Strategy

Over There: Private-Equity Sets Sail

Private-equity investment has doubled domestically, but increasingly, U.S. firms are bringing their deals to Europe.
Sarah JohnsonDecember 1, 2006

Private-equity investments overseas have hit a record high, reflecting a four-year upward trend, according to a European publisher. Through mid-November, international investments announced by U.S. private-equity firms in 2006 totaled $82 billion, compared with $46 billion during the same period in 2005.

Buyout firms are still investing domestically, of course. In fact, the growth in domestic investments has more than doubled since last year, reaching $244 billion so far in 2006, compared with 2005’s $110 billion.

The Zephyr Equity Tracker, which pulls numbers from a database of mergers and acquisitions; initial public offerings; and joint venture, venture-capital, and other private-equity deals, attributes the increase in overseas investments to rising competition. “As funds raised by U.S. private-equity firms have continued to rapidly rise, competition for U.S. assets has been increasing, as have price multiples,” said Lisa Wright, commercial director of Zephyr, in a statement. “The obvious implication is that investment returns will fall. Accordingly, U.S. private-equity firms are increasingly investing abroad, where there is less competition for assets, or economic growth is more promising than at home.”

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The private-equity landscape has rapidly changed in the past two years, says Bruno Raschle, founder and managing director of Adveq, a European private-equity firm. Part of that has to do with the United States fully jumping on the globalization bandwagon. “Globalization means a road without walls, so it’s just natural that the private-equity industry is becoming a global industry,” Raschle told CFO.com. In fact, he says more U.S. firms are setting up dedicated operations in Asia, which he attributes to an increase in international investments.

Still, the Zephyr database, which is compiled by Bureau van Dijk Electronic Publishing, has found that Western Europe continues to be the top destination for private-equity funding, followed by Canada and the Middle East. While investments in Western Europe — primarily in The Netherlands, the United Kingdom, and Germany — have increased by 71 percent over last year, those made in Japan and China have fallen 65 percent and 62 percent, respectively.

The total value of private-equity investments in 2006 — transactions that either have been announced, are pending, or were completed this year — is $326 billion, an increase of 109 percent, according to Zephyr. U.S. investors have concentrated mostly on the consumer services, industrials, financial services, technology, and consumer goods sectors.