Lower mid-market drives European private equity as activity normalises

European private equity’s slowdown in activity has been tempered by a robust lower mid-market, which has been remarkably resilient in the first half of this year, according to the latest data published by the Centre for Management Buyout Research (CMBOR), sponsored by Equistone Partners Europe Limited and Investec Bank.

• Total 2016 H1 European deal value halves to €25.6bn from €48.5bn in 2015 H2 as market returns to 2013 levels and mega deals slow
• Lower mid-market volume and value remains consistent in UK and Europe
• Private equity perseveres as private vendors pause: secondary buyouts a major source of deal flow

Following a strong 2015, H1 2016 recorded €25.6bn of buyouts, with the drop off most marked in the mega-deal segment. 

“The statistics reflect a normalisation of activity for private equity,” says John Clifford at Investec Bank, a new co-sponsor of CMBOR. “The market is cooling off, with the EU Referendum one of a number of challenges currently facing deal-doers. This has made larger deals more difficult to complete, but we are encouraged to see the lower mid-market persevere – it highlights private equity’s ability to truly invest across all cycles.” 

Indeed European buyouts between €10-50m Enterprise Value were steady at 65 for H1 2016, down just slightly from 70 in H2 2015. Two weeks until the end of the quarter suggest the figures will likely be flat. In the UK the market actually increased, from 22 to 25 deals from H2 2015 to H1 2016 worth £552m, the same as the previous period. 

“The figures suggest that concerns over a possible Brexit are most pronounced at the larger end of the market, with the lower mid-market conducting business as usual,” Clifford adds. 

More than two thirds of deals (by value) were sourced from other private equity houses in the last six months, up from roughly half for H2 2015.

“There is an increasing stock of private equity-owned companies in the economy, so secondary buyouts are naturally going to be more prevalent. Corporate and private sellers have chosen not to put businesses up for sale in H1 2016, likely because of the macro backdrop and resultant uncertain pricing. Private equity may be seen as a more deliverable and credible option, and makes sense for companies as they grow,” says Christiian Marriott, Investor Relations Partner at Equistone Partners Europe Limited.

Some of the semester’s largest deals were sourced from other private equity houses, including CVC’s purchase of the UK’s RAC for €2bn; Hellman & Friedman’s purchase of Italy’s Teamsystem for €1.2bn; and CVC’s €1bn buyout of Sisal, also in Italy. 

Highlights 

The lower mid-market recorded an activity uptick between H2 2015 and H1 2016. European buyouts between €10-50m Enterprise Value were steady at 65 for H1 2016, down just slightly from 70 in H2 2015. Two weeks until the end of the quarter suggest the figures will likely be flat. In the UK the market actually increased, from 22 to 25 deals from H2 2015 to H1 2016 worth £552m, the same as the previous period. 

The UK remains Europe’s most active market for private equity, clocking up €7.7bn across 88 buyouts in H1 2016. France accounted for €5.8bn of the total across 44 deals and Italy came a surprise third with €3.7bn recorded across 18 deals. It is notable that Italy accounted for two of Europe’s three largest deals with Teamsystem and Sisal boosting the country’s total deal value. Germany, typically one of the strongest performers, had a lacklustre semester, with annualised dealflow volume flat but value down markedly by 88%. Buyout volume in The Netherlands had a strong half, with activity up nearly a fifth to 31 deals. The value, however, was down by 23% to €2.5bn, suggesting decreasing average deal sizes.  

Exits remain healthy despite a drop on last year’s record levels, with 191 divestments worth a combined €43bn recorded for the first six months of this year. Annualised, this puts activity above 2013 levels. 96 of this year’s sales were to other private equity firms, with 73 going to trade buyers. In the UK trade sales were most prevalent, accounting for 33 of the country’s 72 exits. Five of Europe’s PE-backed flotations were in the UK, including Countryside Properties, Ascential and Forterra. The Business Services sector has had a promising start to the year, with annualised figures suggesting an increase of one third on last year’s volume, when 61 deals were recorded worth €10.8bn. The picture was similarly positive for the UK Businesses Services sector, where volume was steady on an annualised basis and value looks set to outpace last year’s £3.7bn with £2.8bn already recorded. Manufacturing deal volume held steady in Europe and in the UK, with 93 in Europe and 22 in the UK recorded for the first half of this year, though the deals were much smaller, with just €4.3bn in total, against €22.5bn for the whole of 2015 in Europe and £218m in the UK in H1 versus £2.2bn for 2015. Healthcare saw dramatic drops in volume and value, with just 10 deals worth €553m recorded thus far in 2016 in Europe, down markedly from 47 worth €6bn for the whole of last year. The figures were similarly subdued in the UK, where just one deal worth £11m was recorded in the first half of the year, down from last year’s £424m across 12 deals. 

Notes to editors: 

About CMBOR - Methodology

The data compiled by CMBOR summarises trends in buyouts across Europe (Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Czech Republic, Hungary, Poland, Romania and Turkey and the UK). Data cut-off date: the data in this press release is for deals completed by June 16 2016. CMBOR defines buyouts as over 50% of shares changing ownership with management or private equity, or both having a controlling stake upon deal completion. Equity funding must primarily be from private equity funds and the bought-out company must have its own financing structure, e.g., MBO/MBI.