Despite the global pandemic, private equity backed businesses completed a substantial number of add-ons in H1 2020, according to Silverfleet Capital’s European Buy & Build Monitor, highlighting the resilience of buy & build as a value creation strategy.The European Buy & Build Monitor, which tracks global add-on activity undertaken by European-headquartered companies backed by private equity, identified a provisional total1 of 253 add-ons in the first half of 2020, with the first quarter seeing 156 reported add-ons, and the second quarter seeing 81.
Unsurprisingly, in light of the current climate, this represents a decline from the 387 in H1 2019 (-35 per cent), and the lowest level of add-on activity in the half-year since H1 2015. Total disclosed deal value was also lower in H1 2020 than in previous periods, with a total value of EUR1.9 billion, compared to EUR2.4 billion in H1 2019.
Despite the dip in economic activity, there were still seven add-ons with values greater than EUR65 million announced in the first half of 2020, comparable to the 12 and nine reported in H1 2019 and H1 2018 respectively. The majority of these larger deals were in the software and healthcare sectors.
The technology, media, and telecom (TMT) sector faired relatively well during the height of the pandemic, outperforming other sectors with 26 add-ons during the second quarter of the year. These made up a third (32 per cent) of total add-ons during Q2 – a significant increase from the average of 20 per cent in previous periods.
This is likely due to the strength of the software and technology sector, which has seen an increase in growth in recent months, largely driven by the digitisation of the office and the sector’s remote-working friendly macro drivers.
The majority of regions experienced a decline in add-on activity for H1 2020, particularly Nordic, UK and Ireland, France, Italy, and North America. Iberia was the only region to see an increase in add-on activity in H1 2020, performing strongly with 20 add-ons compared to 18 in the previous period.
The Nordic region was nonetheless the most active in the period with 51 add-ons, down from 89 in H1 2019. The UK & Ireland came in at second place with 38 add-ons, significantly fewer than in previous periods, with Brexit potentially further deterring companies from the region.
This was followed by DACH, Benelux, and Iberia, all of which showed relative resilience compared to H1 2019.
Although Silverfleet did not undertake any buy & build activity in H1 2020, it recently saw portfolio company CARE Fertility complete its third add-on under its ownership, with the acquisition of Nuffield Health’s Woking Assisted Conception Service (ACS).
This add-on will enable CARE Fertility to expand its reach in the Home Counties region and follows CARE Fertility’s acquisition of IVI Midland in Tamworth and the Countess of Chester Hospital’s fertility clinic, both in 2019.
The deal was announced and completed in August 2020 and will feature in the next Buy & Build Monitor.
Gareth Whiley, Managing Partner of Silverfleet Capital, says: “The significant level of buy & build activity during the first half of this year adds further proof, if any was needed, of the resilience of this enduring value creation tool in the face of government-imposed lockdowns across most of Europe. That the TMT sector has led the way over this period should be of little surprise given the growing reliance on digitally-led business models to operational stability and business performance. We expect to see add-ons play a central role over the rest of the year as continued market volatility creates attractive acquisition opportunities for growth-oriented companies.”
