Ongoing political uncertainty in Europe has led to a drop in private equity dealmaking in the first half of the year.
Private equity deal value in Europe slid 22 percent to €132.6 billion in the first half of 2019, from €162.3 billion in the same period last year, according to a report from PitchBook.
The number of deals slipped to 1,270 in H1 compared with 1,480 deals in H1 2018.
The downtrend in European deal activity in the first half can be largely attributed to strong geopolitical headwinds in Europe, Dominick Mondesir, private capital analyst for EMEA at PitchBook, told Private Equity International.
“GPs are opting for a ‘wait and see’ approach as the risk of a hard Brexit has grown as of late. Only 12 mega-deals were completed in H1 2019, with 26 completed in H1 2018, demonstrating GPs increasingly cautious approach to writing bigger cheques for companies exposed to European political risk.”
Meanwhile, take-privates grew as a proportion of total European dealflow, with 2019 so far recording the highest deal count since 2013. Eleven take-privates were completed in H1, accounting for €5.7 billion in deal value. This is expected to climb significantly in the coming months with nearly €20 billion-worth of European take-privates announced recently.
Bolt-on acquisitions as a percentage of deal volume has also increased, making up 55.1 percent of buyout count and 43.6 percent of overall deal count in H1 2019. KKR’s €5.8 billion purchase of Italian automotive company Magneti Marelli for its Japanese portfolio company Calsonic Kansei was the most notable transaction across bolt-ons.
Firms are writing larger cheques due to continued growth in valuations and competitive deal prices. The median deal size in 2019 grew to €27.9 million, compared with €24 million in 2018 and €22 million in 2017. This year’s median deal size is on pace to be the highest full-year figure in a decade, according to the report.
In addition, the upper mid-market bucket of PE transactions – deals valued between €500 million and €1 billion – grew in proportion in the first half, accounting for about a third of overall deal activity, a 7 percent year-on-year growth.
“With a backdrop of larger vehicles being raised due to LPs’ desire to increase PE allocations, fierce competition and a valuation and transaction size environment that is seeing growing figures, we expect deals north of €500 million to continue to close at an active pace,” the report reads.
Looking at different markets, the UK and Ireland retained its status as the most active deal market and accounted for more than a third of completed transactions in the first half with 392 deals, the highest half-year proportion since 2009 according to PitchBook. However, aggregate deal value is at a five-year low. One reason behind this is GPs are waiting for more clarity on Brexit, as the UK and Ireland will experience the most impact in the event of a hard Brexit, the report said. Nearly half of all transactions recorded were lower than €25 million, as political uncertainty and regulatory scrutiny have affected larger transactions.
Meanwhile, the DACH and Nordic regions have taken a larger share of deal value, accounting for €20.8 billion (18.2 percent) and €16.3 billion (14.2 percent) in H1.