PitchBook in the News

Press Releases

European Private Equity Investors Bounce Back From Brexit, But Face New Challenges on the Horizon

July 24, 2017

Dealmaking Got Off to a Strong Start in the First Half Of 2017 but a Dismal Exit Market Expected to Have Lasting Impact
 
SEATTLE – July 25, 2017 – Recent geopolitical uncertainties had little impact on European private equity (PE) activity in the first half of 2017, however deal flow mimicked the US PE landscape, with more than 20% year-over-year decreases in deal volume and exits, according to PitchBook’s Q2 2017 European PE Breakdown Report. The fundraising landscape continues to thrive, on pace to surpass the amount of capital raised pre-recession, but is expected to slow in 2018 and beyond due to the decline in exit opportunities. Additionally, the UK and Ireland attracted nearly 40% of PE capital, which exceeded expectations given fears of negative economic consequences resulting from Brexit. Although market conditions have steadily improved, European PE investors are beginning to face increased competition from its US counterparts because of lower EV/EBITDA multiples – a trend that’s expected to continue.
 
“While PE investors tried to close the door on geopolitical concerns in the first half of the year, a new set of challenges opened up, which are expected to test dealmaking for the rest of the year and beyond” said Nico Cordeiro, analyst at PitchBook. “European investors were quite successful on the fundraising trail, but a weak exit market is making it more difficult for GPs to provide liquidity when desired. Coupled with increased competition from US PE investors, challenges will continue to arise for European PE investors in the coming quarters.”
 
UK & Ireland Attracted Over a Quarter of PE Capital
While European PE deal flow is down in volume, deal value has steadily climbed in the first half of 2017 with €201.8 billion of capital invested across 1209 deals. At this pace, we expect to see a 23% decrease in the number of deals year-over-year, but match the amount of capital invested in 2016, which still registers high on a historical basis. Attracting 36% of Europe’s PE capital, the UK and Ireland became a source of deals for PE investors despite negative speculation surrounding Brexit. The IT sector also drew investor attention with 21% of completed deals this year, just slightly outpacing its US counterpart with 20%.
 
PE investment activity is expected to continue its momentum in the second half of the year as a result of decreasing valuation multiples, ideal debt levels and €195 billion in dry powder. Even with larger deal sizes, the decline in corporate acquisitions caused median valuation/EBITDA multiples to decrease from 9.2x to 8.3x in the second quarter, which eased pricing pressure for PE acquisitions. Coupled with debt levels hovering around 56%, PE investors are expected to take advantage of improving market conditions. But European PE investors face stiffening competition from US PE investors as US EV/EBITDA multiples are at record highs in the US. PE investments involving US-only investors accounted for €37.2 billion across 128 deals, or 11.3% of all deals completed – the highest in our dataset.
 
PE Exit Activity Remains Bleak
The European exit market endured its second straight year of declines with just €76.7 billion in exit value across 471 deals, a 22% decrease in the number of deals and a 17% decrease in deal value. Corporate acquisitions have experienced the sharpest decline pacing for a 33% decrease in both exit value and number of exits in 2017 with €41.57 billion in exit value across 206 deals. Secondary buyouts are becoming increasingly popular as PE investors begin looking for liquidity and now make up 52% if all exits in Europe. Despite the decline in activity, exits are still strong on a historical basis and are expected to recover in the second half of the year as 32% of all European companies sponsored by PE firms were invested over five years ago.
 
Lack of Exits Expected to Impact Fundraising
Unfazed by Brexit, PE investors saw success on the fundraising trail in the first half of the year with €41.6 billion raised across 108 funds, and 88% of funds hit its target. At this rate, PE fundraising is pacing to surpass the amount of capital raised in 2007. However, looking closer median fund sizes are down 27% this year, from €342 million in 2016 to €249 million to date. Contrary to what we’re seeing in other markets, where mega funds are becoming the norm, European PE investors are raising more, smaller funds. The largest fund raised this year was CVC Capital Partners €16 billion fund and just eight other funds closing over €1 billion. The decline in median fund size can be traced back to the downward trend of distributions to LPs given the sluggish exit market. Looking ahead, PE investors will have a hard time fundraising unless its exit market improves.
 
Additional findings in this report include:
  • Overview
  • US-based investor activity
  • Deals by sector & size
  • Spotlight: UK
  • Exits
  • Fundraising
 
Download the full report here.
 
About PitchBook
Founded in 2007, PitchBook is a data provider that tracks every aspect of the private and public markets, specializing in venture capital, private equity and M&A. More than 10,000 professionals access PitchBook’s data through the company’s award-winning software products. PitchBook is a Morningstar company with offices in Seattle, New York and London.
 
Press Contact
Bailey Fox and Nick McDonald
PR Managers
pr@pitchbook.com
+1 206.823.3022

Take the first step to redefining your standard of success in M&A, PE and VC.