Private Equity
Market Snapshot

Summer 2021

Private equity investment has continued at a blistering pace, reflecting the appetite to deploy considerable capital reserves and growing confidence about the future. Private equity firms had their busiest six months ever, according to Refinitiv data, investing $513 billion into some 6,300 deals – even before counting the $34 billion Medline acquisition expected to close later this year¹. These investments are part of a broader M&A boom that has seen overall activity by corporates and other buyers exceed $2.5 trillion this year.

Europe has captured its own fair share of high-value deals since the turn of the year. These include Silver Lake and Nestlé’s investment alongside EQT in veterinary group IVC Evidensia, valuing the chain at over €12 billion, as well as TDR and the Issa brothers’ £6.8 billion deal for supermarket group ASDA, which completed in February. While there may be a brief hiatus over the summer period as the industry pauses for breath, investment is expected to remain very strong in the second half².

Low Valuations Attract Sponsors to the UK

European activity has been widespread, with countries from the Nordics to Spain and Italy recording robust levels of investment. However, it is the UK that has been generating some of the greatest attention. Over 120 deals for a total of £41.5 billion have been announced so far this year, according to Dealogic, the highest first-half figure since it began tracking data in 2005.

Low valuations relative to other markets – caused by the combination of COVID-19 restrictions and Brexit disruption – have boosted the attractiveness of UK companies. Subdued currencies contribute to the equation. Take-privates have been a particular focus, with 15 bids made for publicly listed businesses and more reported to be under consideration³.

Over the past month, the greatest number of headlines have been created by grocer Morrisons. The UK’s fourth-largest supermarket chain agreed a £9.5 billion takeover from a consortium including SoftBank-backed Fortress and Canada Pension Plan Investment Board after rejecting an initial offer from Clayton, Dubilier & Rice. Further interest from Apollo increased the prospect of a bidding war, although Apollo is now rumoured to be joining the Fortress consortium.

Public and political attention is frequently heightened when firms target well-known companies that are large employers, with concerns often expressed over potential asset sales, headcount reductions or the use of leverage. The British business minister has sought meetings and assurances from Morrisons management about future jobs, pensions and operations. However, the bid for Morrisons has also spurred debate about the public markets and why public investors have not attributed sufficient value to UK businesses, as well as the potential valuation drag caused by restrictive City rules⁴.

Despite the potential for scrutiny, sponsors are tightening their focus on the UK market. KKR, one of the most active private equity firms in Europe following the pandemic, is to set up a UK team of five dealmakers to focus on British companies.

Investment Themes in European Infrastructure and Industrials

Sectors that outperformed in the downturn and that are driven by secular themes, such as tech and healthcare, continue to draw competition and full valuations. However, industries tied to the recovery have also rebounded strongly, with infrastructure attracting heavy investment in 2021.

In one of the half’s largest deals, a consortium including French firm Meridiam and Veolia teamed up for a €13 billion bid for French infrastructure manager and developer Suez⁵, heading off a rival group including Ardian and GIP. Blackstone and Macquarie joined forces with Italy’s state controlled Cassa Depositi e Prestiti in the €9.3 billion acquisition of a controlling stake in Italian toll road company Autostrade per l'Italia, while Platinum Equity has also been building its presence in Europe with a €3.5 billion deal for Spanish environmental services group Urbaser, which is involved in waste treatment facilities.

At the same time, sponsors are targeting leading European industrials that have international reach. In March, US-based firm KPS Capital Partners agreed to acquire Norsk Hydro’s aluminium rolling business, one of the world’s largest manufacturers of aluminium rolled products for construction and beverages, employing over 5,000 staff in Germany and Norway, in a €1.4 billion deal. In April, it also announced the €2.25 billion acquisition of the European tinplate business of U.S. group Crown Holdings. KPS founder Michael Psaros has indicated his interest in finding other industrial companies, particularly family-owned businesses in Germany⁶.

Activity and Opportunity Feeds Strong Fundraising

The potential for investment that outperforms other asset classes is a strong driver of private equity fundraising. New data from Invest Europe shows that European private equity delivered long-term IRRs of 15.06% to the end of 2020 versus 5.48% for the MSCI benchmark⁷. As a consequence, European fundraising remained over €100 billion for a third year in a row, according to the association’s figures⁸.

Fundraising momentum persists with data from Preqin showing that global fundraising hit $459 billion globally in the first half of 2021⁹. Large investors are increasing their focus on the asset class, including new investors such as Government Pension Investment Fund of Japan, which is reported to be planning to invest $6 billion in private equity after recently entering the asset class. Europe-based firms have been important beneficiaries, with Swedish heavyweight EQT closing one of the continent’s largest ever funds on €15.6 billion in April.