European private equity’s disappointing start to the year has continued as deal activity shrank further in Q2, but recovering exit and fundraising activity offers some hope.
While deal flow is likely to remain constrained in the coming months, fundraising is on course to surpass 2022 levels, and an uptick in exits could indicate a loosening in conditions.
Here are five key trends pulled from PitchBook’s Q2 2023 European PE Breakdown.
European PE deal activity dropped to €144.5 billion (about $159.6 billion) in Q2, its lowest level since Q2 and Q3 of 2020, when the onset of the pandemic caused widespread disruption. The total represents a 3.4% decline from the previous quarter and a 45.5% drop when compared to the same period a year ago.
Given the current economic backdrop and financing conditions, a dramatic improvement in Q3 is unlikely, although falling asset valuations may more entice investors.
Add-ons made up the lion’s share of deal activity in Q2, representing 54.8% of deal value, up considerably from their 35.8% share in the whole of 2022.
At the same time, there were no platform creation deals in the first six months of 2023, and buyout deals represented just 37% of activity, falling from 52.9% in FY 2022. Deals worth less than €500 million accounted for 83.8% of all activity. Without a major turnaround in leveraged buyouts, these trends are likely to persist for the rest of the year.
European PE exits increased slightly in Q2, providing some hope that the bottleneck may be loosening.
Exit value hit €68 billion in Q2, up by 28.8% compared to Q1—although still 31.6% lower than in Q2 2022. Higher exit values have been driven by an increased number of sponsors exiting large investments in order to free up capital in a tight fundraising environment, and to crystallize returns in a climate where further asset devaluations are possible.
With €49 billion raised during the first half of the year, European PE funds are already well on track to outperform the €68.2 billion raised last year.
However, it remains a polarized picture. That total is spread across just 51 funds, compared to 126 for FY 2022’s total, suggesting that larger funds are continuing to outpace their smaller peers.
Mega-funds—funds of €5 billion or more—accounted for 49.3% of European PE fundraising in the first half of 2023, compared to 39.9% in all of 2022.
They attracted €24.1 billion in capital inflows in H1 2023, putting them well on track to comfortably outstrip the €27.1 billion raised in 2022. The same cannot be said for funds of less than €250 million, which so far have raised less than €2 billion—around a third of their 2022 total. This performance is in line with global trends where smaller vehicles—often run by emerging names—have been struggling, compared to large funds managed by established players.
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