Q3 2008 Small-Cap Private Equity Report

December 5, 2008

According to a new report by GF Data Resources, a proprietary database that collects detailed data on private-equity transactions valued between $10 million and $250 million, small and middle market deal activity slowed slightly in Q3, but the full impact of the economic meltdown and credit squeeze has yet to be seen in the aggregate numbers. The 104 firms that contributed to the report completed 20 deals in the third quarter 2008, in line with the 42 deals that were completed in the first half of 2008.  These firms completed 133 transactions in all of 2007.

Points of interest from the report include: The primary valuation metric – Total Enterprise Value as a multiple of adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (TEV/EBITDA) – averaged 6.1x for the third quarter, up from 5.7x for the first half of 2008 and 5.8x in the second half of 2007. In the year following the onset of the credit crunch the numbers stabilized, but Q3 saw an uptick.

GFDR identified a number of emerging signs of a more difficult borrowing environment for business acquirers in the middle market:

– Senior debt – essentially, borrowing from bank lenders — declined as a multiple of cash flow from 3.1x adjusted EBITDA in the first six months of 2007 to 2.5x in 3Q ‘08.  Total debt – which also includes subordinated debt and other forms of junior capital – declined from 3.9x to 3.3x.

– With less available debt, buyers needed to increase their equity contributions — equity accounted for 49.2% of the average capital structure, a rise of nearly 10 percent from 39.5% in the first half of last year.

– As is often the case when bank lenders retreat and business sellers have not yet revised their expectations about value, subordinated debt providers began to play a more pivotal role in the market place. The percentage of deals utilizing subordinated debt increased over the past year from 45.2% in the first half of ’07 to 50.0% in 3Q ’08.

– Initial pricing on senior debt jumped from 6.6% in the first half of this year to 7.4% in 3Q.  This, however, preceded steady declines in lending benchmark rates since September 30.

The summary for your reading pleasure:


Q3 2008 Venture Capital Investing Up 22% in China

November 24, 2008

According to Dow Jones VentureSource, Venture Capitalists invested $964m in China during the third quarter of this year, 22% increase from the $790m invested in during the same period last year. However, the actual number of deals saw a marked decline as just 59 investments were made in Q3 2008 compared to the 73 deals VC’s made in Q3 2007. Through the first three quarters of this year $3.29bn of Venture Capital money has been invested in China, beating the previous annual record of $2.88bn set in 2001.

China’s consumer services industry accounted for $267m in investment with nine deals completed in the third quarter, up 57 per cent from the $170m put into 15 deals during the same period last year. Through the first nine months of 2008, the industry has seen a record $731m invested in 37 deals. Within consumer services, $143m was invested in four deals for retail companies in the third quarter.

The business and financial services industry saw 13 deals completed in the third quarter, garnering $254m, a 38% increase over the $184m put into the same number of deals during the same period last year. The industry as a whole has seen a record $712m invested in 44 deals so far in 2008, with the business support services sector producing the vast majority of deal activity and investment.

Dow Jones VentureSource also found that the IT industry saw investment decline 17% to $230m in the most recent quarter from $277m in Q3 2007 and the industry’s deal count dropped to 18 from 29.

Q3 Canadian Venture Capital Investment Down 26%

November 18, 2008

From the land of mounties and hosers: According to a report released by Canada’s Venture Capital & Private Equity Association and Thomson Reuters, a total of CAN$372m in venture capital was invested in Canada in the third quarter of 2008, a decline of 26% from the CAN$501m invested during the same period last year. 123 Canadian-based firms secured venture capital investment during the Q3, down 12% from the 140 companies financed in the same period a year ago.

Q3’s VC investment total of CAN$372m showed improvement over the totals for the first two quarters of this year (you have to look for bright spots anywhere you can, even in Canada!) when venture capital investment in Canada totaled CAN$352m in Q1 and CAN$304m in Q2.

From January through September of this year, over CAN$1bn was invested in 296 companies, a 33% drop from the CAN$1.5bn that went into 336 companies during the same nine-month period in 2007. The average amount invested per business was CAN$3.5m for the first nine months of 2008, a substantial drop compared to an average of CAN$4.6m the year before. Many firms may be looking to get away from the longer term, more capital intensive start-ups that some VC’s have flocked to in recent years.

Q3 U.S. Venture Capital Investment Down 7%

October 20, 2008

According to a recent MoneyTree Report released from PwC and the National Venture Capital Association, venture capitalists put $7.7 billion into 1,033 deals in Q3 2008, a decrease of 7% from the quarter before.

Investment in biotech and medical device companies rose 10%, while funding for clean technology startups increased 14%. Venture investment for internet-based companies fell 36%, however some of this decline can be attributed to the fact that web companies today have become more capital efficient thus burning less upfront cash (also many “me too” copycat web ideas are no longer finding funding).

Q3 2008 Fundraising Weakest for Private Equity Since 2005

October 7, 2008

Q3 Private Equity fundraising worldwide totaled $82.3 billion, the lowest totaled since $64.8 billion was raised in Q1 2005.  The 61 Private Equity funds targeting the U.S. raised $57.9 billion in third quarter, 31 targeting Europe $11.9 billion, and the remaining 25 funds focused on the rest of the world took in $12.5 billion .  The $82.3 billion is a 52% decline from the second quarter of this year when $179.9 billion was raised.

The breakdown by fund type was as follows: Buyouts raised $43.2 billion, Real Estate funds took in $23.7 billion, and Venture Capital amassed a paltry $9.3 billion.

As the financial markets tighten up (or completely fall apart depending on how optimistically you want to spin it) it’s no surprise that fundraising is taking a massive hit.  LPs are becoming EXTREMELY cautious and many smaller funds that lack a strong track record are going to be left begging with an empty cup (a little darwinistic culling may not be such a bad thing though).

Across the globe there are now 1,594 funds currently trying to raise $928 billion.  Good luck!  You’re going to need it.

Venture Capital Investment in Renewable Energy Sets Record in Q3 2008

October 2, 2008

According to a Greentech Media report, venture capitalists invested a record $2.8 billion in renewable energy in the third quarter of 2008 breaking the previous record.  This follows investments of $998 million and $1.3 billion in the first and second quarters of this year respectively, bringing total VC investments in renewable energy to $5.09 billion thus far in 2008, a 49.7% increase over 2007.

Investments in solar companies led the way with $1.5 billion covering 26 rounds in Q3 2008.