European PE trends for Q3 in six charts

European private equity deal activity has remained steadfast through Q3 despite worsening economic conditions.

Here is a look at some of the key themes from PitchBook’s latest European PE Breakdown that shows how private markets have navigated a more challenging macroeconomic context.

Dealmaking activity saw a significant drop in Q3 2022 when compared to the previous quarter, indicating that the current economic malaise may have finally caught up with PE in the region.

Aggregate deal value and volume were down by 31.6% and 9.6%, respectively. Meanwhile, on a year-over-year basis, total deal value is flat, while the number of deals is up by 16.9%.

The business products and services sector continues to dominate 2022 deal flow through Q3. The sector is set to have its best year in terms of aggregate value since 2006, with €176.3 billion accounting for 37.8% of European PE deals. Even with the region facing a recession forecast for the first half of next year, the sector could continue to attract attention.

With public market valuations dipping, take-privates continued to be a popular PE play in Q3, with six deals completed worth a total €5.8 billion.

With the recent fall of the pound, London-listed assets in particular are in demand. Notable recent deals include Energy Capital Partners’ discounted takeover of waste management company Biffa. Although the pound has since stabilized, it’s still trading low against the dollar in historical terms and may result in more UK-focused take-privates.

Carveout activity may have slowed on a year-over-year basis in terms of deal volume—down 38.4%—but value has remained robust. Deal value through Q3 has reached €60.4 billion as companies look to shore up their balance sheets. Sellers often prefer PE buyers as the deals are less likely to face scrutiny from competition regulators. The largest deal in the quarter was CVC Capital Partners’ $4.8 billion acquisition of Unilever‘s tea business, Ekaterra.

Exit activity has continued to decline as the end of the year grows closer, with only €31.4 billion deals completed in Q3. With public market valuations declining, the IPO route is less attractive. There have been signs that the falling public valuations may spread to private companies as well.

However, if 2021 was an outlier due to pent-up demand caused by the pandemic, numbers are in line with years prior. One standout exit of Q3 was the €2.7 billion buyout of Reden Solar by Macquarie Asset Management, British Columbia Investment Management and MEAG from previous investors InfraVia Capital Partners and Eurazeo.

Fundraising in Europe is looking to be the lowest in a decade, with just €37.4 billion raised across 66 funds so far. Reasons for the drop include tighter monetary policy as well as less-than-ideal exit conditions.

The largest fund raised in the year through Q3 was BC Partners’ European Capital XI, which closed on €6.9 billion in January. Notable fund closes in Q3 included EQT‘s €2.4 billion growth fund and Cinven‘s strategic financials fund, which totaled €1.5 billion.

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