Special Report on Venture Capital: Continent offering good opportunities to invest: The market in Europe is coming out of recession, says Alison Eadie

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The Independent Online
THE RECESSION in continental Europe has slowed the growth of the venture capital industry, but it has also thrown up opportunities.

While venture managers are being careful to look for investments with defensive qualities capable of withstanding economic downturn, their deal flow is swelling as larger companies unload peripheral businesses to reduce debt. Sweden, for instance, has witnessed a clutch of bigger buy-outs as conglomerates struggling with high interest rates spin off subsidiaries.

Paul Waller, director of international investment at 3i, pointed out that the younger and less developed nature of venture capital markets on the continent - particularly in Germany, Italy and Spain - meant the markets had slowed rather than stalled.

France, most mature of the continental venture capital markets, has felt the recession most. Activity was down 30 per cent in 1992, but 3i saw some recovery last year.

Apax Partners has been investing its French fund 'at the rate of knots' over the past year. Adrian Beecroft, a director of Apax, said pricing was attractive as the French market had not felt the inflationary effects of a rising stock market as in the UK.

Mr Waller said 3i was seeing 'good opportunities to invest at favourable terms' in the four main continental markets. Despite the increase in corporate disposals and distress sales, Mr Waller said succession planning for family-owned businesses was still the most important cause of buy-outs and, more crucially, buy-ins.

CINVen made fewer continental investments last year than in 1992, partly through caution and partly because the business is by nature lumpy, explains Andrew Marchant.

Last November, in conjunction with its German partner Thomas JC Matzen, CINVen backed the management buyout of LVW, a supplier of food and non-food to European retailers and wholesalers with a turnover of pounds 220m. As the economy stabilises, conditions in Germany are coming right for MB0s, provided the buy-out companies have strong cashflow to tide them over until recovery, Mr Marchant said. The withdrawal of trade buyers leaves the field clearer for venture capitalists.

Donald Mackenzie, a director of CVC Capital Partners, said the continental buy-out market was less competitive than in the UK but more difficult to break into. CVC sees deal flow through Citibank's branch network in Europe. Last year it did two UK and six continental buy-outs in Holland, Austria, France, Spain and Hungary. It is hoping to conclude another soon in Italy.

Despite the pounds 10m Hungarian buy-out, via Citibank's Budapest office, Mr Mackenzie says Eastern Europe is for the brave - more suited to large corporations which know their markets and products than to MB0s.

He added: 'We are trying to encourage UK stockbrokers to look at Euro-listings.' CVC's MBO companies would be eminently presentable to UK institutions if they listed in London, he said.

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