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Highest value of mid-market deals boosts markets

Wednesday 13th May

Highest value of mid-market deals boosts private equity and venture capital markets

The New Zealand Private Equity and Venture Capital Monitor, released today, recorded the highest value of mid-market deals (investment and divestment) in the twelve years of the Monitor and the highest number of deals since 2008. The level of deals with disclosed values increased to NZ$243.5m from NZ$191.5m in 2013.

Total activity across all private equity and venture capital was NZ$919.5m, down from $1.1b in 2013, mainly due to there being no large buy-outs. Total investment value was NZ$299.3m spread across 81 deals, while total divestment was still high, but decreased slightly to NZ$620.3m in 2014, down from NZ$665.4m in 2013.

Venture and early-stage investment value increased marginally to NZ$55.8m across 62 deals.
‘While the high level of mid-market activity was expected given economic conditions, it was great to see this playing out in practice, with private capital aligning and finding a home with ambitious and entrepreneurial New Zealand founders, owners and management wanting to see those businesses taken to their next stage. The number of mid-market deals was significantly up on the previous year and the average deal value remained steady at NZ$12.8m’, says Brad Wheeler, partner EY.
Mid-market divestment value in 2014 increased significantly driven by the initial public offering of Metroglass and Scales Corp by Crescent Capital and Direct Capital respectively.
The volume of mid-market deals increased during 2014 with the average deal value of NZ$12.8m being in-line with 2013. Venture and early-stage investment average deal value was NZ$0.9m across 62 deals.
Venture and early-stage investment in IT and software continued to grow and be the dominant sector for VC activity with a marked drop in the health/biosciences sector.
The outlook for the New Zealand PE and VC market continues to be optimistic as a result of continued strong business confidence and economic growth.

‘The consistent level of mid-market activity reflects the deep pool of target companies in this space,’ says Matt Riley, chair of NZVCA.

‘Private businesses don’t just need capital; they also need skills to complement those of their founders and management executives. A strong alignment of interests between investors, owners and management goes to the heart of private equity success and delivers a powerful model for achieving the shared aspirations of all stakeholders.’

‘The strength of the mid-market was evident in 2014, says NZVCA executive director Colin McKinnon. ‘New Zealand privately owned businesses and innovative entrepreneurs are continuing to find effective capital accompanied by skills that help deliver excellent results. New Zealand capital markets – public and private – are evolving with innovative products across the spectrum. Crowd-funding is being established for young companies while the NXT exchange will add options for larger companies. Private markets and privately-owned companies continue to dominate the New Zealand business landscape.
‘Behind the numbers are stories of Kiwi founders and owners who have built strong businesses with innovation and determination. When we have a year of strong investment activity we know that more businesses are growing and that makes a difference to New Zealand’s economic prospects.’
Wheeler adds: ‘For the year ahead, the PE and VC fund managers outlook remains optimistic, with the market and capital fundamentals continuing to encourage transaction activity. EY’s latest Capital Confidence Barometer also hints at a strengthening view of the global economy, while the local NZ economy is seen to be plateauing into a positive and stable position ahead.’

The full year EY and NZVCA Monitor results 2014 show:
· Total investment value in 2014 was $299.3m spread across 81 deals. The mid-market was the driving force with highest value of mid-market deals (investment and divestment) in the last twelve years and the highest number of deals since 2008

· Mid-market investment increased from the $191.5m in 2013 to $243.5m across nineteen deals averaging $12.8m

· Venture & early stage investment activity increased from $54.8m in 2013 to $55.8m as investor confidence in the New Zealand technology sector continued to grow, with software and services being dominant while health/bioscience receded
· There was no buy-out investment recorded in 2014 and two divestments

· A total of 81 investments occurred in 2014, on par with the 82 in 2013, with average deal value decreasing from $5.6m to $3.7m, reflecting the lack of large LBO activity compared to 2013
· Total divestment value declined from $665m in 2013 to $620m in 2014 with mid-market providing a significant NZ$148.3m of the divestment activity
· Venture and early-stage investment activity maintained momentum with 62 deals of NZ$55.8m total investment value of compared with 66 deals of total value of NZ$54.8m in 2013
· There were no new funds raised in 2014 as managers were actively building portfolios following recent capital raising and other managers were returning capital from successful divestments.

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