2019 in Europe: Big funds and Brexit bargains

Europe’s 2019 will be a year of big funds and – some anticipate – Brexit bargains.

The region is braced for mega-fund mania. London’s Cinven is understood to be seeking at least €8 billion for its seventh fund and compatriot Apax Partners will return to market early this year. The pair raised €7 billion and $9 billion for their previous flagships respectively.

Switzerland-headquartered Partners Group is reportedly seeking around €5 billion for its fourth buyout fund and UK-headquartered Permira is expected to target around €10 billion for Fund VII.

“I expect to see strong fundraising in 2019,” said Katja Salovaara, senior private equity portfolio manager at Finnish mutual pension insurance company Ilmarinen.

“We’re not seeing much of a slowdown and there’s quite a lot of high-profile names coming back to market in Europe. Investors like ourselves are extremely busy in private equity land.”

Brexit had a tangible impact on UK private equity in last year. UK private equity spending dropped by one-third to €21.4 billion, losing its position as Europe’s busiest market.

The “pausing” of UK transactions in the latter half of last year could lead to a flurry of activity if and when terms of its EU exit become clear in March, according to Nick Sealey, co-head of European investment banking at Baird.

“There’s an element of caution; buyers and sellers are being measured in trying not to invest at the wrong time. There could be an upswing after Brexit, as buyers will move fast on good businesses in a less competitive environment.”

Sealey’s view was echoed by a head of Europe at one of the PEI 300’s top-five firms, who told PEI they were licking their lips at the thought of snapping up cheap UK businesses in the months following Brexit. “When everyone else has pulled out, that’s when I’m looking to invest,” said the investor, who wanted to remain nameless.

European private equity buyout multiples stood at 10x EV/EBITDA as of 30 September, the highest annual level on record, according to PitchBook’s Q3 PE Breakdown. Prices have risen every year since 2013.

LPs will be looking for GPs that can keep pricing down in 2019, Kristina Widegren, principal at European placement agent Rede Partners, told PEI.

“There’s greater sensitivity around pricing at the minute so we expect to see more strategies begin to take that into account, like special situations. We could see more spin-outs come to market with a strong focus on value.”