The 9th European Financial Markets Convention“Towards true integration by 2009”

Practitioners in an incomplete Internal Market

Georges NoëlDirector of Research, Public Affairs and Development,

EVCA

26 May, 2005

Incomplete Internal Market

The Need for a High Growth Market

Policy Priorities: EVCA’s White Paper

Policy Meeting, February 1st, 2005

9 Recommendations

« Enhance finance through the emergence (preferably by mergers) of efficient integrated pan-European trading platform(s) and quoted market(s) for high-potential companies”

EVCA Public Affairs & High-Tech Committee Action Plans

Private Equity as an Asset Class

repayments+ capital gains

commitments

divestments

pensions savings

savings and pensions

investments

Private Equity Funds

High-growth companies

Institutional investors(Insurance companies,

pension funds, banks…)

Private Equity Funds

Institutional investors(Insurance companies,

pension funds, banks…)

Saving accounts, Pension plans,

Insurance contracts…

Single Fund Structure

Young innovative companiesHigh Growth Markets

Pension Fund Directive (Prudent Man Rule)

Entrepreneurship

The Virtuous Financing Cycle of Private Equity and Venture

Capital Investment

EVCA ACTION

EVCA ACTION

EVCA ACTION

EVCA ACTION

EVCA ACTION

EVCA ACTION

Quick Market Update

Evolution of Divestments by Public Offerings 1991-2004

Analysis of Public Offerings 1998 -2004

EVCA’s recent Barometer Survey on Exits (February 2005)

Evolution of Divestments by Public Offerings in Europe

0

500

1,000

1,500

2,000

2,500

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

(es

t)

in € million

Source: Annual Survey of Pan-European Private Equity & Venture Capital Activity

Conducted by EVCA, PricewaterhouseCoopers and Thomson Venture Economics (as of 2003)

Evolution of Divestments by Public Offerings in Europe

0

100

200

300

400

500

600

700

800

1998 1999 2000 2001 2002 2003 2004 (est.)

by number of companies

Source: Annual Survey of Pan-European Private Equity & Venture Capital Activity

Conducted by EVCA, PricewaterhouseCoopers and Thomson Venture Economics (as of 2003)

Analysis of Public Offerings

0

500

1,000

1,500

2,000

2,500

1998 1999 2000 2001 2002 2003 2004(est)

in € million Sale of quoted equity postflotationDivestment by flotation (IPO)

Source: Annual Survey of Pan-European Private Equity & Venture Capital Activity

Conducted by EVCA, PricewaterhouseCoopers and Thomson Venture Economics (as of 2003)

Analysis of Public Offerings

0

100

200

300

400

500

600

700

800

1998 1999 2000 2001 2002 2003 2004(est.)

by number of companies

Sale of quoted equity postflotationDivestment by flotation (IPO)

Source: Annual Survey of Pan-European Private Equity & Venture Capital Activity

Conducted by EVCA, PricewaterhouseCoopers and Thomson Venture Economics (as of 2003)

Exit potential survey February 2005

Source: EVCA

I PO17%

IPO/Trade Sale17%

Trade sale60%

Other4%

No preference2%

What is your preferred exit route?

Why?

• “clean and easy”

• Instant 100% liquidity

• Shorter cash back period with positive IRR effect

• Dependent on industry and company size, strategic and competitive situation

Exit potential survey February 2005

Source: EVCA

No of companies immediately

exitable by IPO5%

No of companies immediately

exitable by Trade Sale18%

No of companies exitable over the next 2 years by

IPO11%

No of companies exitable over the next 2 years by

Trade Sale23%

Rest43%

How many of the companies you currently have in your portfolio are ready to be exited immediately and how many do you think can be exited within the next two years?

• 46 respondents hold 865 portfolio companies

• 198 companies are ready to be exited immediately of which 44 (5%) are ready for an IPO

• 287 additional companies are exitable over the coming two years of which 92 (11%) companies are earmarked for a stock market quotation

High Growth Market

EVCA’s views

Incomplete Internal Market

The Case

Key Attributes of a HGM

Conclusion

Fragmentation

In terms of:

Number of exchanges Trading models Business practices Regulations Tax & Legal Environment Governance Cultural aspects Investor bases Ecosystems (Investment Banking, Research, T&L, Accounting, Media)

Fragmentation also leads to

Sub-optimal size (companies, investment levels, intermediaries and Ecosystem in general)

and such to

Higher implicit costs and weakening competitivity compared to non or less fragmentated market we are competing with

The Case for a Dedicated Pan-European Growth Market

A Pan-European market dedicated to high growth companies would:

Build-up sufficient critical mass and Ecosystem to attract companies, investors, brokers, analysts, investment bankers, auditors, lawyers, accountants, etc.

Re-build confidence and as such enable the re-emergence of a pan-European and local investor community for high growth companies

Improve access to capital and liquidity for Europe’s best growth companies (& avoiding such to move ultimately to the US)

Facilitate cross-border syndicates Help to retain Europe’s brightest & smartest scientists, engineers and

entrepreneurs Improve M&A and intermediate valuations (IVG) Improve overall performance of the VC sector SOX = Opportunity for European SE’s to provide a solution for EU

companies facing huge regulatory hurdles

Key Attributes of a Dedicated, Pan-European Growth Market

Truly Pan-European with local base Preferably to be built on an existing Platform/Exchange by existing SE Pan-European shareholdership (if single one) Non centric to one single country/region Price-Driven with cross border market making trading system v. hybrid

system (improvement of the economics) Investor focused around companies needs Harmonized legal aspects (ex. share ownership issues) Common market practices Facilitating Industry sector research Marketing & Sales Team Strong new brand building capability Clustering capability (key tech sectors)) Balanced & proportionate regulation, disclosure rules, listing criteria, &

market practices (economics)

Conclusion

A well functioning HGM is of utmost importance for the PE-VC Industry because Europe needs a huge number of high growth performing and well funded companies

An efficient HGM will stimulate the European PE-VC Industry and such contribute to Europe's global competitiveness

There seems to be a consensus on the key issues and reasons for a missing HGM but execution is the challenge

EVCA will actively support all stakeholders in executing all steps leading to a HGM

EVCAs Set of Professional Standards constitute an unique and key contribution to overcome fragmentation in the European PE-VC markets (Transparency + Governance)

Timing is good as markets are gaining momentum