3. DATASET
3.1 P RIVATE EQUITY DISBURSEMENTS
3.1.1 Estimation of Market Statistics
Market Statistics consists of investments made in national portfolio companies by domestic and foreign PE funds. Domestic investments are reported for every year in our sample, while investments made by foreign PE first started in 2007. To exemplify, in 2007 Invest Europe reports Market Statistics of €1,178,505 in Norway. It is further reported that €567,390 originates from domestic PE funds, while €611,115 comes from foreign PE funds. In 2006, only domestic investments of €426,731 is reported.
We have applicable data starting from 2007, but only a share of the total Market Statistics prior to this year. Thus, we need to estimate investments made by foreign PE funds in Scandinavian portfolio companies prior to 2007 on the basis of domestic investments. PE firms are best positioned to exploit opportunities available in their home country. Thus, we argue that domestic investments are good indicators of how attractive a market is to foreign investors. It is important to note that this methodology was only applied when we did not have accurate Market Statistics available. For the values after 2007, accurate values are applied.
Invest Europe started reporting main cross-border investments when they introduced Market Statistics in 2007. Most of the foreign PE investments coming into a country originate from PE funds in the same two or three countries. Once more we use Market Statistics in Norway to exemplify. Of the €611,115 Norwegian companies received from foreign PE funds this year, €464,063 and €22,444 came from UK and Swedish funds respectively. If we include domestic investments of €567,390 these three countries accounted for 89% of total Market Statistics in Norway in 2007. Thus, a large share of the Market Statistics can be explained from investments made by domestic PE funds and the inflow from foreign funds in the countries that appear to invest the most. Similar findings are made for the years following 2007.
In order to estimate Market Statistics prior to 2007, we compute a multiple that can be applied to domestic investments. To calculate this multiple, we collect investments made in Norwegian, Swedish and Danish portfolio companies by foreign PE funds. We proceed with the two or three countries that invest the most and compare the investments to domestic investments each year. We then consider the amount that is not yet explained by the largest investing countries, but is needed to make up the total Market Statistics. These investments are referred to as “Rest of the World”. Finally, we compute an average of the investments made by the largest investing countries and “Rest of the world” as a percentage of domestic investments. Combined, these ratios make up the multiple that we apply to domestic investments prior to 2007.
We utilize the calculations for the Norwegian multiple as an example. First, we examine how Swedish and UK funds have invested in Norwegian portfolio companies from 2007-2014. Second, we compare the investments to domestic investments made by Norwegian PE funds in the same year. Third, we withdraw the Swedish and UK investments from the total Market Statistics to discover how much stems from “Rest of the world”. Finally, we compute averages of Swedish, UK and “Rest of the world” investments as a percentage of domestic Norwegian investments between 2007-2014 and combine them to create the multiple (Table 2). We utilize the multiple to estimate Market Statistics before 2007 on the basis of Norwegian domestic investments.
Swedish and UK funds are the largest investors in Norwegian portfolio companies from 2007-2014. They average 20.45% and 50.12% of domestic Norwegian investments respectively. The remaining amount originates from “Rest of the world” and accounts for 7.44% of domestic investments over the same period. To estimate the foreign inflow before 2007, we add these percentages to the domestic investments and apply a multiple of 1.7801 (Table 2).
Norway 2007 2008 2009 2010 2011 2012 2013 2014
Market Statistics 1 178 504 1 124 709 709 223 1 886 733 905 065 966 689 1 680 988 2 208 987
Domestic investments 567 390 656 668 596 468 809 915 639 136 733 033 752 941 1 124 137
Swedish investment 22 444 149 680 58 967 388 492 73 744 85 206 329 461 135 518
% Swedish investment by domestic investments 4 % 23 % 10 % 48 % 12 % 12 % 44 % 12 %
Average 20.45 %
UK investment 464 063 288 673 47 588 673 670 187 844 88 634 532 878 807 204
% UK investment by domestic investments 82 % 44 % 8 % 83 % 29 % 12 % 71 % 72 %
Average 50.12 %
Investment Rest of the world 124 607 29 688 6 200 14 657 4 342 59 816 65 707 142 129
Investment Rest of the world by domestic investments 22 % 5 % 1 % 2 % 1 % 8 % 9 % 13 %
Average 7.44 %
Applied multiple 1.7801
Table 2: Calculation of Norwegian multiple. Yearly investment in Norwegian portfolio companies relative to domestic Norwegian investment from 2007-2014.
Norwegian, UK and Danish funds are the largest investors in Swedish portfolio companies from 2007-2014. They average 2.54%, 26.95% and 2.60% of domestic Swedish investments respectively. The remaining amount originates from “Rest of the world” and accounts for 8.30% of domestic investments over the same period. To estimate the foreign inflow before 2007, we add these percentages to the domestic investments and apply a multiple of 1.4038 (Table 3).
Sweden 2007 2008 2009 2010 2011 2012 2013 2014
Market Statistics 3 085 305 2 288 301 1 112 09
2
2 766 545 3 354 258 2 527 281 813 87 5
1 421 46 Domestic investments 2 179 688 1 975 306 860 313 2 218 243 1 556 676 1 796 337 662 02 4
1
1 072 13
Norwegian Investment 84 922 24 160 10 822 30 046 4 360 75 767 25 904 44 8429
% Norwegian investment by domestic investments 3.90 % 1.22 % 1.6 % 1.35 % 0.28 % 4.22 % 3.91 % 4.18 % Average 2.54 %
UK investment 753 247 133 629 43 653 385 446 1 602 162 475 891 52 763 154 575
% UK investment by domestic investments 34.56 % 6.76 % 5.07 % 17.38 % 102.92 % 26.49 % 7.97 % 14.42 % Average 26.95 %
Danish investment 33 775 22 574 3 947 60 473 32 345 78 468 46 072 16 006
% Danish investment by domestic investments 1.55 % 1.14 % 0.46 % 2.73 % 2.08 % 4.37 % 6.96 % 1.49 % Average 2.60 %
Investment Rest of the world 33 672 132 633 193 358 72 337 158 715 100 818 27 114 133 902
Investment Rest of the world by domestic investments 1.54 % 6.71 % 22.48 % 3.26 % 10.20 % 5.61 % 4.10 % 12.49 % Average 8.30 %
Applied multiple 1.4038
Table 3: Calculation of Swedish multiple. Yearly investment in Swedish portfolio companies relative to domestic Swedish investment from 2007-2014.
Swedish and UK funds are the largest investors in Danish portfolio companies from 2007-2014. They average 12.8% and 82.54% of domestic Danish investments respectively. The remaining amount originates from “Rest of the world” and accounts for 13.51% of domestic investments over the same period. To estimate the foreign inflow before 2007, we add these percentages to the domestic investments and apply a multiple of 2.0885.
Denmark 2007 2008 2009 2010 2011 2012 2013 2014
Market Statistics 1 835 153 1 207 400 479 041 385 65
7
880 586 861 573 1 868 187 1 250 285
Domestic investments 1 175 265 419 760 391 732 241 67
2
279 551 426 379 1 248 046 449 133
Swedish investment 87 134 39 804 38 504 71 320 46 679 11 431 215 282 42 697
% Swedish investment by domestic investments 7.41 % 9.48 % 9.83 % 29.51
%
16.70 % 2.68 % 17.25 % 9.51 % Average 12.80 %
UK investment 500 717 557 443 17 788 49 089 538 049 386 666 224 263 714 019
% UK investment by domestic investments 43 % 133 % 5 % 20 % 192 % 91 % 18 % 159 %
Average 82.54%
Investment Rest of the world 72 037 190 394 31 016 23 576 16 307 37 097 180 596 44 435
Investment Rest of the world by domestic investments 6.13 % 45.36 % 7.92 % 9.76 % 5.83 % 8.70 % 14.47 % 9.89 % Average 13.51 %
Applied multiple 2.0885
Table 4: Calculation of Danish multiple. Yearly investment in Danish portfolio companies relative to domestic Danish investment from 2007-2014.
We also considered alternative approaches to extrapolate the Market Statistics prior to 2007.
To decide on the most suitable approach, we apply the estimation methodologies to the year following 2007 and compare them to the accurate Market Statistics. The approach that deviate the least from the correct numbers is used to extrapolate values prior to 2007.
One approach was to construct a multiple based on foreign investments rather than domestic investments. Instead of computing UK and Swedish funds’ investments in Norwegian portfolio companies as a share of domestic Norwegian investments, we considered these amounts as shares of total foreign investments. To exemplify with numbers, we previously mentioned that UK and Swedish PE funds invested €464,063 and €22,444 in Norwegian portfolio companies in 2007. This represents 3.00% and 2.48% of overall foreign investments made by PE funds in the respective countries that year. It would be reasonable to assume the average share of total foreign PE investments going into Norwegian portfolio companies between 2007 and 2014 would reflect the investments made prior to 2007.
However, when applying this multiple to the years after 2007 the values deviate more from the actual Market Statistics than the case was for the approach with domestic investments.
Table 5 shows the accurate Market Statistics from 2007-2014 and compare the numbers to the estimations resulting from the two approaches. The estimates based on domestic investments are most accurate for all years, except 2009 and 2010. This suggest that
domestic investments are better indicators than foreign investments to estimate Market Statistics prior to 2007. The findings support our assumption that domestic firms are best positioned to exploit opportunities in their home country.
Norway 2007 2008 2009 2010 2011 2012 2013 2014
Market Statistics 1 178 504 1 124 709 709 223 1 886 733 905 065 966 689 1 680 988 2 208 987 Estimations based on domestic investments 1 010 014 1 168 937 1 061 775 1 441 733 1 137 728 1 304 877 1 340 315 2 001 082 Deviation from accurate Market Statistics 168 490 -44 229 -352 552 445 000 -232 663 -338 187 340 673 207 906
Estimations based on foreign investments 1 731 174 1 305 345 956 660 1 441 786 2 086 326 1 416 442 1 157 667 1 658 248
Deviation from accurate Market Statistics -552 670 -180 636 -247 437 444 948 -1 181 261 -449 752 523 321 550 740
Table 5: Estimation approaches for Market Statistics. Two approaches for estimating Market Statistics in Norway, and deviations from accurate Market Statistics in 2007-2014. The most accurate method each year is highlighted.
Although our approaches suggest that domestic investments are the most suitable indicators for extrapolating Market Statistics prior to 2007 it should be emphasized that our eight-year sample does not provide a perfect picture of historical Market Statistics. Consequently, when applying the multiples to domestic investments after 2007 our results deviate from the accurate Market Statistics. To account for this limitation, we include an individual analysis on a sample starting in 2007. This analysis will have fewer observations, but have the benefit of accurate Market Statistics. Including such an analysis control the robustness of our initial results. If the results are robust we would expect to find similar results with the sample from 2007-2012.
After applying the multiples to estimate historical values we have obtained Market Statistics for Norway, Sweden and Denmark from 1997-2006 (Appendix II). In order to enlarge our sample, we have to allocate the Market Statistics to the industries created by Invest Europe.