European private equity houses may be finding it harder to compete with trade buyers on price as valuations rise, ratings agency Standard & Poor's (S&P) said in its latest M&A report.
The fact that valuations for European assets have risen alongside trade buyers’ share prices allows trade buyers to pay higher prices for targets, relative to financial sponsors. The FTSEurofirst 300 index rose by 4.1 percent in 2014, on top of a 16.1 percent rise in 2013 and is now 64.7 percent above its level at the start of 2009.
S&P notes that private equity is struggling to match trade buyers for price because its latest research on European M&A reveals that the percentage of trade buyers relative to private equity has increased over the past six months. In 2013, financial buyers made up 36 percent of acquirers, whereas in the first half of 2014 they comprised only 24 percent.
However, the research suggests that private equity houses may soon make up a bigger part of the European M&A universe, as access to cheaper debt for private equity is increasing—with leverage multiples available for transactions on the rise.
Overall around $373 billion has been booked in Europe so far in 2014 and deal flow is already comfortably exceeding 2013's total by $95.7 billion.