European highlights
- European private equity-backed deal volumes in Q1 2022 were down 26% against levels experienced in Q1 2021.[1] While deal volumes this quarter remain similar to figures seen in 2019 and 2020,[2] it is clear that the slowdown in European dealmaking that started in Q4 2021 has continued into the new year[3]
- Unsurprisingly, investments in the Technology & Software and Tech-Enabled Services sectors have continued to lead the way, representing 39% and 29% of total deals respectively.[4] However, we believe that many premium assets that were eagerly sought by sponsors throughout 2021 have now traded, and we are instead seeing businesses that are cyclical in nature and in lower demand come to the market. As investors are seeking greater resilience in new investments, the gap between sponsor demand and market supply has resulted in deals taking longer to complete or even stalling
- The geopolitical situation in Ukraine, and the subsequent economic sanctions against Russia has seen a diminished supply of critical commodities such as oil, gas and wheat.[5] This has resulted in increased inflationary pressure that we believe is forcing European sponsors to focus on both portfolio company costs and on acquiring platforms that can withstand supply chain issues. Furthermore, companies that are unable to pass higher costs onto consumers are likely to be shunned by dealmakers, which could in turn see greater deal activity in the Industrials and Healthcare sectors - sectors that are typically viewed as ‘inflation-hedging’.[6] Higher prices, especially in energy and food items, are causing a material squeeze on consumer incomes across Europe, which means less discretionary spending and worsening cash-flow profiles for consumer facing businesses, thus pressurising deal activity in the sector[7]
- We are also seeing the ongoing rise of Europe’s Private Equity Secondaries market[8] - as more general partners have invested in private markets, the opportunities for secondary buyers has increased, prompting more asset managers and limited partners to enter the market. This shift has been welcomed by general partners who are seeking greater liquidity in high-performing funds and alternatives to traditional exit routes[9]
- We continue to expect environmental, social and governance (ESG) considerations to be increasingly important in M&A decision making – investors are using ESG checklists to determine risks and uncover value creation opportunities in target businesses.[10] In addition, regardless of whether an investor has a specific ESG agenda, PE funds are adopting a risk averse approach to new investments by either avoiding or pricing in the risk for businesses in any sector that will be difficult to sell in the future due to ESG misalignment[11]
- Looking ahead, given that the majority of private equity returns are attributed to multiple expansion, the heightened European interest rate environment following the European Central Bank’s recent pivot to tighter policy measures could see sponsor exit activity reduce as multiples flatten off and sponsors hold assets until return targets are met.[12] Furthermore, we anticipate that continuing global supply chain pressures and rising commodity prices will continue to encourage investors to further shift their focus to sectors and geographies that are seemingly more resilient to the current economic climate
European activity snapshot
Source: Q1 2022 European mid-market deal data, Mergermarket, 01 April 2022
Source: Q1 2022 European mid-market deal data, Mergermarket, 01 April 2022
Source: Q1 2022 European mid-market deal data, Mergermarket, 01 April 2022
Source: Q1 2022 European mid-market deal data, Mergermarket, 01 April 2022
Source: Q1 2022 European mid-market deal data, Mergermarket, 01 April 2022
Source: Q1 2022 European mid-market deal data, Mergermarket, 01 April 2022
Source: Q1 2022 European mid-market deal data, Mergermarket, 01 April 2022
Fundraising
Source: ‘Funds recently closed data’, Prequin, 6 April 2021
January
- Summa Equity held a final close of Summa Equity Fund III, at €2,300m
- Eurazeo held a second close of Eurazeo Smarty City II, at €150m
- InfraVia held a final close of InfraVia Growth Fund, at €501m
- All Seas Capital held a first close of All Seas Capital Partners I, at €330m
February
- Astorg held a final close of Astorg Mid-Cap, at €1,300m
- BC Partners held a final close of BC Partners Fund XI, at €5,300m
- Bluegem Capital Partners held a final close of Bluegem III, at €340m
- Hg held a first close of Hg Saturn 3, with a target size of €5,500m
March
- Gilde Healthcare Partners held a final close of Gilde Healthcare Private Equity IV, at €517m
- Inflexion Private Equity held a final close of Inflexion Buyout Fund VI, at £2,500m
- Siparex held a fourth close of Siparex ETI 5, at €420m
- Growth Capital Partners held a final close of Growth Capital Partners Fund V, at £260m
- Rhône Group held a final close of Rhone Partners VI, at €2,100m
Regional commentary
DC Advisory's European teams share their observations of M&A activity over Q1 2022 and the key trends expected to drive deal flow.