Happy days are here again

As the private investments' market heats up in Europe, owners of venture capital (VC) firms and private equity (PE) investors try to find good partners in Hungary too. Transactions happen every month and a good sign is that they happen not in the IT sector only but in the business products and services segment as well.

The VC/PE market is heating up in Europe. Private equity investment was over EUR 40 billion in 2014; exits hit record levels. The number of companies receiving buyout, growth and venture capital investments reached its highest level in the past five years, according to new data by the European Private Equity & Venture Capital Association.(EVCA).

More than 5,500 companies across Europe benefited from private equity and venture capital investment in 2014, an 8% increase on the previous year. Of these businesses, over 80% were small and medium-sized enterprises (SMEs); almost half of them attracted private equity funding for the first time. Venture capital investments made up the bulk of the companies backed, with over 3,200 companies receiving funding as investments increased by 6% to  EUR 3.6 billion.

“ Against the backdrop of extremely high liquidity in financial markets, our numbers are proof of a strong and stable private equity industry which displays no signs of overheating; the industry will continue to play a central role in the European economy.” EVCA Chief Executive Dörte Höppner said.

Initial Public Offerings (IPOs) played an increasingly important role in divestment activity. Exits via public markets more than doubled from 23 to 51 companies, while the amount divested at cost increased by more than 50% to EUR 3.3 billion. The most prominent exit routes by amount were trade sale (26%), and sale to another private equity firm (24%).

European private equity continued to attract significant capital from around the globe as institutional investors from outside Europe accounted for 40% of funds raised. Pension funds provided over one-third of the capital raised. Meanwhile, PE funds contributed 12% of the total, followed by government agencies (11%) and insurance companies (10%).

So the market is booming. And what about Hungary? Not bad - say experts at the Hungarian Private Equity and Venture Capital Association (HVCA). In 2014 96 new and existing companies received over HUF 54.9 billion from VC/PE funds in 107 transactions. 53 firms received minimum HUF 100 million, and 6 received HUF 1.0 billion or more in the form of equity investment. The top 5 transactions accounted for 70% of total market activity, and the 5 most active funds executed 70% of all investments.

As for the highest number of companies served, JEREMIE funds were in first place, providing funding for 48 companies. But in terms of the amount of money provided, private funds topped all investors with a 43 per cent market share. The most common stage of investment was the VC start-up phase, with 55 investments, however due to their higher value per deal, the PE growth stage dominated the market in terms of value with HUF 23.6 billion.

Two sectors dominated the VC/PE investment market, which accounted for 73% of total value of equity investments. The largest sectors included were (in order of size of investments) Business & Industrial Services, Energy&Environment, Business&Industrial Products and Life Sciences with 85% of the market. Also notable, but having seen only minor investments are Consumer Services, Transportation and Communication.

András Szombati, HVCA Board member and Partner at Primus Capital commented:

„2014 was a successful year for the Hungarian venture capital industry, especially for the JEREMIE sector. As the investment period ends for these funds this year, 2014 was optimally the last year to enroll new investments in the portfolio. This behavior of JEREMIE funds was clearly reflected in the statistics; 94% of the total investment made in 2014 (HUF 54.6 billion) are first round investments. This also sets forth that in 2015 the proportion of first round investments is expected to drop back, as funds will concentrate on providing follow-on funding to the existing portfolio."

He said  last year was a good illustration that the PE/VC industry is almost back to its “golden age” (2006-2009) when total investment amount fluctuated between USD 300-750 million annually. Though the 2014 figure translates to USD 200 million, which falls short of the investment performance of the golden years, still we can consider this as an outstanding performance as: