It’s fair to say 2017 has been a year of significant transformation for Europe. The French presidential election, Angela Merkel’s struggle to form a parliamentary coalition and the triggering of Article 50 starting the negotiations for the UK to exit the EU have contributed to a tumultuous year on the continent.
European private equity has also been no stranger to the winds of change over the past 12 months.
Fundraising for Europe-focused private equity vehicles climbed to a pre-crisis high of $95.7 billion as of 7 December, up from $78.4 billion in 2016, according to PEI data. CVC Capital Partners broke records in June with the closing of its seventh flagship buyout fund on €16 billion.
European buy-and-builds also hit record levels during the first half of the year, according to data from European mid-market firm Silverfleet Capital.
PEI asked private equity professionals to identify the key trends that have emerged in this year of exceptional activity.
Exception to the (Spanish) rule
While the region’s political uncertainty does not appear to have significantly dented appetite for European private equity, individual markets have not fared as well.
Tim Wright, head of European private equity at law firm DLA Piper, told PEI he saw a number of overseas investments into Spain put on hold or fall through as a result of the vote for independence in Catalonia in the latter half of the year.
The threat of independence also appears to have impacted UK private equity. In November one European general partner with partial exposure told PEI that “Brexit is stifling our business”. The firm said it would seek discussions with the British Business Bank in the hopes of filling a gap left by the European Investment Fund, with the latter reportedly more cautious of supporting UK-focused funds since last year’s referendum.
The two independence events have had “slowing effects,” Wright noted.
Less is more
A move from limited partners to reduce their general partner relationships has resulted in a concentration of capital in European funds, according to Mounir Guen, chief executive of MVision Private Equity Advisers.
Many LPs carry self-imposed rules dictating that they not exceed a certain proportion of a single fund. This, in combination with a trend towards fewer manager relationships, has seen investors drawn towards larger funds in order to maintain their allocation while not violating their mandate, Guen said.
“It’s not that easy to find those [smaller] funds in Europe now,” he noted. The average European fund size had reached $846.7 million as of 7 December, up from $589.2 million last year, PEI data show.
The grass is always greener
European firms also faced stiff competition from abroad this year. Strictly US-based firms had invested €1.3 billion into European companies as of September, exceeding the €1.1 billion total for last year, according to data from S&P Global Market Intelligence.
The growing demand for European assets has been particularly noticeable among healthcare and technology funds, Stewart Licudi, head of European financial sponsors coverage at investment bank William Blair, told PEI in September. Funds with deep knowledge of a sector are less likely to be concerned by a lack of familiarity with new markets.
“I think if you are a specialist healthcare fund, even if you sit in the US, clearly you understand that your exciting markets are global and therefore you’re not necessarily going to find everything you need within the borders of the US,” Licudi said. “There’s a scarcity value to the asset.”