The mood is upbeat once again in the European private equity sector, according to Roland Berger’s European Private Equity Outlook 2013.
After a more pessimistic mood among PE investors in 2012, more deals are expected this year – especially in Scandinavia and Germany.
In contrast, Spain, Portugal, Italy, France and Greece are expected to continue to experience a slight decline.
Pharmaceuticals, healthcare, consumer goods & retail and energy utilities are considered the key target industries.
However, really big transactions are expected to be the exception, partly because the economic situation remains uncertain, according to those surveyed; despite more liquidity, debt financing will be difficult and purchase price expectations are expected to remain unchanged.
Two thirds of the 1,200 European executives surveyed are also of the opinion that the business model of PE companies needs to be examined and adjusted to fit the market environment.
"The mood in the European private equity market is quickly becoming positive. In Switzerland we’re seeing a considerable rise in due diligence activities. Good deals are possible once again," says Philipp Angehrn, partner at Roland Berger Strategy Consultants in Zurich. "I also see major potential in operational improvement. Specifically in identifying new business areas and cost-saving potential, but also in the professional integration of add-on acquisitions. Here, the focus will be on identifying and rigorously leveraging synergies."
Currently, 52 per cent of those surveyed believe the number of M&A transactions with PE involvement will go up compared to last year – especially in Scandinavia (+2.7 per cent), Germany (+2.4 per cent) and Poland (+1.9 per cent). This can be attributed to the positive economic forecasts in these countries.
Investors expect most activity to take place in pharmaceuticals and healthcare (54 per cent), consumer goods and retail (51 per cent), energy utilities (41 per cent) and IT and telecommunications (41 per cent).
"In the coming years, these sectors promise stable growth or, due to industry changes such as the energy transition in Germany, an increase in the number of transactions. Therefore private equity companies will have the opportunity to acquire profitable targets," says Gerd Sievers, partner in the Corporate Finance Competence Center of Roland Berger Strategy Consultants.
A slight drop in market activity is expected, particularly in the countries struggling most with the euro crisis – especially Greece (-1.0 per cent), France (-0.7 per cent), Spain/Portugal and Italy (-0.6 per cent).
Large transactions exceeding EUR 500m will remain the exception in 2013 as, according to experts, the availability of debt financing will continue to be difficult.
"This is rather surprising, considering the amount of liquidity in the market and the preparations for sale that we observe involving larger targets," says Sievers. "Targets’ attractiveness and purchase price expectations will be decisive for the number and size of M&A transactions."
The survey participants expect that at least the attractiveness of targets will rise. In terms of purchase price expectations, no significant reduction is expected compared to last year.
Sources of acquisitions will mainly be major shareholdings in family-owned businesses (46 per cent) and carve-outs and secondary buy-outs (43 per cent in each case). Strategic investors (23 per cent) will make up the majority of potential buyers closely followed by other exit options via PE companies as well as dual or triple tracks (all at approx. 20 per cent).
In 2013, PE investors will focus more on developing their portfolio companies. To do so, they will take both strategic (39 per cent) and operational (36 per cent) actions. Financial actions such as refinancing or recapitalization are relevant for only 26 per cent of those surveyed.
Two thirds of the investors believe that the PE business model must be examined in terms of their future sustainability.
"The financial crisis showed us that certain adjustments are necessary. For instance, passive portfolio management is no longer sustainable over the long term. The private equity funds should take the opportunity and enforce a more active approach to manage their portfolio companies now. This will help to adjust for the new market conditions and thereby be better equipped to deal with future crises," explains Sievers.
