Digitisation, bolt-ons key for GPs in top markets to thrive

Benelux, the Nordics and the UK were top performers in the buyout markets last year, data from eFront show.

General partners in the world’s best-performing private equity markets must go on the offensive if they are to remain on top in the wake of the global pandemic.

According to the latest study from data provider eFront, Benelux, the Nordics and the UK were the top-performing private equity buyout markets last year, delivering internal rates of return of 16.64 percent, 16.29 percent and 15.63 percent respectively.

If these markets are to hold on to their titles, sponsors will need to use bolt-on acquisitions as well as focus on tech-enabled transformation, industry participants told Private Equity International.

Limited partners are asking GPs about how they are using digitisation to help businesses survive and flourish in the changed environment, said Julian Pearson, a founding partner of placement firm FirstPoint Equity.

He added that GPs that embrace digitisation will win during this period while those that do not may be left hamstrung by traditional sectors and struggle to deploy capital.

The global head of PE at a European fund of funds manager told Private Equity International that in a tougher market environment, where businesses seek increased efficiency and lower costs, GPs investing in tech platforms with high customer bases would withstand the storm. The manager added that GPs backing healthcare companies and life sciences businesses with aggressive growth strategies would also be well positioned to take advantage of the dislocation.

Taking market share and investing in smaller and highly strategic bolt-on transactions will add stability to investment platforms during the crisis. In Europe, bolt-on acquisitions accounted for 61.2 percent of buyout volume through the first half of this year, according to data from PitchBook.

The study by eFront shows that, including venture capital, Nordics-focused funds overtook traditional leaders Benelux and the UK to make the region the world’s top-performing private equity market. This helped Western Europe consolidate its global lead in private equity.

British leveraged buyout funds also maintained their position at the higher end of the returns spectrum, according to the study. Funds focusing on this market distribute quickly, as shown by their low time-to-liquidity of 3.3 years.

According to Jim Strang, managing director and chairman of EMEA at Hamilton Lane, Benelux, the Nordics and the UK have strong fundamentals for private equity investing. These fundamentals include liquid and well supported markets, numerous GPs with considerable accumulated experience, and a pool of available assets with strong fundamentals such as numerous businesses addressing a multinational customer base.

Jos van Gisbergen, a senior portfolio manager at Dutch pension manager Achmea, added that the performance of these top Western European markets was a consequence of their “open market mentality, their trading instinct and entrepreneurial mentality”.

Van Gisbergen expects the Benelux, Nordics and German markets to continue to perform well in 2020. However, he has some doubts about the UK in the short term because of the impact of Brexit.