Exclusive: European exit values soaring

The European exit climate remains strong, though high valuations will make it harder to invest, fresh research has shown.

Good news for GPs who are looking to divest: the European exit climate improved substantially last year, and this trend is set to continue, according to a study by international law firm White and Case, using Mergermarket data.

The report ‘Defying the odds: the rise of European private equity’, which will be published on Thursday and has exclusively been seen by PEI, shows there were 702 European exits last year – the highest number since the peak of the market in 2007.

Additionally, exit values reached a whopping €65.3 billion in 2013, almost triple the value of 2009’s €27.3 billion.

The exit market has strengthened as European economies have stabilised, according to the study, with concerns about a possible collapse of the euro subsiding last year.

As a result, US-based firms changed their attitude about Europe and invested a combined €18 billion in 141 European buyouts, a sharp rise from the 65 buyouts worth €8.2 billion they completed in 2009. US-based GPs found the most opportunities in the UK and Southern Europe, which together accounted for 54 percent of private equity deal value involving US firms.

Dividend recaps were also up, as were IPOs – a trend that has continued into 2014. IPO exits in Q1 of this year were 350 percent higher than in the same period the previous year, the study said. This follows a successful year of private equity-backed IPOs in 2013, where 24 exits on European stock exchanges raised a combined $11.3 billion.

Stock markets proved a particularly good exit route for private equity in the UK, with 10 exits on the London Stock Exchange in 2013. These included Blackstone’s IPO of theme park operator Merlin, which raised $1.69 billion, and Electra Partners’ listing of insurer eSure, which raised $1.05 billion.

The UK overall had a strong year; it accounted for more than a quarter of European buyout volume and value (243 deals valued at €18.6 billion). Elsewhere, 30 percent of European deals in 2013 took place in Southern Europe. Deal flow in the Nordics also remained consistently strong, with investment volumes not dipping below 110 per year since 2009.

Yet while the exit climate will replenish LP coffers, freely available debt and large amounts of dry powder will see competition for new deals intensify, the study warned. “Firms need to be disciplined and careful about not overpaying for assets.”

Equally, the revival of the IPO market may have a negative flipside. “[It] will inevitably cause a certain amount of primary and secondary deal flow to leak away from the private equity industry”, Rob Myers, a managing director and head of the UK investment team at Equistone Partners Europe, told PEI in January.

“Stock markets valuations are very high and private equity valuations are typically based on stock multiples, so that’s driving prices up,” Craig Donaldson, HgCapital’s head of client services and business strategy, told PEI at the same time. “Alongside that we have liquidity among private equity and trade buyers and some pretty aggressive debt markets, which can combine to drive prices even further.”

While deal making is reviving, it is also becoming more complex, the study warned. “There are more cross-border deals, and debt markets have diversified. Firms need to have a firm grip on changes in the market to take full advantage.”

Yet despite the fact that the IPO window may yet close again, and interest rates could rise to more normal levels, prospects for European private equity have, on the whole, improved, said Ian Bagshaw, a partner at White & Case. “After years of caution, the private equity market in Europe finally has reason to be confident about future prospects again.”