Private equity firms in Europe do not expect the recent deal-making boom to slow down for at least another two years, according to a new report.
The research, by law firm DLA Piper, suggests that the industry remains optimistic about the state of the market, despite the gloomy predictions of some commentators about the potential dangers posed by rising interest rates and increased leverage.
DLA surveyed almost 250 companies involved in recent mergers and acquisitions activity. It found that only 11 percent of buyout respondents were expecting their deal-making to slow down in the next couple of years, while 37 percent were actually expecting it to increase.
The hectic pace of deal-making in recent years has started to change the profile of private equity-backed M&A in Europe, according to the report. As smaller targets are swallowed up, buyout firms are targeting larger companies. As a result, the overall volume of deals has decreased, but the total value of deals has increased.
Firms are also being driven further afield to look for opportunities. Eastern Europe was cited as the most interesting area for future acquisitions, nominated by 25 percent of respondents, with Asia seen as the next most promising avenue.
However, despite their positive outlook for the coming year, private equity firms could not be accused of looking at the M&A world through rose-tinted glasses. The vast majority identified plenty of room for improvement, with just 20 percent rating their acquisition strategy as “highly successful” over the last three years. Indeed, private equity buyers proved no more likely to rate themselves as successful than corporate buyers.
Deal execution was seen as the area with the most room for improvement. 41 percent said acquisitions ended up taking longer than expected, with a typical deal taking four to six months to complete. However this was still quicker than most corporate buyers – only 56 percent of corporate deals were completed within six months, compared to 74 percent of private equity deals.
The report also reveals that private equity firms are much more adept at measuring the success of their deals. Only 19 percent of corporate buyers felt they had a highly structured system to measure success, compared to 63 percent of private equity buyers.
Bob Bishop, head of European M&A at DLA Piper, said that streamlining process and prioritising post-acquisition integration plans would help firms to take advantage of the favourable market.