“In many ways, today’s European PE landscape resembles the market prior to the financial crisis. Strong fundraising over the last two years has created a build-up of dry powder, putting upward pressure on price multiples,” said Dylan Cox, Analyst II at PitchBook. “If economic indicators remain healthy, we expect European PE dealmaking to continue to thrive.”
European PE Market Boosted by Strengthened Regional Economics
Although deal volume declined 11% from 2016, total PE deal value increased by 14%, with €363.0 billion deployed across 3,015 deals. The rise in deal value was driven by a convergence of factors, one of which was a need to allocate capital from the larger funds raised in recent years. In fact, median deal size increased 67% in 2017 to €38.5 million—the highest since 2006. The ever-growing reserves of PE dry powder, coupled with the improving economic backdrop also attracted investors from outside the region, further boosting investment activity. PE transactions with at least one non-European investor accounted for 25% of all deal flow in 2017, compared to just 22% in the prior year.
Mid-Market Vehicles Drove Largest Percentage of Fundraising in a Decade
Over the last two years, PE fundraising has seen its strongest years of capital commitments since the financial crisis. One driver of the increase in fundraising has been institutional investors who are starved for yields in traditional asset classes propelling allocations to alternatives, such as private equity. European energy funds saw a record-high €5.3 billion committed in 2017, while growth funds reached a four-year high in capital commitments, closing on €4.9 billion. While fundraising remained strong, the median fund size dipped slightly in 2017, to €310 million. The decrease in fund sizes was indicative of a growing interest in middle-market funds, which accounted for 77% of all PE fund closes on the year—the highest percentage in at least a decade. It should also be noted that this mid-market fund explosion did not deter larger firms from raising mega-funds. In June, CVC Capital Partners raised the largest European buyout fund in history, totaling €16.0 billion for its seventh flagship fund.
Record Year for SBOs Sets the Pace for Strong Totals in Exit Value
PE-backed exit activity totaled €175.0 billion in value across 1,094 portfolio companies—the fourth consecutive year of at least €160 billion. Strong buying power of PE investors helped propel secondary buyouts, which accounted for 547 of the total transactions, or half of all exits. Meanwhile, strategic acquisitions accounted for 44% of exit activity, the lowest in the last decade. This reduced rate was due in part to corporate acquirers working to incorporate recent purchases into existing operations. Although the broader European IPO market saw a strong 2017, the region’s PE-backed IPO landscape remained relatively flat year-over-year, with companies raising €14.5 billion across 63 listings. These 2017 listing numbers remained well below the record levels of PE-backed IPOs seen in 2014 and 2015.
Additional coverage in this report includes:
- European PE metrics trend larger
- Multiples see continued expansion
- Spotlight: Cross-border deal flow
- Deals by Sector & Size
- Secondary buyouts buoy exit activity
- Mid-market funds increasingly popular
Download the full report here.
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