Private Equity
Market Snapshot

September 2021

Private equity investment continued strongly throughout the summer months, reflecting the frenetic pace of global M&A. Refinitiv figures showed all M&A deals hitting $500 billion in the usually quiet month of August, up from $289 billion last year¹. The scale of the rebound in European dealmaking also became evident as more data emerged for the first half of the year. European investments soared by over 100% to 1,800 deals worth €170 billion in value in the second quarter, propelled by widespread activity in the mid-market, according to Pitchbook². Such strong investment activity also drove a strong increase in valuations with median multiples rising to a new high of 11.6 times EBITDA for medium-sized European companies covered by the Argos index. Investment funds outbid that level by paying 12.9 times EBITDA on average³.

As we approach the final quarter, the outlook in Europe remains positive with vaccination programmes fuelling reopening and economic recovery. Recent European Commission data points to a faster rebound than previously expected⁴, which has been matched by strengthening performance in the UK. Given the ever-increasing levels of dry powder available for investment, we expect deal activity to remain strong.

Competition Intensifies for the Best Assets

Following the pandemic, large fundraisings by global funds have contributed to the desire to deploy capital. While many sponsors scour the market for bilateral deals, the conditions continue to lend themselves to competitive processes for the most bankable assets. The healthcare and technology sectors have dominated investment activity, accounting for half of all transactions in the Argos index in the second quarter. They are also commanding the highest valuation levels and pushing about one-quarter of deals to be concluded at over 15 times EBITDA.

In search of more attractively valued investments, private equity firms have focused on take-privates – particularly in the UK where valuations remain depressed compared with other international markets. Such deals enable sponsors to deploy larger sums of capital into single investments but are increasingly attracting competition, as well as potential scrutiny from regulators. By the end of the first half, 24 firm offers for AIM and main market public companies had been announced⁵, with many more under consideration by international investment groups.

Valuations Sharpen U.S. Private Equity Appetite for UK Companies

Domestic Regulatory Changes Sharpen Chinese Appetite for Europe

High valuations and private equity appetite for investments has been leading large Chinese firms to dispose of assets at near-record pace. According to Bloomberg, Chinese companies and investment firms have announced exit plans for $10.5 billion of assets globally this year, the second-highest total in over two decades⁶. Among the deals this year in Europe, environmental management firm China Tianying agreed to sell Spanish waste management group Urbaser to Platinum Equity at a valuation of about €3.5 billion.

Chinese investment into Europe fell sharply to €6.5 billion in 2020, data from European think tank MERICS showed, with COVID-19 and the threat of greater foreign direct investment (FDI) oversight both contributing to the decline. However, the recent regulatory crackdown in China is leading many Chinese groups to look to overseas for potential investments. Private equity funds, corporates and investment funds are targeting Europe in sectors including healthcare and technology, which has borne the brunt of Chinese regulatory action. While all international buyers face greater regulatory scrutiny and tougher FDI rules, the key attraction for Chinese investors appears to be diversification in the relative security of European markets and regulatory frameworks, as well as, in the case of strategic buyers, a desire to maintain their market share notwithstanding the challenges faced in the domestic Chinese market.

European SPACs Emerge and IPOs Accelerate

IPO activity in Europe has registered one of its strongest starts to the year in 2021. A total of 223 IPOs raised €44.6 billion the first half, compared with just 31 listings raising €5.5 billion over the same period of 2020⁷, according to PwC. A number of larger listings, including Dr Martens footwear and food delivery group Deliveroo, have targeted the main London exchange. However, Frankfurt and Amsterdam have also had active years, attracting the listings of companies including German laboratory services group Synlabs and Spanish fund distribution firm Allfunds.

Continental exchanges have also drawn Europe’s first SPAC offerings, with Amsterdam hosting two of the largest sponsored by Tikehau Capital and VC investor Hedosophia. While later to the trend, proposed listing rule changes in London are a signal that the UK aims to position itself as a centre for SPAC listings – potentially creating new options for tech entrepreneurs to float start-ups in London.