CHART: The largest Europe-dedicated funds in market

The biggest vehicles on the road are seeking €36bn between them, as LPs bet on growth equity and more attractive entry multiples for Europe funds.

Europe-dedicated funds in market are targeting $102 billion between them, roughly in line with the previous year’s $99 billion, according to Private Equity International’s full-year 2022 fundraising report.

Of that aggregate figure, more than one-third of the capital, or some €36 billion, is targeted by the 10 largest funds in market. The biggest among these is Bridgepoint Europe VII, which is seeking €7 billion and has raised €5.4 billion as of December, PEI data shows. Triton Fund VI and Bain Capital Europe VI are targeting €5.5 billion and €5 billion, respectively.

Strategies for the 10 largest funds in market in Europe include buyouts focused on industrials, consumer, tech, financial and business services, and healthcare sectors with cheque sizes of up to €400 million. They also include growth capital for European software and technology-enabled companies.

Investors continue to have a healthy appetite for Western Europe despite trade disruption, energy shocks and inflation caused by the war in Ukraine, according to PEI‘s 2023 LP Perspectives study. Fifty-four percent of respondents indicated similar interest investing in the market this year, almost in line with 2022. However, only one-fifth of LP respondents said they have “greater interest” investing in Europe this year, compared with 39 percent in 2022.

“If you have the right manager, if you have access to the best managers, now is a great time to be investing into Europe,” Rhonda Ryan, partner and head of European private equity at Mercer, told PEI. “Access to the right managers is key – then you have the potential to make good returns.

“Europe is always doing recessions. I have pointed out to clients in the past, Europe’s never been any different, and we’ve still managed to make incredibly good returns for clients and investors in the region.”

LPs PEI spoke to also find Europe’s lower average EBITDA purchase price multiples for buyout deals attractive. Average multiples in Europe are at 10.7x compared with 11.9x in North America, according to Bain & Company’s latest Global Private Equity Report.

Joel Sandhu, a partner at Belgian fund of funds Top Tier Access, told PEI he is a firm believer in European growth equity.

“A lot of people think that Europe is going to be stagnant and America is the place to go. While US tech will pay up for very fast-growing companies, there are tonnes of solid EU businesses that are still growing,” Sandhu said. “There’s a massive step there for fundamentally sound companies that you can pick up at much cheaper valuations and sell to the larger GPs.”

He added that the main opportunity for Europe investors is the arbitrage between the global tech funds that have tonnes of dry powder and the Europe-focused growth funds.

“There’s going to be less growth, therefore more pressure on the pricing of [these] fast-growing companies. I think I would rather be selling to those guys rather than fighting with them for fewer and more expensive companies.”

That being said, fundraising in Europe will be no different from the other regions. Capital raising will be tougher in 2023 and deal activity slower due to tighter financing conditions.

Both US and European investors are facing a denominator issue, noted Ryan.

“GPs need patience and need to demonstrate why they should take one of those slots that are pretty scarce from an LP at the moment. And the only way to do that is to keep going with producing returns, getting their exits out and ensuring their track record is strong,” Ryan said.

“Not everybody deserves funding. People lose sight of that. Not every fund, just because they want to raise, should be able to raise.”