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Buoyant IPO markets and hungry corporate buyers drive a record year for private equity exits

It was a record year for exits by entry EV as stock markets across Europe welcomed IPOs of private equity-backed businesses, and corporate buyers – particularly from North America – found attractive opportunities in private equity (PE) portfolios.

That’s according to EY’s latest PE exit study: ‘Forging ahead? How do PE investors create value’.
Launched at the BVCA Summit, the study reveals that the value of PE portfolio businesses sold was a record high in 2014, well above the historical peak of 2006. PE exits to corporates were also at record levels, with North American buyers the most active, and with 28 flotations across European stock markets, IPOs offered a popular exit route for portfolio companies.
Speaking at today’s BVCA Summit, Bridget Walsh (pictured), EY partner and head of Private Equity across UK & Ireland, said: “Our series of studies of European PE-backed businesses, conducted over the last 10 years, has demonstrated PE’s capacity for value creation – in absolute terms and in performance relative to public company benchmarks.
“Our findings have shown that the PE business model works across Europe – by geography and industry sector and from mid-market to large investments – through careful selection of investments, alignment of incentives and a sharp focus on key value drivers. Relative to the size of portfolio, the scale of activity in 2014 was the second best year, with 17 per cent of portfolio value realised, with 2014 marking a year of significant, positive change for PE in Europe.”
New PE investments in European businesses increased to the highest level since 2008, with many mid-market European PE firms returning to deal making – the number of new investments in 2014 grew 50 per cent. The study reveals that acquisitions of businesses from corporate sellers almost doubled in 2014 vs. 2013 to a post-downturn high. European PE firms led 67 per cent of new investments, US headquartered PE firms 29 per cent and Rest of World 4 per cent, vs 59 per cent, 36 per cent and 5 per cent, respectively, in 2013.
In terms of dry powder, funds for new deals grew in 2014 to a post downturn record. A total of 79 PE firms led new investments in 2014, up from 53 in 2013.
Walsh says: “We tracked deals in the 2005-07 and the 2010-13 timeframes according to how active the acquiring firms had been over the entire period of our studies (ie, 10 years).We found that across both of these periods, the most active firms accounted for around 60 per cent of all new European PE deals, yet in 2014 this proportion fell to just 48 per cent. The remaining 52 per cent of new European PE deals were completed by new PE firms coming into the market – largely in the mid-market space – as well as some of the infrequent PE acquirers re-entering the new deal arena and becoming more active.
“We also analysed new investments by the type and location of the acquiring fund over our study period. The overall picture is one of relative stability for across the 10-year timeframe for the proportion of deals done by most fund types. However, there is a clear trend for US mid-market funds to be acquiring in Europe.”
While in the 2005-07 period, US mid-market funds accounted for just 7 per cent of new deals by number, by the 2010-13 period, this proportion had increased to 11 per cent and by 2014 (before the euro currency fell against the US dollar), it had risen to 13 per cent.
Walsh adds: “Against a backdrop of increasing dry powder and the entry of new players, the real differentiator in European PE will be in how firms source new investment opportunities and devise angles to make winning bids. This will come to the fore as we expect future growth in new investments to emanate from corporate carve-outs and take-privates – both of which require deeper country network and sector evaluation skills.”

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