Private equity targets in Europe, the Middle East and Africa came back into fashion during the first quarter of this year with average entry deal size hitting €66.4 million, an 86 percent increase compared with a year earlier, according to a report by S&P Global Market Intelligence.
The average entry size showed signs of recovering for the first time since the fourth quarter of 2015, the firm wrote in its EMEA Private Equity Market Snapshot for April 2017.
Foreign investment in EMEA private equity targets also rose to €30.1 billion from €18.4 billion between the fourth quarter of last year and the first quarter of this year.
EMEA-based general partners have deployed 15 percent less capital year-on-year so far in 2017 with €24.8 billion across 823 deals. They have looked close to home for deals, investing 90 percent of new money into the region – €22.3 billion of a total of €24.8 billion.
Information Technology has been the most attractive sector in EMEA so far this year, attracting €6.1 billion during the first quarter, a 31 percent annualised increase. Industrials and consumer discretionary categories were disappointing, with capital allocation dropping to €0.8 billion from €4 billion and to €2.2 billion from €9.3 billion respectively, year-on-year.
Globally, the report suggests that GPs are optimistic about energy investments. The dramatic drop in oil prices during 2014 and 2015 resulted in the number of private equity investments in energy falling considerably as targets in the sector became more expensive. Average enterprise value/EBITDA multiples rose to 20.1x last year from 8.1x a year earlier, the report noted.
So far this year global private equity firms have more than doubled their investments in energy to €13 billion, compared with the first quarter of last year, the report noted. In addition, 10 energy-focused private equity deals have been announced in 2017 which, if approved, would add €2.5 billion to this figure.
While cause for optimism, the report highlights concerns about exits – the number of energy exits declined in 2015 by 33 percent with only €2.1 billion generated in realised capital. While there was a 12 percent uplift last year, there have been no energy exits in EMEA so far this year.
These concerns in the energy sector can be seen region-wide, across sectors. The number of new deals in EMEA declined by 23 percent, from 1,028 in the first quarter of 2016 to 791 deals in the same period of 2017. At the same time, target exits during the first quarter of 2017 were down 55 percent on the same period of 2016, from €69.8 billion to €31.7 billion, and the number of new exit deals fell from 359 to 271.
Looking ahead, S&P noted that while the LBO pipeline is “slowly filling with new situations,” there are still not enough large-scale auctions, new buyout or add-on acquisition opportunities, quoting one investor who said: “The lack of new deals is frightening.”