Private equity houses may still be focusing their efforts on the best assets, but the combination of significant amounts of dry powder and a growing sense of optimism on macroeconomic indicators throughout Europe means activity in the small to mid-market has improved significantly, according to NBGI Private Equity.
Deal completions in the EUR15m-EUR150m range in Europe rose by 50 per cent in volume terms compared to Q2, while the overall value of these deals increased by 43 per cent to reach EUR4.3bn.
In terms of M&A more broadly, mid-market transactions also picked up in the 3rd quarter, with an increase in 37 per cent in volumes and 87 per cent in value, driven in part by the recovery in LBOs.
The gradual recovery in M&A activity is partly a result of macroeconomic improvements in the eurozone, linked to recovery from recession and reform programmes implemented in Southern Europe. European banks have also produced better results in recent quarters, while in many economies manufacturing activity is recovering and inflation has stabilised, bringing improved investor confidence.
Part of the attractiveness of companies in the lower mid-market is their agility, as well as their malleability in terms of transformational change and strategic refocusing.
A recent survey by Preqin found that 39 per cent of investors believed that small to mid-market buy-outs presented the best opportunities – just 19 per cent favoured large to mega buy-out funds.
The dynamics of the lower mid-market mean that there are greater possibilities to scale businesses, both organically and through acquisition; a highly fragmented market in many sectors presents great opportunities for consolidation.
Competition for deals also tends to be reduced, as the pool of international / pan-European / financial / trade acquirers is reduced.
Finally, smaller businesses often present as more attractive targets during changing economic conditions, during which larger businesses can take longer to adapt or require large injections of additional cash / working capital to invest in renewed growth.
