European private equity dealmakers have hit the brakes on their frenetic exit pace according to new data from the CMBOR at Imperial College Business School.
Divestments fell to €39.9bn for the first six months of 2018, down nearly one-third from the €56.9bn recorded in H2 2017 according to the research, which was sponsored by Equistone Partners Europe and Investec Specialist Bank.
Quarter to quarter there was also a worrying drop, with Q1 seeing €25.8bn of deals completed compared to just €14.1bn in Q2. More than half the value (€20.6bn) was derived from sales to other private equity firms.
CMBOR said the exit figures fly in the face of what has been deemed to be a sellers’ market, suggesting that buyout houses have been more focused on deploying the capital they have raised over the last two years.
Equistone Partners Europe partner and head of IR Christiian Marriott said, “After four years in which the environment has been conducive to selling assets, helped by the availability of debt on the buyside, there has been a pronounced downturn in the exit market – particularly in the UK.
“These changing market dynamics require sponsors to be more adaptable, as reflected in the increasing popularity of highly targeted, bilateral deal processes that allow both the buyer and the seller to bypass the hyper competition now inherent in most auctions.”
The H1 data also reveals a softening of new deals, with €40.7bn recorded for the first six months of the year, down slightly from €43.2bn in H1 2017 – though a number of yet-uncompleted deals in the pipeline could see values for the first half of 2018 boost.
CMBOR said that what was telling was the breakdown of deals by size – the €100m to €1bn ranges saw sharp drops in the number of transactions, while the sub-€10m enterprise value space recorded a strong 26 per cent uptick from H2 2017, to 168 deals.
France stood out for its strong mid-market performance, with 63 buyouts worth €11bn completed in H1 2018, up markedly from 51 deals worth €6.3bn in H2 2017 and bolstered by seven of Europe’s 20 largest buyouts in the period.
They included that of Sebia at €2bn, Kiloutou at €1.5bn and Albea at €1.2bn.
Private equity exit activity in the French market also held relatively strong, generating €10bn across 34 sales during the first six months of 2018.
Comparatively, Germany hosted 22 of Europe’s 185 exits in H1 2018, worth a combined €10.8bn – more than twice the country’s buyout total of €5.2bn across 69 deals, bucking the overall trend of a generally slower exit market in the first half of this year.
Germany secured the two largest European exits of 2018 so far with the €5.8bn trade sale of Ista and the €2.6bn PE sale of CeramTec.
The UK saw the steepest drop in exit activity, with £6.0bn (€6.8bn) generated, down from £13.6bn in H2 2017. The largest exits in the UK so far in 2018 are the £1bn sale of Iris to ICG and the recently completed £1bn sale of Callcredit Information Group to NYSE-listed TransUnion.
Small is beautiful
CMBOR said the number of deals completed in the UK’s small buyout market, with EVs of less than £10m, nearly doubled in H1 2018, from 24 deals in H2 2017 to 44.
Investec’s Shaun Mullin said, “We are seeing strong appetite from private equity houses – many of which have recently raised capital – to back primary deals, particularly as the business’s first injection of institutional capital.
“Such funding is often providing succession solutions for owner-managers or to support ambitious management teams to achieve their development aspirations, whether organically or through acquisition.
“This is in essence private equity getting back to its roots of providing flexible funding and assistance to fast-growing businesses, and equally helping to promote those companies where accessing capital is often the most difficult.”
The sentiment is backed up by the data, with the proportion of deals sourced from private vendors having increased from 46 per cent to 61 per cnet in the UK between H2 2017 and H1 2018,.
The value of these private deals accounted for 19 per cent of the total amount in the UK, up from 15 per cent over the same period.
The uptick in small buyouts may be sowing the seeds for tomorrow’s mid-market according to the report, as many small, family-owned businesses take on private equity backing to accelerate their growth.
Recent examples include Equistone itself buying WHP Telecoms after a three-year ownership by Palatine, during which time the business’s revenues grew from £30m to nearly £75m.
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