2008)

Fund size 1-year IRR 3-year IRR 5-year IRR 10-year IRR
Small -11.0 8.7 11.3 10.1
Mid-market -15.4 9.2 14.3 14.8
Large -19.9 7.5 9.2 18.9
Mega -34.9 0.1 10.6 8.8
All buyout -31.3 3.0 10.9 11.1

Large funds reached the highest returns over the ten-year horizon with 18.9%, more than double their five-year
horizon. For the medium term, mid-market funds topped the ranking, with a five-year IRR of 14.3%, well above the
overall five-year return of 10.9%.



Figure 29: Five-and 10-year rolling IRRs

Five-year rolling IRRs

50%

40%

30%

20%
%

10%

0

-10%
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008
10-year rolling IRRs

50%

40%

30%

20%
%

10%

0

-10%
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

n Small n Mid-market n Large n Mega n All buyout


45

4.5. Performance by sector

Of the 444 funds in the sample, 36% had a specific sector focus. Industrial/energy funds achieved the highest net
since-inception returns as of 2008 (23.1%), with consumer-related funds ranked second (20.8% IRR, down 1.6 percentage
points from 2007).

Table 14: Performance by sector focus

No funds IRR to IRR to IRR to IRR to IRR to
Sector focus in sample Dec 2008 Dec 2007 Dec 2006 Dec 2005 Dec 2004
Consumer related 34 20.8 22.4 22.8 22.7 22.3
ICT 31 5.2 10.6 11.9 12.6 12.9
Industrial/energy 25 23.1 23.8 23.9 23.6 23.1
Life sciences 19 6.7 9.3 9.3 6.4 6.4
Other 53 14.9 18.2 18.3 13.7 8.7


46 5. Appendix

5.1. Fundraising

Funds raised - industry statistics - INCREMENTAL CLOSINGS DURING YEAR

Amounts in €m 2007 2008 Q1-Q3 2009
Funds raised by source Amount % Amount % Amount %
Independent funds raised 64,311 97.5 68,989 99.4 5,630 98.5
Amount raised by captives 991 1.5 232 0.3 79 1.4
New funds raised 65,302 99.0 69,221 99.7 5,709 99.9
Realised capital gains 640 1.0 177 0.3 7 0.1
Funds raised by fund stage focus
Growth capital 1,694 2.6 3,708 5.3 541 9.5
Buyout 59,212 89.8 64,711 93.2 5,045 88.2
Mezzanine 5,037 7.6 979 1.4 130 2.3
Geographic sources of funds raised
Within Europe 36,088 55.3 34,985 50.3 5,093 89.2
Outside Europe 29,214 44.7 34,236 49.7 616 10.8
New buyout funds raised 65,302 100.0 69,221 100.0 5,709 100.0

Funds raised - industry statistics - FINAL CLOSINGS IN THE YEAR BY INDEPENDENT FUNDS -
CUMULATIVE AMOUNT RAISED SINCE INCEPTION

Amounts in €m 2007 2008 Q1-Q3 2009
Breakdown by Number of Average Number of Average Number of Average
fund sizes Amount funds fund size Amount funds fund size Amount funds fund size
<50 226 8 28 166 7 24 85 2 43
50-149 757 7 108 1,497 17 88 652 7 93
150-249 2,259 13 174 1,610 9 179 217 1 0
250-499 6,643 20 332 3,641 11 331 1,678 5 336
500-999 7,795 13 600 5,364 8 671 1,240 2 620
>=1000 44,568 13 3,428 45,862 14 3,276 5,100 2 2,550
Total buyout
funds closed 62,248 74 841 58,140 66 881 8,973 19 472


Funds raised - industry statistics - FINAL CLOSINGS IN THE YEAR BY INDEPENDENT FUNDS -
CUMULATIVE AMOUNT RAISED SINCE INCEPTION

Amounts in €m 2007 2008 Q1-Q3 2009
Number Average Number Average Number Average
Funds raised by fund stage focus Amount of funds fund size Amount of funds fund size Amount of funds fund size
Growth 1,675 8 209 3,298 11 300 269 4 67
Buyout 56,361 60 939 54,423 52 1,047 8,530 13 656
Mezzanine 4,212 6 702 419 3 140 174 2 87
Independent buyout funds raised 62,248 74 841 58,140 66 881 8,973 19 472
Funds raised by fund sectoral focus
Agriculture, chemicals and materials 24 1 24 0 0 0 0 0 0
Business and industrial products and services 83 2 42 127 3 42 0 0 0
Consumer products, services and retail 2,613 4 653 50 1 50 0 0 0
Energy and environment 200 1 200 0 0 0 0 0 0
Financial services 0 0 0 116 1 116 575 1 575
ICT 523 1 523 980 4 245 0 0 0
Life sciences 0 0 0 1,000 1 1,000 0 0 0
Generalist 58,806 65 905 55,867 56 998 8,398 18 467
Independent buyout funds raised 62,248 74 841 58,140 66 881 8,973 19 472

47

48 5. Appendix

5.2. Investments

Investments - market statistics (by country of portfolio company)

Amounts in €m 2007 2008 Q1-Q3 2009
Stage distribution Number of Number of Number of
Growth 5,055 8.2 315 17.8 7,039 15.5 686 34.4 2,849 26.9 460 45.3
Rescue/turnaround 468 0.8 55 3.1 283 0.6 63 3.2 245 2.3 87 8.6
Replacement capital 2,301 3.7 145 8.2 1,472 3.2 169 8.5 1,917 18.1 109 10.7
Buyout 54,169 87.4 1,252 70.9 36,652 80.7 1,078 54.0 5,599 52.8 360 35.4
Sectoral distribution of investments
Agriculture 349 0.6 9 0.5 92 0.2 12 0.6 61 0.6 13 1.3
products 9,817 15.8 347 20.1 8,577 18.9 385 19.8 1,252 11.8 173 17.4
services 7,828 12.6 231 13.4 4,238 9.3 219 11.3 1,181 11.1 114 11.5
Chemicals and materials 2,581 4.2 59 3.4 2,764 6.1 57 2.9 222 2.1 27 2.7
Communications 8,416 13.6 136 7.9 4,722 10.4 145 7.5 1,217 11.5 86 8.7
Computer and consumer
electronics 2,315 3.7 116 6.7 2,399 5.3 164 8.4 728 6.9 103 10.4
Construction 3,110 5.0 59 3.4 1,845 4.1 67 3.5 242 2.3 28 2.8
Consumer goods
and retail 8,747 14.1 267 15.5 6,307 13.9 295 15.2 1,178 11.1 137 13.8
Consumer services:
other 6,789 11.0 149 8.6 3,074 6.8 151 7.8 1,461 13.8 88 8.9
Energy and environment 1,153 1.9 59 3.4 4,141 9.1 92 4.7 668 6.3 39 3.9
Financial services 2,946 4.8 74 4.3 2,141 4.7 68 3.5 565 5.3 29 2.9
Life sciences 4,675 7.5 132 7.7 3,648 8.0 162 8.3 1,047 9.9 81 8.2
Real estate 98 0.2 6 0.3 14 0.0 6 0.3 14 0.1 7 0.7
Transportation 3,028 4.9 70 4.1 1,225 2.7 71 3.7 462 4.4 27 2.7
Unknown 140 0.2 11 0.6 259 0.6 48 2.5 313 2.9 41 4.1
Subtotal high-tech 2,538 4.1 94 5.4 2,568 5.7 124 6.4 398 3.7 96 9.5
Syndication of investments
No syndication 36,747 59.3 1,245 70.4 26,961 59.3 1,404 70.0 6,732 63.4 727 72.1
Syndication 25,246 40.7 524 29.6 18,483 40.7 601 30.0 3,878 36.6 282 27.9
Initial vs. follow-on
Initial for the company 37,788 61.0 1,034 57.4 24,138 53.1 931 45.7 4,590 43.3 388 38.3
Follow-on investment
for the company 19,937 32.2 668 37.1 16,763 36.9 763 37.5 5,664 53.4 548 54.2
Unknown 4,269 6.9 100 5.5 4,544 10.0 341 16.8 356 3.4 76 7.5
Initial for the private
equity firm 43,747 70.6 1,111 64.4 31,299 68.9 1,136 58.5 6,086 57.4 477 48.0



49

Investments - market statistics (by country of portfolio company) continued

Amounts in €m 2007 2008 Q1-Q3 2009
Geographic source Number of Number of Number of
Domestic 41,331 66.7 1,470 85.2 33,549 73.8 1,637 84.3 7,482 70.5 858 86.4
Intra-European 18,034 29.1 233 13.5 10,554 23.2 282 14.5 2,771 26.1 125 12.6
Outside Europe 2,628 4.2 22 1.3 1,341 3.0 23 1.2 357 3.4 10 1.0


Investments - market statistics (by country of portfolio company)

Amounts in €m 2007
Buyouts split Amount Number of Transaction
by investment size (equity value) % companies % value %
Small 5,436 10.0 792 62.2 12,308 5.1
Mid-market 18,818 34.7 382 30.0 53,429 22.3
Large 9,298 17.2 48 3.8 31,989 13.4
Mega 20,616 38.1 51 4.0 141,757 59.2
Total buyout 54,169 100.0 1,252 100.0 239,483 100.0

Amounts in €m 2008
Small 5,209 14.2 751 68.6 10,806 11.2
Mid-market 17,283 47.0 307 28.1 43,913 45.5
Large 5,231 14.2 19 1.7 13,221 13.7
Mega 9,029 24.6 17 1.6 28,569 29.6
Total buyout 36,752 100.0 1,078 100.0 96,509 100.0

Amounts in €m Q1-Q3 2009
Small 2,048 36.6 322 89.0 3,350 28.9
Mid-market 2,475 44.2 37 10.2 4,567 39.3
Large 451 8.1 2 0.6 1,229 10.6
Mega 625 11.2 1 0.3 2,461 21.2
Total buyout 5,599 100.0 362 100.0 11,606 100.0


50
Divestments - by country of portfolio company
5.
Amounts in €m 2007 2008 Q1-Q3 2009
Amount Number of Amount Number of Amount Number of
Divestment at cost by exit route at cost % companies % at cost % companies % at cost % companies %
Divestment by trade sale 5,792 27.6 278 23.0 4,144 38.0 275 27.7 1,138 23.5 75 17.6
Divestment by public offering 1,923 9.1 66 5.5 473 4.3 18 1.8 211 4.3 14 3.3
Divestment on flotation (IPO) 881 4.2 34 2.8 37 0.3 3 0.3 1 0.0 1 0.2
Appendix

5.3. Divestments

Sale of quoted equity 1,042 5.0 32 2.7 437 4.0 15 1.5 210 4.3 13 3.1
Divestment by write-off 171 0.8 32 2.7 510 4.7 74 7.5 2,143 44.3 85 20.0
Repayment of silent partnerships 23 0.1 74 6.1 48 0.4 71 7.2 25 0.5 75 17.6
Repayment of principal loans 3,360 16.0 193 16.0 657 6.0 124 12.5 188 3.9 37 8.7
Sale to another private equity house 7,177 34.1 210 17.4 3,389 31.1 183 18.4 418 8.6 42 9.9
Sale to financial institution 753 3.6 70 5.8 630 5.8 54 5.4 254 5.2 9 2.1
Sale to management (MBO) 525 2.5 116 9.6 383 3.5 99 10.0 293 6.1 57 13.4
Divestment by other means 1,295 6.2 168 13.9 672 6.2 94 9.5 173 3.6 32 7.5
Total divestment 21,019 100.0 1,080 100.0 10,905 100.0 921 100.0 4,842 100.0 418 100.0
Divestment at cost by company sector

Agriculture 162 0.8 9 0.8 14 0.1 5 0.5 0 0.0 1 0.2
Business and industrial products 4,434 21.1 211 19.5 2,383 21.9 202 21.9 1,284 26.5 126 30.1
Business and industrial services 2,339 11.1 136 12.6 1,351 12.4 108 11.7 412 8.5 54 12.9
Chemicals and materials 854 4.1 37 3.4 529 4.8 36 3.9 64 1.3 7 1.7
Communications 2,221 10.6 73 6.8 740 6.8 55 6.0 220 4.5 22 5.3
Computer and consumer electronics 1,037 4.9 67 6.2 672 6.2 97 10.5 187 3.9 34 8.1
Construction 411 2.0 50 4.6 138 1.3 35 3.8 382 7.9 18 4.3
Consumer goods and retail 3,576 17.0 157 14.5 1,842 16.9 154 16.7 948 19.6 59 14.1
Consumer services 1,509 7.2 98 9.1 822 7.5 74 8.0 450 9.3 30 7.2
Energy and environment 1,270 6.0 31 2.9 458 4.2 22 2.4 213 4.4 14 3.3
Financial services 325 1.5 30 2.8 274 2.5 27 2.9 30 0.6 3 0.7
Life sciences 811 3.9 56 5.2 828 7.6 47 5.1 147 3.0 28 6.7
Real estate 3 0.0 2 0.2 5 0.0 5 0.5 0 0.0 0 0.0
Transportation 1,132 5.4 31 2.9 762 7.0 37 4.0 504 10.4 18 4.3
Unknown 935 4.4 92 8.5 86 0.8 17 1.8 3 0.1 4 1.0
Total divestment 21,019 100.0 1,080 100.0 10,905 100.0 921 100.0 4,842 100.0 418 100.0

6. Methodology and Definitions 51

6.1. Economic environment section

6.1.1. Standard & Poor’s LCD data

• Amortising term loan (TLa or A-term loan): a term loan with a progressive repayment schedule. These loans
are normally syndicated to banks along with revolving credits as part of a larger syndication.
• Institutional term loan (B-term, C-term or D-term loans): a term-loan facility with a portion carved out for
non-bank, institutional investors. These loans are priced higher than amortising term loans because they have
longer maturities and bullet repayment schedules.

6.1.2. CMBOR data

Transactions by real estate funds and infrastructure funds are excluded from CMBOR’s data. Deals in which a private
equity firm buys property as an investment are not included. All quoted values derive from the total transaction value
of the buyout (enterprise value) and include both equity and debt.

Deal pricing
CMBOR computes the average P/E ratios for different deal value ranges by dividing the deal price by EBIT (earnings
before interest and tax).

6.2. Activity section

6.2.1. Coverage

The overall statistics for Europe include:
• Austria • Italy
• Belgium • The Netherlands
• Czech Republic • Poland
• Denmark • Portugal
• Finland • Romania
• France • Spain
• Germany • Sweden
• Hungary • Switzerland
• Norway • United Kingdom
• Ireland


52 6. Methodology and Definitions

Regions were aggregated as follows:
• Belgium & The Netherlands
• CEE (Czech Republic, Hungary, Poland, Romania)
• DACH (Austria, Germany, Switzerland)
• France
• Nordic (Finland, Norway, Sweden)
• Southern Europe (Greece, Italy, Portugal, Spain)
• UK & Ireland

6.2.2. Fundraising

The funds included in the statistics are:
• buyout funds making direct private equity investments
• growth funds
• mezzanine private equity funds
• co-investment funds
• rescue/turnaround funds

The following funds are excluded from the statistics:
• venture funds
• generalist funds
• infrastructure funds
• real estate funds
• distress debt funds
• primary funds-of-funds
• secondary funds-of-funds

6.2.3. Investments

Unless stated otherwise, the approach taken in this report is market approach (so investments and divestments are
represented by location of the portfolio company).

At European level, this means investments in European companies or divestments from European companies,
regardless of the location of the private equity firm.

Buyout split
Buyout investments are split into four classes: small, mid-market, large, and mega. In this report, the classification is
based on the transaction value of the buyout deals.

Buyout breakdown by deal size Equity value (€m) Transaction value (€m)
Small < 15 < 50
Mid-market 15 < X < 150 50 < X < 500
Large 150 < X < 300 500 < X < 1,000
Mega > 300 > 1,000


53

6.2.4. Divestments

Divestments are measured by cost of investment, not proceeds.

6.2.5. Number of companies

The number of companies represents a distinct list of entities receiving investments throughout the reporting year.
For example, if Company A receives two investments in a year, the number of companies will equal one, while the
number of investments will equal two.

In some cases, subtotals and totals may not appear to add up to the same number of companies as individual items
in the tables. This can be explained by understanding the issue of counting distinct entities.

For example, if a company received multiple distinct rounds of financing in a year – a growth investment of €30m by one
investor in January, followed by a €50m buyout in November with two investors – the tables would indicate the following:

Stage Amount Number of investments Number of companies
Growth 30,000 1 1
Buyout 50,000 2 1
Total investment 80,000 3 1

The total number of companies corresponds to the number recorded under “Total investment”. Any one company
can be recorded under several subcategories. The sum of all subcategories can exceed the number stated under
“Total investment”. Therefore, it would appear to have incorrect totals in the number of companies (for both
investments and divestments) as the table appears to add up to 2, but the total only shows a total of 1. This will only
affect counts of companies, not amounts. However it will make any average more accurate.

6.2.6. Data updates

PEREP_Analytics offers to the players the potential to submit surveys and validate previously populated data captured
from public information sources at a later stage. Moreover, if a player submits a divestment at a later stage, and the
corresponding investment has never been reported or captured, the PEREP_Analyst will create the investment so that
no portfolio company is reflected with negative capital flow in the database. Moreover, some information is disclosed
on the website of the private equity players at a later stage, after the cut-off for producing our activity reports, and
thus is processed in the database at a later moment. For all the above reasons, figures may be updated year on year
to reflect the latest available statistics for previously released years starting with 2007.



6.2.7. Definitions

Type of investors (fundraising figure):
• Corporate investor: Corporations that produce products (manufacturing companies) or deliver non-financial
services (it excludes banks, funds-of-funds, insurance companies, pension funds, and other asset managers).
• Endowment: An institution that is bestowed money (and possibly other assets) via a donation with the
stipulation to invest it and use the gains for specific objectives so that the principal remains intact (for
perpetuity, for a defined period of time or until sufficient assets have been accumulated to achieve a
designated purpose).
• Family office: An office that provides services to one or several families, which include investment management
and other services (accounting, tax and financial advice etc).
• Foundation: A non-profit organisation through which private wealth is contributed and distributed for public
purpose (most often charitable purposes). It can either donate funds and support other organisations, or
provide the sole source of funding for their own charitable activities.
• Fund-of-funds: A private equity fund that primarily takes equity positions in other funds.
• Other asset manager: Financial institutions (other than bank, endowment, family office, foundation, insurance
company or pension fund) managing a pool of capital by investing it across asset classes with the purpose to
generate financial returns. It may include direct private equity funds that occasionally do indirect investments,
but excludes funds-of-funds that are a stand-alone option.
• Public sector: Country, regional, governmental and European agencies or institutions (including structures
such as EBRD or EIF).

Fund stage focus (fundraising table):
• Growth fund: Funds whose strategy is to invest in or acquire relatively mature companies that are looking for
capital to expand or restructure operations. They usually represent the first private equity investment in the
company.
• Buyout fund: Funds whose strategy is to acquire other businesses.
• Mezzanine fund: Funds which provide (generally subordinated) debt to facilitate the financing of buyouts,
frequently alongside a right to some of the equity upside.

Stage definitions (investment tables):
Several financing stages can be identified in relation to the stages of development of a private-equity-backed
company. These are described as follows and were the stages included in the survey questionnaire:
• Growth: It is a type of private equity investment, most often a minority investment but not necessarily,
in relatively mature companies that are looking for capital to expand or restructure operations, enter new
markets or finance a significant acquisition without a change of control of the business. As a round of financing,
growth capital tends to be the first private equity backing of the company. Additionally, most investments made
by buyout funds into venture type of stages should be defined as growth capital.
• Rescue/turnaround: Financing made available to an existing business, which has experienced trading
difficulties, with a view to re-establishing prosperity.
• Secondary purchase/replacement capital: Minority stake purchase of existing shares in a company from
another private equity investment organisation or from another shareholder or shareholders.
• Refinancing bank debt: To reduce a company’s level of gearing.
• Management buyout: Financing provided to enable current operating management and investors to acquire
existing product line or business.


55

• Management buy-in: Financing provided to enable a manager or group of managers from outside the
company to buy-in to the company with the support of private equity investors.
• Public to private: A transaction involving an offer for the entire share capital of a listed target company for the
purpose of delisting the company. Management may be involved in the offering.
• Other PIPE: A private investment in public equity as a minority or majority stake without taking the company
private.
• Other leveraged buyout: Financing provided to acquire a company (other than MBI, MBO, public to private or
other PIPE), by using significant amount of borrowed money to meet the cost of acquisition.

Mapping the above stages into the main five stages presented in this document leads to the following classification:
• Growth: Growth
• Rescue/turnaround: Rescue/turnaround
• Replacement capital: Secondary purchase/replacement capital, refinancing bank debt
• Buyouts: Management buyout, management buy-in, public to private, other PIPE, leverage buyout

Amounts definition:
• Equity value: Stricto sensu, amount of capital invested to acquire shares in an enterprise, amount that
originates from funds raised by private equity firms focused primarily on direct investments (including also
co-investment funds) or incorporated direct private equity firms investing from the balance sheet (evergreen
and also direct captive private equity programmes). The equity value includes equity, quasi-equity, mezzanine,
unsecured debt and secured debt financing provided by the above mentioned structures.
• Transaction value: The sum of the “equity value” as described above, to which financing coming from the rest
of the syndicate is added (LP co-investors, individuals, entrepreneurs, business angels, management,
corporates, funds-of-funds, other asset managers and/or financial institutions), together with the leverage
(debt provided by banks or other providers). In other words, stricto sensu transaction value is equal to
enterprise value multiplied by percentage ownership by the acquiring syndicate in which at least one financial
sponsor (private equity firm) is involved.

Sectoral definitions (investment tables):
For a complete picture of the sectoral classification and its mapping to the NACE standardised sectoral classification
of Eurostat (NACE Rev. 2, 2007), please go to the link: www.evca.eu//uploadedFiles/sectoral_classification.pdf.

Divestment methods (divestment table):
• Divestment on flotation (IPO): An IPO (initial public offering, which is the sale or distribution of a company’s
shares to the public for the first time by listing the company on the stock exchange) is one way in which a
private equity firm can sell its shares and exit an investment.
• Repayment of preference shares/loans: If the private equity firm provided loans or bought preference shares
in the company at the time of investment, then their repayment according to the amortisation schedule
represents a decrease of the financial claim of the firm into the company, and hence a divestment.
• Repayment of silent partnership: A silent partnership belongs to the so-called mezzanine financing
instruments. It is similar to a long-term bank loan, but in contrast to a loan, a silent partnership is subject to a
subordination clause, so that, in the event of insolvency, all other creditors are paid preferentially to the silent
partner. The company has to repay the partnership and has to pay interest and possibly a profit-related
compensation. The subordination clause gives the capital the status of equity despite its loan character.
This financing instrument is well known and often used in Germany.



• Sale of quoted equity post-flotation: It includes sale of quoted shares only if connected to a former private
equity investment, such as sale of quoted shares after a lock-up period.
• Sale to another private equity house: see sale to financial institution.
• Sale to financial institution: The sale of company shares to banks, insurance companies, pension funds,
endowments, foundations and other asset managers other than a private equity firm.
• Trade sale: The sale of company shares to industrial investors.
• Divestment by write-off: The write-down of a portfolio company’s value to zero or a symbolic amount (sales for
a nominal amount). The value of the investment is eliminated and the return to investors is zero or negative.

6.3. Performance section

The data is taken from Thomson Reuters’ application Thomson ONE (or VentureXpert). Thomson Reuters’
applications contain detailed statistical measurements including distribution and valuation ratios from data based on
a sample of 444 funds formed between 1980 and 2008.

IRR Internal Rate of Return
The IRR is the interim net return earned by investors (Limited Partners) from the fund from inception to a stated date.
The IRR is calculated as an annualised effective compounded rate of return using monthly cash flows to and from
investors, together with the Residual Value as a terminal cash flow to investors. The IRR is therefore net, i.e. after
deduction of all fees and carried interest. In cases of captive or semi-captive investment vehicles without fees or
carried interest, the IRR is adjusted to create a synthetic net return using assumed fees and carried interest.

Pooled IRR
The IRR obtained by taking cash flows since inception together with the Residual Value for all funds and aggregating
them into a pool as if they were a single fund. This is superior to either the average, which can be skewed by large
returns on relatively small investments, or the capital weighted IRR which weights each IRR by the capital committed.
This latter measure would be accurate only if all investments were made at once at the beginning of the funds’ life.

Horizon IRR
The horizon IRR allows for an indication of performance trends in the industry. It uses the fund’s net asset value at the
beginning of the period as an initial cash outflow and the Residual Value at the end of the period as the terminal cash
flow. The IRR is calculated using those values plus any cash actually received into or paid by the fund from or to
investors in the defined time period (i.e. horizon).

A three-year horizon looks back from the end of 2008 over three years to the end of 2005 and so on.

Five-Year Rolling IRR
The five-year rolling IRR shows the development of the five-year Horizon IRR, measured at the end of each year.
On the same token the one-, three- and ten-year rolling IRRs are produced.

Median IRR
The value appearing halfway in a table ranking funds by IRR in a descending order.


57

Quartile IRR
Statistically, the returns of each fund can be ranked and three quartiles obtained: the upper, the median and the lower
that separate the four quarters of ranked IRRs. The IRR value lies a quarter from the bottom (lower quartile point) or
top (upper quartile point) of a table ranking individual funds in a descending order.

Top Quarter
Comprises funds with an IRR equal to or above the upper quartile point. So while upper quartile IRR is a discrete
return for a single fund, the top quarter IRR is a pooled return for all the funds ranking as individual performance in
the top quarter.

Upper Half
Comprises funds with an IRR equal to or above the median point.

DPI - Distribution to Paid-In
The DPI measures the cumulative distributions returned to investors (Limited Partners) as a proportion of the
cumulative paid-in capital. DPI is net of fees and carried interest. This is also often called the “cash-on-cash return”.
This is a relative measure of the fund’s “realised” return on investment.

RVPI - Residual Value to Paid-In
The RVPI measures the value of the investors (Limited Partners) interest held within the fund, relative to the cumulative
paid-in capital. RVPI is net of fees and carried interest. This is a measure of the fund’s “unrealised” return on
investment.

Residual Value
The estimated value of the assets of the fund, net of fees and carried interest.

TVPI - Total Value to Paid-In
TVPI is the sum of the DPI and the RVPI. TVPI is net of fees and carried interest.

Buyout Fund
Funds whose strategy is to acquire other businesses; this may also include mezzanine debt funds which provide
(generally subordinated) debt to facilitate financing buyouts, frequently alongside a right to some of the equity upside.


58


59


60


The ‘2009 EVCA Buyout Report’ Research Paper is published by the European Private Equity & Venture Capital Association (EVCA). ISBN 9789077715192 - €200
© Copyright EVCA December 2009
Bastion Tower, Place du Champ de Mars 5, B-1050 Brussels, Belgium Tel: + 32 2 715 00 20 Fax: + 32 2 725 07 04 e-mail: info@evca.eu web: www.evca.eu

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