Study: European PE to see selective recovery

Private equity professionals expect an increase in transactions this year, according to recent research, although many believe the pick-up will remain limited to a few sectors and medium-sized assets.

A majority of industry participants are upbeat about private equity activity this year, according to a recent study. 

Roland Berger’s European Private Equity Outlook, which polled around 1,200 buyout professionals across European markets, found that 52 percent of respondents expected sponsor-related M&A to increase in 2013. 

Respondents’ optimism did not extend to all sectors and geographies, however. The upswing in transactions was primarily expected in pharmaceuticals and healthcare, as well as in consumer goods and retail. 

“In the coming years, these sectors promise stable growth or, due to industry changes such as the energy transition in Germany, an increase in the number of transactions. Therefore private equity companies will have the opportunity to acquire profitable targets,” Gerd Sievers, partner at Roland Berger, said in a statement. 

Few participants thought that building, construction and automotive would see an acceleration in M&A transactions. 

Passive portfolio management is no longer sustainable over the long term. Private equity funds should take the opportunity and enforce a more active approach to manage their portfolio companies now

Gerd Sievers

Similarly, while Germany, Scandinavia and the UK were expected to record a 1.5 to 2.5 percent growth this year, a slight drop on activity was thought to be in the cards for Spain, Italy, France and Greece. 

This reflected tepid industry sentiment on the evolution of the macroeconomic climate, the study said. A majority of respondents did not expect the economic situation to dramatically evolve this year, it found, with uncertainty remaining a cloud over the ability to complete deals this year. 

Financing conditions also were expected to remain challenging, with banks still reluctant to agree on recapitalisations and leveraged loans. That will limit the size of deals firms will be able to target, the study said, with transactions above €500 million remaining an exception. 

“Targets' attractiveness and purchase price expectations will be decisive for the number and size of M&A transactions,” Sievers said. 

Such constraints, added to the challenges firms continue to face on the fundraising trail, would induce many managers to focus on developing their portfolio companies, the report concluded. 

More respondents expected this to be achieved through strategic actions (39 percent) and operational improvements (36 percent), rather than refinancing or recapitalisation (26 percent). 

“The financial crisis showed us that certain adjustments are necessary. For instance, assive portfolio management is no longer sustainable over the long term. Private equity funds should take the opportunity and enforce a more active approach to manage their portfolio companies now,” Sievers said.