Annual Review 2015: Europe's year of the exit

Buoyant public markets, competition from strategic buyers, readily available debt and juicy asset valuations set the scene for a sellers’ market in Europe in 2015, rendering it the year of the exit.

“[Last year] saw over-seasoned assets being exited,” Norton Rose Fullbright partner Richard Bull, who heads up the firm’s London-based private equity practice, told Private Equity International in December. “Some private equity funds were sitting on assets for two to three years too long as a result of the financial crisis. Record IPO markets provided an opportunity for these assets to be realised.”

Among those taking advantage of public market appetite were Advent International and Bain Capital who partially exited their investment in payments processor Worldpay in the biggest London-listing of the year, and, according to UK prime minister David Cameron, the largest UK fintech initial public offering (IPO) ever.

The company listed on the London Stock Exchange (LSE) in October with a market value of £4.8 billion ($6.9 billion; €6.1 billion). The two sponsors received £1.2 billion in gross proceeds and retained a 48.7 percent stake following the float in which BlackRock acquired a 6.25 percent shareholding.

An equally eye-popping exit soon followed. In November, Apax Partners divested its remaining 45 percent stake in New York-listed King Digital Entertainment. Back in 2005, Apax Europe VI had invested €29 million in the digital game company. The firm reaped total proceeds, including €418 million from an earlier realisation, of about €2.7 billion. The sale of the stake to US-based interactive entertainment company Activision Blizzard netted the firm gross money on invested capital (MOIC) of 93x and an internal rate of return of 55 percent.

The total exit value for European deals reached a record level of €153.2 billion last year, with the average exit value reaching a record €344.5 million, up from €234.2 million in 2014, according to the Centre for Management Buy-out Research (CMBOR).

But not all companies poised to make a stock market splash appeared on the share board. One of the largest exits was Blackstone’s sale of Center Parcs, a holiday park operator, to Canada’s Brookfield Property Partners for €3.5 billion, beating a joint bid from the Canada Pension Plan Investment Board and KSL Capital Partners, as well as CVC.

Including Center Parcs, there were €40.7 billion of secondary buyouts last year. But relentless competition from strategic buyers meant trade sales dominated, totalling a record €63.8 billion compared with €48.7 billion of flotations, according to CMBOR. In September alone, London-based Cinven announced three hefty realisations to strategic buyers that could generate total proceeds of around €3.7 billion for the firm, subject to earn-outs.

Cinven sold pharmaceuticals platform AMCo to Canada’s Concordia Healthcare Corporation for an enterprise value of £2.3 billion, generating a 5x return; divested its remaining 17.3 percent shareholding in airplane leasing company Avolon, through a sale of 100 percent of the company to Bohai Leasing for a total of $7.6 billion; and sold UK life assurance company Guardian Financial Services to Switzerland’s Admin Re for a total consideration of £1.6 billion, generating a 4x return.

Firms further down the buyout chain were also actively exiting. London-based Charterhouse Capital Partners realised a string of investments, including UK retailer Card Factory that generated a total gross return of 5.25x – among its highest – following the firm’s sale of its remaining shares in March. Demonstrating again the active interest of Canadian buyers, the firm also exited Environmental Resources Management to OMERS Private Equity and Alberta Investment Management Corporation in June for an enterprise value of $1.7 billion.

In addition to large US acquirers, mid-market vehicles also started to ask questions about European assets, Alvarez & Marsal’s German transaction advisory group head Jürgen Zapf told PEI in October. A combination of an expensive home market, a favourable exchange rate and windfall profits in healthcare and chemical companies powered by a drop in the oil price turned their attention toward Europe, he said. Inflexion Private Equity attracted such a buyer in its exit of Reward Gateway to Boston-headquartered Great Hill Partners in July, its ninth realisation in 18 months. The transaction generated a 7.7x return and an IRR of 59 percent for the firm that continued to ride a realisation wave into the third quarter.

By September, Inflexion had exited 12 investments in the previous 18 months, following its divestment of online travel agent On the Beach through an IPO, its fourth public offering in 18 months. The sale generated a 3.6x return and an IRR of 84 percent.

“It’s been a very good market for strong realisations,” Inflexion managing partner Simon Turner told PEI in July. “We’ve been lucky in having a swathe of businesses that have been at a state where they’re ready to go and attractive, and we’ve been taking advantage of that.”

As the year turned, market volatility dampened the IPO scene and firms that had held back from spending funds started to talk of accumulating assets. If buyer and seller price expectations inch closer, 2016 could be the year of the acquisition. Managers that last year chose to stay out of the market and keep their powder dry will be hoping for exactly that.

FUNDRAISING FEVER
The offloading of assets was accompanied by equally fervent fundraising activity in Europe in 2015. The top 10 biggest fundraisings totalled almost $40 billion, compared with $25 billion in 2014, according to PEI Research & Analytics.

The Carlyle Group wrapped up two funds totalling more than €4 billion. Carlyle Europe Partners IV (CEP IV) closed in July on its €3.75 billion hard-cap, smashing its €3 billion target. “Our biggest problem was getting enough investors into the fund because there was so much interest and money coming into the fund,” Carlyle co-CEO David Rubenstein said.

Carlyle Europe Technology Partners III had collected €656 million by its May close. European-based funds also took advantage of an expanding private equity investor base and record LP distributions that needed to be reinvested. Bridgepoint Europe V closed in March on €4 billion, well above its €3.5 billion target.

EQT, meanwhile, raced to the first and final close of its seventh flagship vehicle on €6.75 billion in August after just six months in market, outstripping its €5.25 billion target and drawing investor demand of €11 billion, according to sources close to the process. Its previous vehicle closed in 2011 on €4.82 billion.

“We wanted to have a fund which could enable EQT to both stretch a little bit more on the larger transactions with some bigger roll-up ideas, but at the same time stick to our guns and stick to what we’re really good at,” EQT partner Christian Sinding told PEI. “So we tried to get the balance of a nice increase from the previous fund, but not too large.”