Private equity investments show encouraging recovery

Private equity investment was worth $170 million in the first half of the year, the highest level of activity since the global financial crisis began, a survey shows.

The Ernst & Young and NZVCA monitor showed a rise in mid-market investment, especially in New Zealand domiciled funds.

Ernst & Young partner Andrew Taylor said the results suggested a slow but encouraging recovery for New Zealand's mid-market private equity and venture capital sectors.

"While the top-end of the market is still quiet - reflecting market challenges and the small number of merger and acquisition transactions in the segment - there was heartening levels of activity in other market segments.

"It is pleasing to see mid-market activity returning to long-term average trends from the low levels experienced in the second half of 2009."

Survey participants reported that $68 million was invested in the mid-market in the first half of the year. This was up on the half year combined average of $61.1 million from 2003-2009.

The results showed the value of the deals was increasing, with the average investment rising from $7.4 million in the first half of 2009 to $8.5 million this year.

"At the venture capital level, activity was most notable for the growth in angel investment. We are seeing angels moving into transactions previously executed by formal venture capital funds due to the current venture investment fund - backed funds being largely fully committed," Taylor said.

NZVCA chairman Kerry McIntosh said he expected to see more investment as the majority of Australasian mid-market equity managers that are active in New Zealand have undrawn capital.

"New fundraising has been relatively subdued but we have seen New Zealand growth funds successfully raising new funds, demonstrating a willingness from local investors to consider quality alternate asset opportunities," he said.

"We expect to see renewed fundraising activity at the venture capital level following the Government's decision to provide a $40 million underwrite which is enabling the fund to commit to new funds."