Private equity deal flow in Europe, Middle East and Africa (EMEA) slowed in Q2 of this year, compared with the same period in 2013, according to S&P Capital IQ’s quarterly EMEA Private Equity Market Snapshot.
Firms based in the EMEA made 1,157 new investments totaling €19.8 billion in Q2 2014 — 30.7 percent less than the €28.6bn deployed in Q2 2013.
EMEA-based GPs also deployed less capital between January and August 2014, making 2,793 investments totaling €58.6 billion compared to 3,007 new deals totaling €62.2 billion between January and August last year.
“The increased competition from strategic M&A buyers coming to the market since 2013 could be a factor prompting this slowdown in deal-making,” Silvina Aldeco-Martinez, managing director, product and market development at S&P Capital IQ, said in the statement.
French deal flow — particularly in the consumer sector — was hit with the total investment volume over the January-August 2014 period falling to €373.5 million, or just over a tenth of the €3.5 billion in the same period in 2013. French investments in industrials in 2014 also fell by 23 percent to 1.7 billion, while investment in industrials for growth strategies was down significantly by 82 percent.
“The major driver behind the slowdown in private equity capital invested into France seems to be grounded in the political and economic uncertainty seen over the course of this year,” according to Aldeco-Martinez. The French economy produced no meaningful growth in the second quarter – the second in a row – and there are growing concerns in the market about the government’s economic policies, S&P said.
Yet while EMEA deal flow levels slowed, deal count and volumes in Spain have risen, especially in the financial sector. In this first half of 2014, there were 16 deals in the financial sector with €5.1 billion invested, an increase by a third compared to the first half of 2013 and 24 percent in terms of volume.
According to S&P Capital IQ, there is potential for further growth given the continued level of interest in Spanish assets. Announced transactions in Spanish target companies and assets stand at 188 for 2014 over the year to end-August, representing a 22. 9 percent increase compared to last year. Total outstanding announced deal volume stands at €2.4 billion, suggesting that appetite for Spain is unlikely to wane before the year-end, S&P said.
Despite the overall drop in deal flow in EMEA, Asian private equity investors have been showing increasing interest in the region, the study also found. In the first half of 2014 there were already 23 investments from Asian private equity firms into EMEA targets totaling €4.8 billion. This was the highest level of investment in the first half of a year since the €5.4 billion invested during the first half of 2010, and suggests that this trend could continue throughout 2014, the report said.
S&P said one reason for the interest in EMEA assets is a desire to bring established Western brands and/or technology into Asian markets. In 2014, British restaurant chain Pizza Express was bought by Chinese firm Hony Capital, and Baring Private Equity Asia bought a stake in British retailer Cath Kidston. The lower valuations for EMEA-based companies relative to their Asian counterparts are also a factor, according to S&P Capital IQ data.