What concerns some the formation of a bubble

The rise of the non-coté investment fund is no longer an emerging trend, it is a fact. Whatever the indicator chosen, figures are without appeal. Let's start with one of the fundraisers. According to the Evca (European Venture Capital Association), European investors have brought EUR 71.8 billion in 2005. It is much more than the last record set in 2000 to 48 billion euros, in formation of the Internet bubble. Attracted by high historical yields, institutional, pension funds and private fortunes rush. This explains that certain Anglo-Saxon investors such as Blackstone, Carlyle, and Texas Pacific Group, might have been raising funds of more than 10 billion. In this environment, the France becomes the second European equity market.

The country now has more than 250 funds investing in non-coté, French or Anglo-Saxon, which collected EUR 11,95 billion on the year 2005, according to the Afic (French Association of capitalists). Investments continued their rise sharply in France: EUR 3.6 billion in 2003, they moved to 5.2 billion euros the following year, and then to 8.1 billion euros in 2005 and, no doubt, much more this year.

This increase is mainly due to leverage operations: 80 of the bets are a LBO, against about 60 a few years ago. This type of editing has taken precedence over capital development, in view of the low cost of debt. From 2002, venture capital, rocked by the explosion of the Internet bubble, has gone through a difficult period, even if the segment is today a cautious recovery (read here). During this time, the LBO has experienced an explosion and record size operations have multiplied. In 2002, the takeover of Legrand by KKR and Wendel was loud: EUR 4.9 billion. No LBO of this size had never been signed in Europe.

The record of the Legrand beaten

But today, the "jumbo deals" became Legion. Thirteen transactions at more than 1 billion euros were concluded in Europe since the beginning of the year (Europcar, Matéris, General Healthcare Group, Gambro...). And the record of the Legrand has been beaten, and even broadly, by the recent withdrawal rating operator of Danish Telecom TDC for EUR 10.2 billion. Assets quoted out of reach of the LBO funds are less numerous.

Less visible, the operations of "mid - cap" (on less than EUR 500 million valuation) have also developed rapidly. According to the Afic, the number of LBO in companies of less than 200 million euros of turnover grew by 20 between 2003 and 2005. Competition between investment funds intensifies and practices are in line with those of large operations. Thus, it becomes extremely difficult to conclude operations "owners", i.e., without the intervention of a financial intermediary.

This phenomenal breakthrough of the LBO and its operators, investment firms, is of concern. Rating agencies thus questioned the risks attached to debt levels in some operations. This ratio is on average 3.7 times gross operating in 2001 to 5.7 times today, surplus under the effect passed including the increase in valuations. What concerns some the formation of a bubble. As, at the same time, the successive LBO on a same company multiply. Each new LBO accompanied a growth sensitive multiples of valuation of the company.

In these conditions, LBO firms have a duty to pedagogy. A long-term task necessary to improve the understanding of the role of the Fund, in particular. "We must continue to explain to the public how the funds meet the issues of development of societies", recently reminded Patrick Sayer, President of the Afic. Because the role of these operators in the economy can only grow.