Europe exits tumble in Q3 as investors take pause – report

Brexit uncertainty, Germany's manufacturing recession and increasing nationalism have affected investor sentiment across the Eurozone, according to PitchBook.

Exits in Europe slid to €42.8 billion in the third quarter of this year, reflecting a challenging economic market across the region as investors pause on investments.

The figure is a more than 20 percent decrease on the same period last year and is just half of total exit value in Q3 2017, according to PitchBook’s European PE Breakdown Q3 2019. Exit activity in the year to September dropped to €127.8 billion, from €150.5 billion compared with a year earlier, a 15 percent decrease.

Total exit count also tumbled to 633 deals, from 718 in the equivalent period last year, pointing toward “a lingering lack of confidence in value creation in exiting investments at the current moment”, PitchBook noted. On an annual basis, exit value for this year is not likely to surpass the €200 billion mark recorded in 2013.

Still, mega-deals have taken place this year, such as Vista Equity Partners’ €2.2 billion sale of healthcare company Advanced to BC Partners and the €5.2 billion IPO of TeamViewer by Permira.

In addition to Brexit uncertainty, trade wars, political alliances shifting, the increase in nationalistic political parties, gilets jaunes in France and weak predictions on the economic front represent growing elements of instability that do not help dealflow, Bernard Grinspan, partner-in-charge of law firm Gibson Dunn’s Paris office, told Private Equity International.

“I am unsure whether a well-managed Brexit would provide enough relief for this year’s total deal value to near 2018’s record in European PE,” said Grinspan, who advises on publicly traded and privately held business entities.

Looking at the PE exits so far this year by region, France, Benelux, UK and Ireland dominated exit value, gathering nearly 50 percent or about €55 billion of total exit value as of September.

At the sector level, exit value across all types – corporate acquisitions, initial public offerings and secondary buyouts – is down. Corporate acquisitions made up 47 percent of total deal value year-to-date, followed by secondary buyouts at 42 percent. Only 21 PE-backed IPOs have taken place this year, comprising 11 percent of total exit value. This matches previous years’ shrinking IPO count as more companies in Europe and the US prefer exits to private market buyers to listing.

PitchBook noted in the report that the ”lengthy, costly and complex process of conducting an IPO could be making this exit route less appealing”. The possibility of a near-term economic downturn has also meant companies have taken less risky bets during the year.

Business services and IT-related companies garnered the largest exit value in the first three quarters of this year, recording more than 50 percent or €61.8 billion in total exit value.