European Private Equity

There is no doubt that the EU Private Equity industry is hot. Funds such as KKR, Carlyle, Blackstone and Co. have formidable buying power. In 2004, PE funds investing in Europe have raised more than €25.4 billion (€129 bn globally) so we should get ready for more buyout in 2005. Last year, they have invested more than €156 bn in EU companies and more recently, the €12 bn proposed buyout of Wind has stunned corporate EU by its size, which would made it the 2nd largest LBO after KKR buyout of RJR Nabisco in 1989.

Many funds are investing in Europe because of the large number of companies with low corporate efficiency. PE firms are hopping to improve the business and then exit with some nice profits. But with so many funds chasing a limiting number of deals, it will become increasingly harder for them to sustain high returns. And as it was not enough, hedge funds are now seizing companies and are competing against traditional PE funds for assets.

The smaller venture capital industry, that usually invests in early-stage technology companies, looks pale in comparison to the buyout industry. Returns in that asset class have been much lower in Europe when compared to buyouts and lots of VCs are still stuck with portfolio from the bubble. Furthermore, with no NASDAQ equivalent, exits are pretty difficult in Europe and therefore, the European VCs have difficulties raising funds.

But why am I writing about all this? This is an industry I closely monitor because ultimately, I would like to work in venture capital. So from time to time, I will post some info on VCs and buyout deals. Stay tuned if that interests you as well.

Update: Enel, the parent company of Wind has apparently decided to start exclusive negotiation with Weather Investments. This consortium formed by an Egyptian businessman, a US billionaire and a French financier has beaten Blackstone with a €12.2 bn offer.