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UK and Germany lead European buyout market

European private equity is reawakening following a quiet six months after the UK’s EU Referendum last summer, with overall buyout value growing by more than a third between H2 2016 and H1 2017 to reach EUR35.8 billion for the first half of this year.

That’s according to provisional H1 data from the CMBOR at Imperial College Business School, sponsored by Equistone Partners Europe and Investec Specialist Bank.
 
Though the value increase is encouraging, it doesn’t tell the whole story: much of this recovery is accounted for by eleven mega-deals (deals valued at EUR1 billion-plus) across Europe in H1 2017, already surpassing the ten completed in the whole of 2016, whereas the overall volume slid gently from 310 deals in H2 2016 to 303 in the first half of this year. “
 
The overall European activity level is encouraging. Interestingly it is the mid-market, typically the driving force of European buyout activity, that has contracted. This is unsurprising given uncertainty around the surprise Referendum result last year and, more recently, national elections which may have caused business owners to adopt a wait-and-see approach. This scarcity of assets and a compelling trade bid on many auctions means there is upward pressure on entry multiples as sponsors look to back quality businesses as they raise fresh funds,” says Callum Bell, Head of Corporate & Acquisition Finance at Investec.
 
The silver lining to increasing prices is that private equity firms are generating strong returns on deals largely done during the post-recession vintage: EUR52.4 bilion was generated by private equity sellers in the first half of the year across 208 exits, up from EUR49.2 bilion generated in the second half of 2016 across 205 transactions. “Europe remains an attractive environment for private equity firms to exit investments, underpinned by trade buyers’ strong appetite for assets,” says Christiian Marriott, Partner at Equistone Partners Europe. “The relative weakness of the euro and sterling has encouraged international strategic buyers, often private equity-backed, to target companies being sold by Europe’s buyout houses.”
 
Germany has stood out in terms of deal value, neck-and-neck with the UK for H1 2017 (recording EUR8.5 bilion in deal value against the UK’s EUR9.4 bilion) and the overall market leader for Q2 2017 with EUR5.6 bilion of buyouts, against just EUR1.8 bilion for the UK. In fact, the second quarter this year saw the UK’s activity level on a par with Q4 2016 for value and the lowest since 2009 in terms of volume.
 
“The UK and Germany saw seven mega-deals between them in the first half of this year, but the UK’s three were all in Q1. The long-awaited hype over the German market may at last be materialising, as it’s not just a case of large deals skewing numbers, but also a larger number of mid-market deals too. Last year saw 95 buyouts done there, the highest number since 2008, with 2017 on track to approach that volume again,” says Bell.
 
France had a strong showing in Q2, recording 24 buyouts, including two mega-deals of its own, worth an impressive combined value of EUR5.3 bilion – second only to Germany in terms of quarterly totals (Q2 2017 Germany: EUR5.6 bilion). “We are very encouraged by prospects in the French market, particularly following the result of its presidential election. The numbers are already strong and there is a strong pipeline emerging for the remainder of 2017,” says Marriott.

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