So far this year, add-ons have accounted for the largest portion of European buyout activity since at least 2007, as private equity investors seek to scale portfolio companies amid the downturn.
Overall, buyout activity is down from last year, but an increase in add-ons has buoyed the total since the beginning of 2022. Add-ons have made up 67.3% of all buyout activity so far this year, compared with 63.4% at the end of 2021, according to PitchBook data.
Looking back further, the amount of add-ons is over 30 percentage points higher as a proportion of buyout volume compared to 2007, widely seen as a high-water mark for PE activity.
With the current economic headwinds, including rising interest rates and a potential recession, investors are increasingly focused on building up their current assets to weather the downturn.
Softening valuations due to the present market represent an attractive opportunity for investors to acquire smaller, cheaper businesses to add on to their platform companies, particularly for those in fragmented markets.
Add-ons may also be an inviting exit for PE sellers given market volatility, which is making IPOs less attractive as listed counterparts and potential purchasers may be unwilling or unable to bid at a satisfactory valuation.
The largest European add-on so far this year was Genstar Capital-backed Apex Group‘s take-private of Sanne Group. The deal valued the London-based financial services provider at around €1.8 billion.
While financial services may have snagged the largest price tag, buyout firms are relying heavily on B2B and IT to provide add-on targets; so far this year, the sectors account for 35.9% and 26.9% of total buyout deal value, respectively, according to PitchBook data. These deals include Groupe HLD- and Essling Capital-backed Kiloutou‘s acquisition of its smaller equipment rental peer GSV Materieludlejning in the B2B space and EQT-backed GlobalConnect‘s acquisition of Open Universe in the IT sector.
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