European highlights

  • European private equity-backed M&A activity continued robustly in H1 2021, seamlessly following the resurgence in deals towards the end of 2020; H1 2021 deal volumes were up 79% compared to H1 2020, and at their highest H1 level since 2014[1]
  • The favourable M&A environment across the continent can largely be attributed to the economic recovery, which has been accelerated by the Covid-19 vaccination rollout
  • The European Central Bank has also recently raised its growth forecasts for the bloc, to 4.6% in 2021, in light of growing GDP rates and high consumer price index rates[2]. GPs will continue to be encouraged by the prospect of future growth, further whetting the appetite for M&A as confidence in the market improves
  • The technology and business & tech-enabled services sectors in Europe continue to lead the way in transaction volumes, with deals across the two sectors accounting for 49% of the region’s total Q2 2021 deal count[3]
  • Valuations for tech-enabled businesses unsurprisingly remain at a premium[4], particularly for ERP software and IT services companies that have proven resilient during the downturn. As flexible and remote working policies look set to continue as the pandemic resides, we believe continued consumer and business demand for e-commerce, cloud, cybersecurity and SaaS implementation platforms will only bolster future valuations in the space[5]
  • In other sectors, however, the post-lockdown recovery may be short-lived. Amidst a demand surge for goods and services as European economies move away from pandemic restrictions, supply chain backlogs and labour shortages are being experienced across many sectors[6]. This supply chain squeeze is feeding into higher costs for businesses, which in turn are being passed onto consumers, giving rise to inflation concerns across the European region[7]
  • European fundraising in H1 2021 remained buoyant, with levels of dry powder continuing to be at a record high[8]. The low interest rate environment, volatility in public markets, and the potential for high risk-adjusted returns in alternative markets, continued to boost the confidence of LPs and consequently, private equity allocations
  • However, whilst European fundraising remained active, first-time fund counts are heading towards their lowest level in a decade[9]. This indicates that challenges remain for less-established fund managers, as LPs continue to allocate capital to managers with prior relationships and/or proven track records. That said, looking forward to H2 2021 we might expect first-time fund counts to improve as travel opens up and LPs begin to search for new GPs that have developed niche strategies, and/or are well placed to capitalise on the post-Covid market[10]
  • As the pandemic forced funds to re-evaluate their role in an interconnected society, an increased focus on ESG considerations for investors is coming to the fore. Corporates and GPs are focusing more on ESG as part of the M&A processes and, going forward, we could expect that deal financing may be more difficult for investments that are not regarded as ESG friendly, and that valuations may be materially impacted by ESG limitations [11] [12]
  • Looking ahead to the remainder of H2 2021 and 2022, it could be expected that European M&A activity will remain bullish as the economic recovery in the region gains momentum, and GPs continue to deploy extensive levels of dry powder

European activity snapshot

European financial sponsor dry powder to be invested ($bn)[13]

Source: ‘Q1 2021 European mid-market deal report’, Mergermarket, 03 September 2021 (available on request)

 

Buyout volumes 2015-2021 YTD split by sector (%)

Source: ‘Q1 2021 European mid-market deal report’, Mergermarket, 03 September 2021 (available on request)

 

Buyout volumes Q1 2021 split by sector (%)

Source: ‘Q1 2021 European mid-market deal report’, Mergermarket, 03 September 2021 (available on request)

 

Buyout volumes in 2015-2021 YTD, split by region (%)

Source: ‘Q1 2021 European mid-market deal report’, Mergermarket, 03 September 2021 (available on request)

 

Buyout volumes in Q2 2021, split by region (%)

Source: ‘Q1 2021 European mid-market deal report’, Mergermarket, 03 September 2021 (available on request)

 

YTD activity by sector and region

2015 – 2021 YTD deals by sector (# of transactions)

Source: ‘Q1 2021 European mid-market deal report’, Mergermarket, 03 September 2021 (available on request)

2015 – 2021 YTD total deals by geography and quarter

Source: ‘Q1 2021 European mid-market deal report’, Mergermarket, 03 September 2021 (available on request)

Who’s been fundraising?

Source: Mergermarket Search Criteria: Target location: Western Europe, Deal size: £50m - £500m, Transaction type: Buyout, Date: 01/04/2021 – 31/08/2021

April

Aurelius Equity Opportunities held a final close of Aurelius European Opportunities IV, at €350m

EQT held a final close of EQT IX, at €15,600m

IK Investment Partners held a final close of IK Small Cap III Fund, at €1,200m

Palatine Private Equity held a final close of Palatine Private Equity Fund IV, at £200m

Silverfleet Capital held a final close of Silverfleet Capital European Development Fund, at €290m

 

May

Livingbridge held a final close of Livingbridge 7, at £1,200m

Castik Capital held a final close of EPIC I-b, at €700m

Motion Equity Partners held a first close of Motion Equity Partners Fund IV, at €150m

 

June

Pollen Street Capital held a first close of Pollen Street Capital Fund IV, at €653m

Marlin Equity Partners held a final close of Marlin Heritage Europe II, at €675m

GHO Capital held a final close of GHO Capital III, at €2,000m

 

July

Eurazeo held a second close of Eurazeo PME IV, at €700m

Apax Partners France held a final close of Apax France X, at €1,600m

Nordic Capital held a final close of Nordic Capital Evolution Fund, at €1,200m

 

August

Cairngorm Capital held a final close of Cairngorm Capital Fund III, at £200m

ArchiMed held a final close of MED III, at €650m

Genesis Capital Equity held a first close of Genesis Private Equity Fund IV, at €101m