Europe overview

The European market remains sluggish, there were 3,185 completed transactions in Q3 2024, compared with 3,311 in Q3 2023 – a 4% year-on-year decrease[1], notably less than the 11% decline for the same period the year prior. But there is mounting pressure on private equity to transact.

Not only do private equity firms need to start selling their investee companies generate liquidity, but also deploying capital to make new acquisitions. For a long time, the market has taken the blame, but at some point, private equity will have to break the market and start transacting. We believe there's been a significant mindset shift. Private equity realise they need to be active - we see creative thought and creative energy being applied to potential transactions and this can only drive activity.

Perception v Reality

If you asked most people in the private equity market six to nine months ago, they would have said that things are looking up and enthusiasm to sell is returning. We may be starting to see the first signs of this confidence translating into buyouts across Europe – numbers have marginally increased, with 520 buyouts in Q3 2024, compared with 502 in Q2 2024, and 518 in Q3 2023[2].

Figure 1: Q3 private equity buyouts (%)

Source: Mergermarket (see Appendix*)

Trade v Private Equity

As mentioned previously, trade buyers have been more active in the European market since 2019 and this past quarter has been no different – 60% of completed transactions in Q3 2024 were trade led[3]. Interestingly however, this is the lowest market share held by trade buyers since Q4 2021[4]. 

Bolt-on M&A as a driver of value

The prevailing private equity mood remains short on confidence. We believe confidence has been drained by gruelling fundraising processes, the poor performance of some portfolio companies, and by uncertainty over valuations on both the buy and sell-side. When confidence is drained investors become risk averse, and that risk aversion continues to outweigh the pressure to deploy.

In a market where appetite for risk remains low, bolt-ons can deliver lower risk returns and become a favorable option for many. This year so far we have seen 15% higher volume of completed bolt-ons than buyouts[5]. In these situations, the investor can have confidence in the management team, platform, business, and industry as a whole. Revenue and cost synergies can underwrite earnings growth and there is often a multiple arbitrage opportunity on exit – lower risk and higher returns. The same dynamic that has driven trade buyers has driven the bolt-on market.

Figure 2: Q3 private equity bolt-ons (%)

Source: Mergermarket (see Appendix*)

Outlook

Q3 2024 represents the first quarter where we did not see a drastic drop in completed volumes this year so far[6]. This, in combination with our view that people are making active decisions to bring their businesses to market, suggests there are reasons to be positive for 2025.

Notwithstanding the ongoing geopolitical and electoral uncertainties, attitudes are improving. While we will not see this manifest in a short-term upswing in buyouts, appetite is increasing against a backdrop of increased available liquidity, active debt markets, and relaxing interest rates. 

In this current market, the enthusiasm to sell is exceeding the enthusiasm to buy. As a long-lead time business, we are likely to see the impact of this optimism on deal completion rates in 2025. While the green shoots of growth in the European M&A landscape are growing, for now, at least, we must wait and see what the seasons bring.

 

Read the full report >

 

Sign up to our mailing list for future releases >

 

Appendix

DC Advisory has prepared this material solely for informational purposes and it is not a research report. This material does not constitute or form part of, and should not be construed as, an offer to sell, or a solicitation of any offer to buy, or any recommendation with respect to, any securities. For other important information, please read our Insights & Publications disclaimer >

Mergermarket search criteria for chart and graph data*

Figure 2

 

Dataset for each time frame outlined, comprises private equity buyout volumes with deal values GBP 75 M and above, including those with undisclosed values, across all sectors in Europe

Figure 3 

Dataset for each time frame outlined, comprises private equity bolt-on volumes with deal values GBP 75 M and above, including those with undisclosed values, across all sectors in Europe

Sources 

[1] Mergermarket: Total deal activity in Europe - All transactions in Europe between 1-Jan-19 to 22-Oct-24 with deal values GBP 75 M and above

[2] Mergermarket: Total deal activity in Europe - All transactions in Europe between 1-Jan-19 to 22-Oct-24 with deal values GBP 75 M and above

[3] Mergermarket: Total deal activity in Europe - All transactions in Europe between 1-Jan-19 to 22-Oct-24 with deal values GBP 75 M and above

[4] Mergermarket: Total deal activity in Europe - All transactions in Europe between 1-Jan-19 to 22-Oct-24 with deal values GBP 75 M and above

[5] Mergermarket: Total deal activity in Europe - All transactions in Europe between 1-Jan-19 to 22-Oct-24 with deal values GBP 75 M and above

[6] Mergermarket: Total deal activity in Europe - All transactions in Europe between 1-Jan-19 to 22-Oct-24 with deal values GBP 75 M and above