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European private equity activity falls amid post-Brexit dearth of mega-deals

The slowdown in deal activity ahead of the EU Referendum in June continued after the surprise outcome, with year-on-year activity down 38 per cent from EUR89.7 billion in 2015 to EUR55.7 billion in 2016, according to the Centre for Management Buyout Research (CMBOR).

The latest data from CMBOR, which is sponsored by Equistone Partners Europe Limited and Investec Specialist Bank, reveals that the fall was more marked in the UK, where activity plummeted from EUR28.7 billion last year to EUR12.5 billion this year, the lowest level of buyout activity since 2009.
 
For the whole of Europe the drop was most marked in the mega-deal space, with a strong 2015 recording EUR38.7 billion across 20 deals followed by a much weaker 2016 with just EUR12.8 billion accounted for by 10 deals.
 
“The referendum outcome has clearly had a material impact on the buyout market, the UK in particular, with the numbers reflecting a significant decline in mega-deals in the wake of the Brexit vote,” says Christiian Marriott, partner at Equistone Partners Europe. “That said, in Europe generally there are pockets of encouraging news, particularly in parts of the mid-market where a number of countries have recorded increases in activity levels. This shows private equity’s ability to persevere and keep putting capital to work despite a challenging macro-economic backdrop.”
 
Indeed deals in the mid-market (enterprise value below EUR500 million) were fairly robust, with the EUR10-25 million space recording an uptick of 26 per cent from EUR1.4 billion across 79 deals to EUR1.7 billion across 97 deals.
 
The EUR50-100 million and EUR100-250 million spaces were up gently year-on-year as well, to EUR4.7 billion (64 deals) and EUR8.8 billion (57 deals), respectively.
 
“The mid-market has been fairly consistent. There remains a willingness to do quality deals, but not at any cost and that is encouraging,” says Callum Bell, head of corporate and acquisition finance at Investec. “There are some high prices being paid, with leverage topping out at record levels, so sponsors have been using additional equity to win deals. This underlines sponsors’ belief in the growth prospects of those targets. Historically some of the best deals have been done in down markets and with hefty equity cushions.”
 
Fundraising suggests next year may see activity resume. In addition to a number of mid-market firms raising fresh pools of capital, four large buyout funds raised EUR33 billion between them in 2016 to back large deals. CMBOR already has nine pencilled in for possible 2017 completion, worth a combined EUR18.5 billion if they come to fruition.
 
“The market could pick up next year as the dust settles on recent surprise election results and a number of larger GPs have fresh funds to deploy,” Marriott says. “But equally there will be elections across the continent’s largest economies which could lead to some vendors taking a wait-and-see approach.”

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