European Private Equity industry maintains appetite for M&A

17 May 2016 5 min. read

The global private equity market has enjoyed strong growth on the back of cheap money and a demand for their portfolio stock from cash rich corporates. A new report from consultancy Roland Berger finds that the European private equity is set to build on global appetite and enjoy continued growth in the coming twelve months.

The report from Roland Berger, titled ‘European Private Equity Outlook 2016’, explores expectations for the private equity (PE) market in the coming years, as well as conditions affecting PE players. The European private equity survey involves 2,600 participants: of which 28% were from DACH the region, 12% from the Benelux and 10% from the UK. 68% of respondents have more than 10 years of PE experience under their belt.

Fundraising in M&A

PE market growing
The survey finds the PE involvement in M&A transactions is expected, by the majority of respondents, to increase this year. 54% believe that the market will expand between 0% and 10%, while 10% believe it will increase 10%. Of respondents, 22% believe that it will be flat this year, while 13% hold that there will be decline.

The respondents are slightly more bullish about the market this year, with 53% in 2015 saying that there would be between 0% and 10% growth, and 9% saying that growth would be more than 10%. The figures are down on 2014 however, when a combined 82% expected growth in the PE transactions market. The development is overall in line with a recent study released by Bain, which found that 2015 was a solid year for the global private equity landscape.

Private Equity M&A in Europe

Regional growth
The survey takes a closer look at the respondents’ expectations for the growth of PE related M&A transactions in different regions for the coming year. The biggest growth according to respondents comes from Germany, up 3.2%. This is followed by the wider Iberia peninsula and Italy, where growth of 3.1% is projected. The UK too is expected to see relatively strong growth figures at 2.9%. Only Greece sees negative growth, although only a marginal -0.2% decrease, while Austria and Switzerland will see low growth in activity (1%) in the coming year.

Industrial activity
The research also considers which sectors are expected to see the most growth in the coming year, participants were able to select multiple categories. The survey respondents expect the technology & media sector to be the most active, at 65% of respondents, followed by pharma & healthcare, at 62%. The areas that are expected to see the least activity are building & construction, at 14%, and energy and utilities, at 14%.

Private Equity value chain

Ecosystem changes
While respondents are relatively positive about growth to the European PE market in the coming year, a number of factors affecting the market are expected to see change this year. The respondents rate political stability as the most important factor likely to affect the market, at 35%, followed by the availability of inexpensive debt financing, at 23%. The availability of attractive acquisition targets is the least important, at 19%, although it is relatively close in importance to the previous four categories.

In terms of how things will change this year, respondents believe that political stability will deteriorate in the coming years, while the availability of cheap money will remain. The overall economic situation is projected to improve for the region, while valuation levels development will decrease. The availability of attractive targets increased ever so slightly over last year.

"As of the end of 2015, the PE industry appears to be rather unconcerned by the overall economic situation," says Roland Berger Partner Christof Huth, who interviewed investors across Europe with his Investor Support Team. "Most firms even expect this year to be a significant improvement on 2015." PE investors do not expect any reduction in the availability of cheap financing compared to 2015 either. "That said, our survey does indicate a growing concern about Europe's political stability. This is primarily what will influence how many transactions actually complete this year.” Private Equity focus areas

The survey further asked respondents to nominate the most important activity in the PE value chain of for 2016. The top reason, again this year, was making new investments – which is due to the current attractiveness of selling portfolio companies. The development of portfolio companies is no longer a chief concern, falling to the most important for 23%. Divesting existing investments too remains an important feature of the landscape however, coming in at 26%. Fund-raising and extending existing funds are the least important, at 12% and 1% respectively.

"This is the first time in the recent past that we are seeing PE investors focus more on divesting investments than on developing their portfolio," says Huth. "What this shows is that they have done their homework, strategically and operationally developing many of their portfolio companies to such a point over recent years that they are now in a position to take advantage of this favourable time to sell up."