KEY POINTS:
Private equity and venture capital investment continued to fall off in the first six months of this year, dropping from $99.2 million to $88 million, according to a New Zealand private equity and venture capital monitor.
The decline was driven by a lower level of venture capital investment which dipped to $22.9 million, below the average for the last five years of $30 million, primarily driven by a decline in deal size.
Mid-market private equity deals were also down 11 per cent on the second half of last year as the number of deals almost halved from 13 to 7 although this was partially compensated by the deal size increasing from $5.6 million to $9.2 million. But Andrew Taylor, director of Ernst and Young, which collates the information with the New Zealand Venture Capital Association (NZVCA), said more notable was the lack of deals at the top.
There were no private equity deals at the top end in the first half of this year, repeating the result of the second half of last year as the market continued to face high debt levels and a scarcity of credit.
Private equity deals spiked up in the second half of 2005 and continued a run until mid 2007 when the credit crunch hit.
Taylor said the mid-market deals appeared to have been less affected by credit availability issues.
"Mid-market deals have long been the strength of the New Zealand private equity market and there is still strong underlying demand from private equity buyers for quality assets."
Taylor said he expected the drought in top end deals to continue until the credit conditions improved but mid-market activity appeared to be holding up.
NZVCA chairman Franceska Banga said venture capital faced challenges ahead but the industry was in a good position to cope.
"As business owners adjust their valuation expectations, the opportunities to invest will become apparent."
