EVCA: Europe’s mid-market boasts strong returns

Mid-market GPs have consistently outperformed the broader private equity market in Europe over a long period of time.

Despite the numerous economic crises plaguing countries in the eurozone, the European mid-market remains an attractive destination for private equity capital, according to recent research from the European Private Equity and Venture Capital Association (EVCA) and Thomson Reuters.

Mid-market private equity funds in Europe generated an average return of 17.2 percent between 1990 and 2011 while “all market” funds returned 9.1 percent during the same period, according to the study. 

What this reports shows is that across market cycles – persistently and over a long period of time – the mid-market has generated very good performance

Craig Donaldson

“What this reports shows is that across market cycles – persistently and over a long period of time – the mid-market has generated very good performance for institutional investors,” EVCA mid-market platform chairman Craig Donaldson told Private Equity International

In addition to the strong returns from Europe’s mid-market managers, private equity-backed businesses continued to be very resilient through the economic crisis, with default rates of 2.84 percent during 2008 and 2009, compared to 6.17 percent for “other ownership structures”, according to a separate study from George Washington University’s Department of Finance.

In the UK, however, concerns over portfolio companies' leverage levels have been in the headlines. Last week, the Bank of England warned of a significant ‘hump’ of debt maturities relating to pre-crisis leveraged buyouts that it said could pose a risk to UK financial stability. In a report, the Bank stated that private equity-owned businesses in the UK were servicing £160 billion (€185 billion; $239 billion) of debt, £32 billion of which will need to be refinanced by 2015. The bank argued that could spark widespread insolvencies and defaults, with follow-on implications for the banks that issued that debt. 

Mark Florman, chief executive of the British Private Equity & Venture Capital Association, quickly responded to the

Private equity is emphatically part of the solution, not part of the problem

Mark Florman

BoE report, saying: “What matters is a sustained ability to service that debt, whilst at the same time driving investment and creating jobs” and that “private equity is emphatically part of the solution, not part of the problem”.

Indeed, one of the central points of the EVCA study was the continued existence of investment targets in the European mid-market. 

“We believe that Europe offers tremendous opportunity across market cycles, whether good or bad, in certain subsectors that have a fundamental right to grow,” Donaldson said, adding that “what we really like is that much of the returns attributions come from growth and business improvement,” rather than overdependence on financial leverage.