Dealmakers in Europe are anticipating a significant increase in the size and number of private equity buyouts. With a record amount of uninvested capital and a favorable financing environment, the stage is set for larger transactions in the coming months.
Key Takeaways
The number of deals exceeding $5 billion has more than doubled this year.
A record amount of uninvested capital is available in private equity funds.
Investors are increasingly focused on businesses with sustainable growth.
Rising Deal Activity
The recent announcement of CD&R's €16 billion acquisition of Sanofi's consumer health unit is seen as a potential catalyst for a wave of large private equity transactions in Europe. Analysts and investors are optimistic that this trend will continue, driven by several factors:
Uninvested Capital: Private equity funds are sitting on a record $2.62 trillion in uncommitted capital, often referred to as "dry powder.
Cheaper Financing: As interest rates decline, financing conditions are becoming more favorable for large transactions.
Pressure for Returns: Investors are increasingly pushing for asset sales to generate returns, further fueling deal activity.
Sector Focus
The technology sector is particularly poised for larger private equity-backed deals. According to Henry Frankievich, Managing Director at Insight Partners, the focus has shifted from merely optimizing margins to investing in businesses that demonstrate durable growth. This shift is expected to drive more substantial transactions in the tech space.
Growth in Deal Volumes
Data from Dealogic indicates that private equity-backed deal volumes in Europe, the Middle East, and Africa (EMEA) have surged by 41% year-to-date compared to the same period last year. Notably, the number of deals valued at over $5 billion has more than doubled, signaling a robust recovery in the market.
Global Trends
Globally, buyout deals are projected to reach $521 billion by the end of the year, marking an 18% increase from 2023. This growth is primarily attributed to larger average deal sizes rather than an increase in the number of transactions.
Caution Amidst Optimism
Despite the positive outlook, some dealmakers express caution. Richard Madden, European Executive Chairman at DC Advisory, notes a dichotomy where investors are eager to deploy capital but remain wary of the risks involved. Factors such as poor performance of some portfolio companies and uncertainty over valuations are contributing to this hesitance.
Francois Jerphagnon from Ardian emphasizes that only the strongest propositions are succeeding in the current environment, which is characterized by complexity and caution. He highlights the importance of resilience and growth in projects that are making progress.
Conclusion
As the European private equity landscape evolves, the combination of ample capital, favorable financing conditions, and a focus on sustainable growth is likely to lead to a surge in larger buyouts. While optimism prevails, the cautious approach of investors underscores the complexities of the current market environment.
Sources
Dealmakers expect bigger European private equity buyouts and more of them | Reuters, Reuters.