European PE expected to play greater M&A role

A new report looking into the prospects for private equity investment in Europe suggests the industry stands to benefit from corporate divestment strategies.

A report published by UK private equity firm Cinven has found that managing directors at Europe’s leading investment banks are increasingly optimistic about the growing role of private equity in the region’s M&A activity.

The report, which canvassed the views of 150 MDs at investment banks across the UK, France and Germany, found that the majority believed that private equity involvement in M&A would increase in the second half of 2002. 69 per cent of those surveyed expected an increase within the next six months, against a figure of 43 per cent last year.

This view is strongest in France where 72 per cent of respondents expect an increase, compared with 68 per cent in Germany and 66 per cent in the UK. The figures highlight a fairly considerable shift to opinions in 2001, when 16 per cent of those surveyed anticipated a decline in private equity participation. This figure has now fallen to four per cent.

Private equity involvement is expected to increase particularly in respect of mid market deals (E85m – 850m) with 70 per cent of respondents predicting a rise. This is closely followed by large deals (E850m – E1.7bn) where 61 per cent anticipate an increase. 

The report also suggests that, despite a turbulent start to the year, the IPO markets in Europe are set for an increase in activity. 79 per cent of bankers foresee a rise in the volume of IPOs, a five-fold increase from December’s survey.

The survey was conducted prior to the past week’s events, which have seen the postponement of IPOs at Yell, Focus Wickes and Prada as the accountancy scandals at WorldCom, Xerox and Enron continue to reverberate.

Robin Hall, managing director of Cinven said the report highlighted Cinven’s belief that opportunities for private equity in the M&A market will continue to grow in the second half of 2002. “We are seeing an injection of optimism into the M&A market, which is serving to accelerate buyout activity as well as other types of corporate transactions.

Two thirds of those surveyed envisaged the biggest driver of French M&A activity to be the conglomerate divestment. Vivendi is one of a number of French companies looking to make a number of disposals as it seeks boost shareholder value.

Cinven was one of a number of larger European buyout firms to close a multi-billion fund this year, raising E4.3bn in April. “Despite difficult conditions, significant funds have been raised for private equity investment,” adds Hall. “The improving economic climate is creating interesting opportunities for the industry to put the capital to work.”