Private Equity
Market Snapshot
2023 Roundup
Inflation, rising interest rates, economic slowdown and a complex geopolitical environment set the tone for a challenging year for private equity in Europe. The collapse of Silicon Valley Bank in March, and the subsequent acquisition of Credit Suisse by UBS, raised fears of a new banking crisis and another setback for the industry, but ultimately private equity and venture capital-owned businesses weathered the storm relatively well.
Despite the industry shaking off contagion concerns, hopes that investment levels could rebound in 2023 did not materialise. While there were pockets and periods of activity throughout the year, as well as relative optimism for sectors such as healthcare and AI, deals were hindered by the disconnect between buyer and seller expectations. Amid the slowdown in core private equity activity, several sponsors continued to expand beyond the realm of buyouts, increasing their exposure to resilient private markets asset classes including private credit and infrastructure.
Inflation, rising interest rates, economic slowdown and a complex geopolitical environment set the tone for a challenging year for private equity in Europe. The collapse of Silicon Valley Bank in March, and the subsequent acquisition of Credit Suisse by UBS, raised fears of a new banking crisis and another setback for the industry, but ultimately private equity and venture capital-owned businesses weathered the storm relatively well.
Despite the industry shaking off contagion concerns, hopes that investment levels could rebound in 2023 did not materialise. While there were pockets and periods of activity throughout the year, as well as relative optimism for sectors such as healthcare and AI, deals were hindered by the disconnect between buyer and seller expectations. Amid the slowdown in core private equity activity, several sponsors continued to expand beyond the realm of buyouts, increasing their exposure to resilient private markets asset classes including private credit and infrastructure.
Deal Activity Remained Subdued in 2023
After decelerating in the second half of 2022 in the face of rising macroeconomic uncertainty, private equity investment slowed more sharply in 2023. Data from Invest Europe released in November showed that European private equity invested €32bn in the first half, down 54% on the prior year and in line with levels last seen in 2016. Fundraising also fell sharply by 60% to €33bn1 as investors displayed caution about investing in new funds.
Deal Activity Remained Subdued in 2023
After decelerating in the second half of 2022 in the face of rising macroeconomic uncertainty, private equity investment slowed more sharply in 2023. Data from Invest Europe released in November showed that European private equity invested €32bn in the first half, down 54% on the prior year and in line with levels last seen in 2016. Fundraising also fell sharply by 60% to €33bn1 as investors displayed caution about investing in new funds.
Depressed first half activity continued throughout the remainder of the year, not only in Europe but on a global basis. According to EY, private equity firms announced deals worth a total of $101bn in the third quarter — roughly consistent with the first two quarters of the year. While the number of investments climbed during the quarter, with sponsors agreeing 93 deals of $100mn and above (up 63% on the first quarter), average deal sizes fell to reflect the more challenging environment2.
There was a burst of activity in take-privates in the first half, particularly in the UK, with Providence acquiring London-listed events company Hyve, followed by an EQT-led buyout of veterinary pharmaceuticals company Dechra for £4.5bn, one of the largest deals of the year. The trend to biotech, pharma, and healthcare continued as Permira targeted biopharmaceutical services company Ergomed for £703mn in September, while Archimed acquired life sciences group Instem.
Take-private activity was not confined to the UK alone. Following a decline in Synlab’s performance and share price, Cinven announced an offer to buy back the German laboratory operator for €1.3bn. The offer came just two years after Cinven had taken the company public in Frankfurt3.
Despite the pockets of deals, public-to-private investment did not take off to the extent that many had hoped in 2023. Some 71% of dealmakers surveyed by broker Numis said they had shifted their focus to private deals as of October 2023, compared with a similar number who had been targeting public markets for take-private opportunities the same time last year4.
Depressed first half activity continued throughout the remainder of the year, not only in Europe but on a global basis. According to EY, private equity firms announced deals worth a total of $101bn in the third quarter — roughly consistent with the first two quarters of the year. While the number of investments climbed during the quarter, with sponsors agreeing 93 deals of $100mn and above (up 63% on the first quarter), average deal sizes fell to reflect the more challenging environment2.
There was a burst of activity in take-privates in the first half, particularly in the UK, with Providence acquiring London-listed events company Hyve, followed by an EQT-led buyout of veterinary pharmaceuticals company Dechra for £4.5bn, one of the largest deals of the year. The trend to biotech, pharma, and healthcare continued as Permira targeted biopharmaceutical services company Ergomed for £703mn in September, while Archimed acquired life sciences group Instem.
Take-private activity was not confined to the UK alone. Following a decline in Synlab’s performance and share price, Cinven announced an offer to buy back the German laboratory operator for €1.3bn. The offer came just two years after Cinven had taken the company public in Frankfurt3.
Despite the pockets of deals, public-to-private investment did not take off to the extent that many had hoped in 2023. Some 71% of dealmakers surveyed by broker Numis said they had shifted their focus to private deals as of October 2023, compared with a similar number who had been targeting public markets for take-private opportunities the same time last year4.
Debt Markets Ease as Banks Return to Buyout Financing
The availability of financing was a clear barrier to deal making, and particularly to larger buyouts, at the start of the year but eased progressively as banks returned to the market after having succeeded in reducing exposure to previously issued loans. However, the market banks returned to was significantly more competitive due to the strengthened position of private credit funds that had remained an available and relatively attractive source of debt for buyouts. In these circumstances, private equity firms could run processes to identify the most attractive financing options – often weighing cheaper bank financing against more flexible private debt. The result was notable wins for alternative lenders, with a group of debt funds notably beating a consortium of more traditional banks to provide the financing package for the EQT-led Dechra buyout5.
However, the effects of persistent uncertainty and continued economic headwinds could still weigh heavily on private debt lending. According to Deloitte’s Private Debt Deal Tracker, there were 256 private lending deals in the first half of 2023, down 26% on the previous six-month period. The advisory firm noted a continuation of the trend in Q3, and expected a relatively weak year overall with deals taking longer to arrange and investors spending longer on due diligence6.
Debt Markets Ease as Banks Return to Buyout Financing
The availability of financing was a clear barrier to deal making, and particularly to larger buyouts, at the start of the year but eased progressively as banks returned to the market after having succeeded in reducing exposure to previously issued loans. However, the market banks returned to was significantly more competitive due to the strengthened position of private credit funds that had remained an available and relatively attractive source of debt for buyouts. In these circumstances, private equity firms could run processes to identify the most attractive financing options – often weighing cheaper bank financing against more flexible private debt. The result was notable wins for alternative lenders, with a group of debt funds notably beating a consortium of more traditional banks to provide the financing package for the EQT-led Dechra buyout5.
However, the effects of persistent uncertainty and continued economic headwinds could still weigh heavily on private debt lending. According to Deloitte’s Private Debt Deal Tracker, there were 256 private lending deals in the first half of 2023, down 26% on the previous six-month period. The advisory firm noted a continuation of the trend in Q3, and expected a relatively weak year overall with deals taking longer to arrange and investors spending longer on due diligence6.
Private Equity Firms Expand Further into Adjacent Asset Classes
With private equity firms facing challenging conditions to deploy and raise capital for core buyouts, the impetus to consolidate and enter new alternative asset classes has grown. In September, CVC unveiled a deal to buy Amsterdam-based infrastructure manager DIF Capital Partners for a reported €1bn, bringing it a ready-made investment platform comprising 11 offices and 225 staff managing some €16bn of assets7.
There has also been a consolidation within asset classes, with firms looking to pool resources and strengthen their positions in new geographies. In October, the large U.S. VC firm General Catalyst announced a merger with smaller Berlin-based fund manager La Famiglia in order to access earlier-stage opportunities in Europe8.
The persistence of tough conditions is expected to lead further to M&A in private equity. In an interview with the Financial Times, David Layton, CEO of Partners Group – one of the largest investment groups in the sector – predicted that only large players would be able to withstand pressures on the industry and said that the current universe of some 11,000 players could shrink to around 100 next-generation platforms over the next decade9.
A wholesale reshaping of the private equity marketplace is hopefully not in the offing, but it is clear that the market is in a process of adjustment to new economic realities. As 2023 draws to a close, with inflation coming under control and interest rates appearing to be at – or close to – their peak, visibility over the outlook is improving and early glimmers of optimism are returning. We see private equity firms positioning themselves for a growing recovery in activity over the course of 2024.
Private Equity Firms Expand Further into Adjacent Asset Classes
With private equity firms facing challenging conditions to deploy and raise capital for core buyouts, the impetus to consolidate and enter new alternative asset classes has grown. In September, CVC unveiled a deal to buy Amsterdam-based infrastructure manager DIF Capital Partners for a reported €1bn, bringing it a ready-made investment platform comprising 11 offices and 225 staff managing some €16bn of assets7.
There has also been a consolidation within asset classes, with firms looking to pool resources and strengthen their positions in new geographies. In October, the large U.S. VC firm General Catalyst announced a merger with smaller Berlin-based fund manager La Famiglia in order to access earlier-stage opportunities in Europe8.
The persistence of tough conditions is expected to lead further to M&A in private equity. In an interview with the Financial Times, David Layton, CEO of Partners Group – one of the largest investment groups in the sector – predicted that only large players would be able to withstand pressures on the industry and said that the current universe of some 11,000 players could shrink to around 100 next-generation platforms over the next decade9.
A wholesale reshaping of the private equity marketplace is hopefully not in the offing, but it is clear that the market is in a process of adjustment to new economic realities. As 2023 draws to a close, with inflation coming under control and interest rates appearing to be at – or close to – their peak, visibility over the outlook is improving and early glimmers of optimism are returning. We see private equity firms positioning themselves for a growing recovery in activity over the course of 2024.
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