European buyout industry bounces back to pre-crisis levels after portfolio-focused pandemic hiatus
The European private equity industry rebounded strongly in the 12 months to 30 June 2021 following the initial shock of Covid-induced lockdowns, according to the first provisional half-yearly data announcement from CMBOR, the Centre for Private Equity and MBO Research, since its re-establishment within Nottingham University Business School last month with support from Equistone Partners Europe.
CMBOR’s latest report has found that the volume of private-equity-backed acquisitions in Europe fell to its joint-lowest level since mid-2009 during the first wave of the pandemic. But after just 102 transactions were completed in Q2 2020, the industry quickly recovered to pre-Covid activity levels. The 791 buyouts that took place in the past 12 months, with a cumulative value of EUR116.6 billion, exceed the corresponding figures for 2019 (716 deals with an aggregate value of EUR112.4 billion) and approach the post-2008 high-water mark set in 2018 (811 deals valued at EUR124.7 billion).
The resurgence in deal-making since Q3 2020 was also in evidence in exit activity, as private equity investors made 354 realisations totalling EUR98.9 billion in value, compared to 360 exits with a value of EUR73.7 billion in 2019. This too followed a decade-low exit volume of just 46 sales in Q2 2020.
The industry’s focus on portfolio management in the early months of the pandemic was reflected not only in the temporary dip in new deal activity, but also the historically low levels of insolvencies that took place in the subsequent year. In the UK, for example, after an initial spike in insolvencies, or ‘creditor exits’, in Q2 2020, to 17, only six more were recorded in the 12 months to Q2 2021 – less than half the next lowest level in any calendar year this millennium.
“The lull in deal activity that we saw in Q2 2020 was a function of how private equity firms were intensely focused on providing operational and financial support to their investee companies when Covid first struck Europe,” says Dominic Geer, Senior Partner at Equistone. “What we have seen since then is testament to the successful response of the industry in this initial crunch period. GPs have sufficiently addressed issues within their portfolios to be able to resume backing businesses and realising value. Meanwhile, abetted by government stimulus measures, even the worst-affected sponsor-backed companies have by and large received the support required to stay afloat in a phenomenally challenging environment.”
Europe’s three traditionally biggest private equity markets were the primary drivers of the rebound in buyout activity. The UK remained largest by volume over the past 12 months with 207 deals that totalled GBP24.4 billion (EUR27.4 billion), fuelled by a robust mid-market: buyouts in the GBP50 million to GBP500 million range accounted for 29.3 per cent of total value, up from 16.6 per cent in 2019. Germany ranked highest by aggregate value, with 138 buyouts valued at EUR35.3 billion in the same period, while France recorded 105 deals valued at EUR14.3 billion.
The widespread shift to remote working and catalytic effect of lockdowns on digital adoption buoyed investment in TMT businesses, displacing manufacturing as Europe’s most active sector with 200 buyouts valued at EUR24.4 billion since H2 2020.
“It is little surprise that, in a period of severe economic disruption and structural change, private equity investment flowed into those businesses most optimised for or resilient to Covid,” says Geer.
Christiian Marriott, Fundraising and IR Partner at Equistone, adds: “After a brief hiatus, it is Europe’s most established private equity markets that proved most active for buyout firms looking to deploy their institutional capital, particularly in the thriving mid-cap segment.”
Flotations propelled the surge in total European exit value between Q3 2020 and Q2 2021 inclusive, as 23 private-equity-backed companies were listed on public markets at a cumulative value of EUR40.9 billion. While all 5 of the largest exits in H1 2021 were flotations, these deals spanned a range of sizes beyond the large-cap EUR1 billion-plus space, including another five listings in the mid-market EUR50m-EUR500m bracket. With ‘reverse LBOs’, in which previously listed companies are refloated after a take-private, accounting for only two of these deals, this active pipeline of flotations underlined the critical role that private equity investment plays in supporting growth businesses on a trajectory towards public ownership.
“We have seen incredibly strong appetite from institutional investors in European public markets for exposure to businesses that have been supported and brought to an IPO by private equity partners,” says Marriott. “The industry exists to help ambitious management teams build and grow high-quality businesses while generating compelling returns for its investors. The recent flurry of listings is just one aspect of a very healthy European exit environment which highlights the continued success of sponsors in doing so.”
Secondary buyouts and trade sales accounted for 193 and 131 exits in this period, at aggregate valuations of EUR36.5 billion and EUR21.5 billion respectively. The UK, Germany and France were once again the most active exit markets, recording 120 exits (at a cumulative value of EUR27.2 billion), 50 (at EUR17.2 billion) and 46 (at EUR10.4 billion) respectively from H2 2020 to H1 2021.