Fundamentos epistemológicos del lavado de manos

European Venture Capital Market

Substantial fundraising that occurred in 2005, a strengthening exit land- scape with improved valuations and an increased investors’ interest have led to a high venture capital activity in 2006. The industry was further supported by a positive economic climate in Europe overall, together with low interest rates and a relatively low inflation rate. According to DowJones/VentureOne and Ernst&Young, this led to 867 deals being closed in 2006. Venture capital investment into European companies topped 4.12 billion EUR in 2006, the highest annual investment amount since 2002.

Source: DowJones/VentureOne and E&Y

Source: DowJones/VentureOne and E&Y

On the other hand, the trend towards larger deal rounds has persisted in 2006. As per 2006, the median deal round in Europe is now back to the level of 2000. This trend is being caused by a number of large venture capital funds of up to 500.000.000 EUR being raised in the past year, as well as to the increased inter- est from U.S. based venture capital and hedge funds for European based com- panies. At this point in time, comparing Europe to the U.S., we can note that venture capital rounds in Europe are only a fraction of these in the U.S.. This dif- ference could diminish in the future as the rounds in Europe get larger.

Source: DowJones/VentureOne and E&Y

Source: DowJones/VentureOne and E&Y

In 2006, we can also see a renewed interest in early stage deals, with seed and first rounds together accounting for 40% of all the done deals. Second rounds make up for 19% of the total investments, whereas later stage

investments make 33%. It is a good sign that more early stage deals are being done, as these will be filling the pipeline of later stage deals in the coming year – in which area the Issuer is active.

Source: DowJones/VentureOne and E&Y

Furthermore, we see that European venture capital start exploring new areas next to the more traditional IT and biotech areas – there is an increas- ingly high amount of money flowing towards new areas such as clean tech- nology, environmental solutions, media and Web 2.0. In 2006 however, most of the investments were made in the life science and software sector.

Source: DowJones/VentureOne and E&Y

The deals can be situated in the U.K., which has the lead, France and Germany, with 256 investment rounds done in 2006, 171 and 105 respective- ly. In Belgium, 26 investments were closed in 2006.

Source: DowJones/VentureOne and E&Y

The markets relative to initial public offerings and mergers & acquisitions According to the DowJones VentureOne, more European venture-backed companies went public in 2006 than in any year since 2000. in 2006 Europe also has outpaced the U.S. with its 91 venture-backed initial public offerings as opposed to a mere 56 in the U.S.. Public markets were a good source of capital for European ventures, and in some cases good exits for their exist- ing backers. However, the median amount raised in the initial public offering was still very moderate compared to the year 2000: 13.000.000 EUR in 2006 as opposed to 42.000.000 EUR in 2000. But the (median) valuation at initial public offering went up from 37.000.000 EUR last year to 41.500.000 EUR this year. It took the newly quoted companies about 6 years (median) from rais- ing their first financing to reach the initial public offering. The most promi- nent stock exchange in Europe for initial public offerings in 2006 was the London stock exchange. The AIM performed well as London’s growth mar- ket despite some of the negative feelings of venture capitalists who deem- ing selling their holding stocks as being unfair competition or too illiquid. It is not just AIM that provides investors with exit opportunities in Europe. Competition is increasing for small- and mid-cap companies from Euronext’s Alternext and Deutsche Börse’s Entry Standard segment of the open market. By

industry, there were 38 IT initial public offerings which raised a total of 605.000.000 EUR, and 30 life sciences initial public offerings which raised a total of 735.000.000 EUR. With only 185 transactions recorded, the number of trade sales (mergers/acquisitions) of European venture-backed companies fell by more than 25% in 2006 compared to 2005. Still, a number of highly successful European trade sales exits can be mentioned. Within the Issuer’s portfolio, a nice example is Netfund Europe’s portfolio company Mr.Bookmaker that was sold to the Swedish on-line betting company Unibet. Finally, there is a burgeoning mar- ket for venture capital exits via secondaries, i.e. later stage private equity players or buy-out funds offering a merger & acquisition to earlier stage venture capital- ists. CETP (Carlyle Europe Technology Partners) in which the Issuer participates, effectuated a number of such investments. An example is Transics, a Belgian telematics company that CETP took over together with the management, provid- ing an exit for its early stage venture capital investors. In general, we can con- clude that the exit market is healthy and rather balanced – but as always also rather volatile. Venture funds and entrepreneurs together can’t expect to do any more deals with short holding periods and stellar returns on exit. Venture funds are focused on building mature companies within a longer time frame.

Equity markets

In 2006 the stock markets were able to continue the upward trend which commenced in March 2003. Signs of economic weakening in the United States, where especially the housing market had a negative impact, were offset by a strong economic climate in Europe. On average the European stock markets rose by around 20%. In the United States the stock markets performed better than in 2005, but a sharp decline of the US Dollar largely nullifies the profit of American shares for an investor in Euro.

Striking once again is the relatively weak performance of a number of growth sectors and markets. Just as in 2005, the performance of the Nasdaq index in 2006 remains several percent points behind the S&P500 index. In Europe we see the same picture, with the technology and pharmaceutical sector - which were the two poorest performing sectors of the year - each with an average increase of only 3%. Small caps in these sectors performed some- what better, above all in the first and the last quarters of the year. The valuation of the stock markets remains acceptable, although the expected price-earnings ratio in Europe (average of the DJ Stoxx 600 index) increased slight- ly to almost 13.5. Average valuations of technology and pharmaceutical shares even decreased during the year, which implies a decline of the premium at which these growth sectors are valued. A degree of caution is called for with regard to the valuation levels of shares with small market capitalisations (small caps), which in Europe are more than 20% more expensive than shares with large market cap- italisations (large caps). Some comfort can be derived from the fact that this does not apply for the technology sector, where small caps, which have much more growth potential, on average are quoted at the same ratios as large caps.

Source: Bloomberg

Source: Bloomberg, Quest Management

Sector developments

Software

The market of business software or ERP software continues to draw the attention of Quest for Growth. Not only is this segment important in the European software sector, with SAP as the most important player, but the growth prospects also remain interesting. On the one hand, there is still sig- nificant potential in the so-called “mid market” or the market of small and medium-sized companies. Two companies in the portfolio, Exact and Mamut, are active here, but the major players are also becoming more and more interested in this segment. In addition, certain vertical markets are demonstrating interesting prospects. Unit 4 Agresso, at the beginning of 2007 the most important software share in the portfolio of Quest for Growth, concentrates inter alia on vertical markets such as the government sector. An important event for the software world in 2007 is the launch of Microsoft´s long-awaited new version of its Windows operating system under the name of Vista. Some producers of PC-related products or software could experience a positive impact as a result of this launch.

Source : IDC, JCF, Bloomberg, Quest Management

IT services

The economic environment for traditional IT service companies was favourable. Thanks to the economic recovery, most of those in the sector could show stronger organic growth and rising margins. But most of them were not able to post really strong performances on the stock exchange. The largest IT services company established in Europe, Cap Gemini, proved an exception, with an increase of around 40%, and this contrasted sharply with the market performances of other major players in the sector in Europe, such as Atos Origin, Getronics and Tietoenator. In this sector the Issuer was primarily looking for specialised companies with higher than average growth and profitability. A successful example of this is Sword, which remained present in the portfolio throughout the year. This French company specialis- es in “compliance management” and is enjoying organic growth of around 15% with operating margins higher than 15%.

In this sector we also include companies which have developed a business model that is focused on the Internet, with as examples online banking and online gambling. However, regulation appeared to be the weak spot for online gambling. In September 2006, the American Congress enacted a new law which makes payments for gambling on the Internet impossible. The consequences for the listed players were not long in coming, and steep declines of around 80% on the shares of online gambling companies were more the rule than the exception. At the end of 2005, Quest for Growth sold off Neteller and Sportingbet, two companies with major activities in the US, while it purchased Unibet. Unibet has no activities at all in the US, which allowed this share with an increase of 27% to be one of the few bright spots on the stock exchange in the online gambling sector. Due to the continuing growth in Internet use, the Internet is also becoming an important form of media consumption. Experts estimate that the Internet already constitutes between 20 and 30% of overall media use. Strikingly, however, the advertising world has yet to catch up with this trend: only around 5% of advertising expenditures are currently lavished on the Internet, compared to roughly 40% for television.

Advertisers are now scrambling to make up for lost time. With LB Icon and Yoc, a number of shares were included in the portfolio of the Issuer which can profit from this move towards digital marketing.

Source : ZenithOptimedia, IAB, EIAA, ING, CanaccordAdams, Quest Management

Technology hardware

Just like other sectors, in 2006 this sector too enjoyed a favourable econom- ic climate and an increase in the investments of companies. In addition, there was a great deal of consolidation in the sector. In Europe, Ericsson completed the acquisition of Marconi, Nokia decided to merge its network division with that of Siemens, and Alcatel joined with the American Lucent. None of this really helped advance the market performances of the major players in Europe, in particular Nokia (-3%), Ericsson (+3%) and Alcatel (+5%). Suppliers of the sector, which came under pressure from the major players, also had a very tough time, and investments in this type of compa- ny were avoided as much as possible.

Option, the producer of data cards for portable computers, was the biggest disappointment in the portfolio in 2006. The share, which at the beginning of 2006 held the second largest position in the portfolio, fell because of increasing competition, which ultimately led to a profit warning being issued. On the other hand, several performance highlights are also situated in this sector, such as EVS and TKH Group. With an investment in EVS we are con- tinuing to capitalise on the trend of digitisation in the media sector and the further rise of high definition TV (HDTV). With other shares in the portfolio we are taking advantage of themes in technology such as navigation (TomTom) and automatic identification and RFID (Mühlbauer).

Source : CEA, Gartner, GfK, WestLB, Quest Management

Semiconductors

The semiconductors sector was characterised by rather weak performanc- es, because it became clear during the course of the year that growth in the sector was going to slow down. For 2007 research agencies expect a rather difficult environment for the sector. For example, in October 2006 Gartner forecast that the investments in equipment for semiconductors would fall by 3% in 2007, after an increase of 24% in 2006. The Philadelphia Semiconductor or SOX index recorded a drop of around 2% (in dollars) in 2006, which is clearly weaker than the rest of the technology sector. During the past year, Quest for Growth´s interest in investing in this sector was limited. Icos Vision Systems remained a major holding, but this share too underwent a major price decline in the middle of the year. In the coming years this Leuven-based company, which produces inspection systems for the semiconductor sector, should be able to profit strongly from the growth in recently launched new products.

Telecommunications

During the first part of 2006, the telecom services sector continued its very weak performance of the previous year. At the end of the summer came a sudden turnaround, however, and the shares in this sector rose by an aver- age of 20% from the end of August until the end of the year. Presumably investors discovered that the sector is very inexpensive, because the nega- tive points for the telecom companies, such as limited growth, price pres- sure and regulations, have by no means disappeared. Shares of companies with major activities in growth markets were among the highlights in the sector. One example of this is Telefónica, which has a strong presence in Latin America, and which posted an increase of around 30%. The profit on this share was secured. We remain aware that the growth potential of most companies in the sector is limited, but nevertheless retain several positions, above all in mobile telephony, such as Vodafone and Mobistar. There are indi- cations that the substitution of fixed with mobile telephony is continuing or even accelerating, among other things because the premium for the cost of mobile calling compared to fixed telephone calls continues to decline.

Medical equipment and services

Medical technology remains an interesting growth sector which is benefiting from the ageing of the population. On the European stock exchanges, the most important sub-segments are orthopedics (Synthes and Smith & Nephew), ophthalmology (Essilor), dentistry (Nobel Biocare and Straumann) and hearing aids (William Demant and Phonak). Most of these companies, with the exception of orthopedics, posted excellent market performances in 2006, with the already high valuations of the sector increasing even further.

Pharma & Biotech

Major pharmaceutical shares performed poorly on the markets in 2006. A number of players released bad news about products in development. The most striking example of this was the announcement of the American phar- ma giant Pfizer that it was stopping all further development work on torce- trapib, which had been slated to be the successor of the cholesterol-lower- ing drug Lipitor. Some analysts had expected that this product could eventu- ally attain an annual turnover of 15 billion dollars. The negative feeling in the sector led to relatively low valuation levels: the expected price-earnings ratio of the sector in Europe fell in one year´s time from 18 to 16.5.

The biotechnology sector was characterised by highly divergent market per- formances. In certain regions, such as Belgium, Switzerland and Scandinavia, there were a number of striking climbers. Other countries, for example Great Britain, saw relatively few market successes and the FTSE techMARK Mediscience index remained virtually unchanged. The lethargy of British biotechnology shares offers potential opportunities for the portfolio in 2007. Biotechnology also went largely unappreciated in the United States, where the Nasdaq Biotech, with an anaemic 1 % increase, remained sub- stantially below the performance of the Nasdaq Composite index. Omrix was the portfolio´s success story in 2006. The company, which was in the private equity portfolio of Quest for Growth, made its stock market debut on Nasdaq in April at 10 dollars. The share then steamed onwards and upwards to a price over 30 dollars. In contrast to the vast majority of biotechnology and biopharmaceutical companies, this company is clearly profitable, and the rise in price was supported by quarterly results which proved to be much better than expected three times in a row.

Other sectors

In other sectors, the Issuer is investing in (among other things) the theme of “clean technology” or “cleantech”. By this we understand companies which are active in areas such as alternative energy, environmental technology and new materials. For example, the companies being invested in have activities relating to biofuel (BDI Biodiesel), composite and geosynthetic materials (Ten Cate), automotive catalysts, rechargeable batteries and the recycling of metals (Umicore).