European deal value hits post-crisis high – study

The value of private equity transactions in Europe reached €80.9 billion in 2015, the highest yearly total since 2007 when there was $172.9 billion of transactions, according to the Centre for Management Buy-out Research (CMBOR).

There has been a steady increase in the total value of deals of about €10 billion a year since 2013, it said in a fourth quarter report with Equistone Partners.

The average deal value for 2015 stood at €131.6 million, also the highest since 2007 when the average value stood at €171.1 million.

For deals of more than €100 million, average debt levels reached 58.9 percent in 2015 with the equity portion slipping just below 40 percent for the first time since 2007 to 39.4 percent. However, in December the US Federal Reserve raised rates for the first time since 2006 by 25 basis points with further rate rises expected, making funds more cautious, as reported by Private Equity International.

This year could see a closer alignment of buyer and seller pricing expectations, said Norton Rose Fulbright partner Richard Bull.

Bull, who heads up the firm's London-based private equity practice, described the mergers and acquisitions market last year as “frothy and toppy in certain sectors” leading to some funds pulling out of processes and adopting a “wait and see” approach.

In 2016, if there is closer alignment of buyer and seller pricing expectations those funds sitting on un-deployed capital “would have to be actively pursuing deals”, he said.

In terms of deal activity, the financial service sector cooled off last year, while tech has been “super-aggressive”. Other active sectors included data management, cyber security, and payment processing businesses, Bull said.

Manufacturing accounted for €20.7 billion of deal flow in 2015, with TMT at €9 billion, retail at €9.5 billion and business and support services at €9 billion.

TMT exits reached their highest ever value at €32.7 billion, CMBOR said.

Total exit value of European deals in 2015 reached records of €153.2 billion and average exit value of €344.5 million, with €63.8 billion of trade sales, €40.7 billion of secondary buyouts and €48.7 billion of flotations, CMBOR said. The €6.4 billion initial public offering of Worldpay was the largest exit of the year.

“2015 saw over-seasoned assets being exited. Some private equity funds were sitting on assets for two to three years too long as a result of the financial crisis. Record IPO markets provided an opportunity for these assets to be realised,” Bull said, noting that the IPO market had tailed off toward the end of last year.

Large buyouts of €1 billion or more dominated European deals in 2015, accounting for €36.5 billion of the total value, while the total value of deals in the €50-500 million range dipped slightly from 2014 to €25.2 billion, CMBOR said.

A number of private equity firms have been diversifying their investment strategy away from traditional majority-owned buyouts, and the trend is expected to continue in the year ahead, said Bull. Firms are setting up specific funds to focus on strategies such as minority stakes, expansion capital and debt.