European private equity watch, Q3 2013
So far in 2013, private equity houses have faced greater challenges due to European market conditions. So, the low level of deal completions has not always reflected market activity. As several key deals successfully completed in the last three months, this quarter feels like a more accurate reflection of what we are seeing in the market.
“The completion of several key deals in the last three months, has meant this quarter feels like a more accurate reflection of what we are seeing in the PE market. It is encouraging to see the deal pipeline still growing and a number of deals should complete this year, particularly in Germany. It remains to be seen if the European PE industry is back in full recovery mode but the signs are certainly positive.” Sachin Date, EMEIA Private Equity Leader, EY, UK
- With nearly €20.0b of deals completed, the third quarter of 2013 has been the strongest since Q4 2010 (€21.5b). Up 129% from Q2, this quarter has almost equaled the total value of the first half of 2013.
- The number of deals (129) is the lowest since the fourth quarter of 2009, although only 10 deals lower with 119 deals and a combined value of €6.3b. This emphasizes the current dominance of mega deals.
|Q3 2013||Q2 2013||Q3 2012|
|129 deals €20.0b||131 deals €8.7b||145 deals €14.8b|
- The quarter saw a resurgent buyout market in Germany, with close to €9.0b of completed deals. This is almost twice the quarterly value of €5.2b in the UK. Following a low performance in Q2 2013 (€252m), the return to high values cements the country’s position as the second-most active market in Europe by value.
- If the pipeline of mega deals in Germany continues to materialize this could challenge the UK’s long-standing lead position. A strong fourth quarter in Germany could see it overtake the UK for the first time.
Uneven performance across the continent
- The picture across Europe was unbalanced. Spain saw the fifth-largest deal of the quarter push it into the top four by value in Q3 (€1.2b).
- Despite a consistent performance in terms of deal volumes, the UK market lost ground to Germany in terms of deal value due to its low level of mega deal activity.
- The French market is looking particularly weak, especially when compared with its 2011 levels. However, it managed to more than double its value in Q3 2013 (€2.8b) compared with the previous quarter (€1.2b).
- Sweden experienced low levels of activity. From 2010 to 2012, there was a lot of deal activity, and PE firms now need to invest and grow their portfolio companies in order to exit these assets in 2014 to 2016. This is resulting in lower activity at present.
- Transactions in the €1b-plus range have held up well, with the top three in the quarter originating in Germany during Q3 2013. In all, five deals with a combined value of €10.1b completed in the third quarter, bringing the number of mega deals up to nine for the year to date.
- So far this year, there have been 288 exits, returning €51.7b to investors, compared with €55.4b for the whole of 2012. This also compares favorably with the value of new deals (€41.5b), as the backlog of portfolio companies needing to show a return to investors begins to clear.
- The modest number of exits in Q3 2013 (82) suggests that PE houses are seeking out the right buyers for their assets. They want buyers who value strong strategic synergies and are willing to pay for these assets accordingly.
- At €31.6b, the value of refinancing during 2013 has now reached its highest point since 2007 (€46.5b). This suggests that PE backers have been taking advantage of the liquid debt markets to refinance the existing debt. Often, this refinanced debt has portability provisions, making the eventual exit easier.
Source: CMBOR; Equistone Partners Europe; EY — year 2013 to end Q3 only