Private Equity
Market Snapshot

Private equity investment eased in the first quarter of 2022, coming off the record highs registered in 2021. Market uncertainty about rising inflation, increasing energy prices, supply chain pressure and interest rate hikes was exacerbated by unfolding events in Ukraine, which shook all of Europe and threatened a growing humanitarian crisis.

Global private equity buyouts totalled $186bn in Q1 2022, down from $201bn in the first quarter of 2021, according to Preqin data. Venture capital investment also slipped back, recording $155.5bn of investment versus $171bn the previous year.

The figures indicate a deceleration in activity, rather than a halt. There is less pressure on sponsors to deploy capital after an intense year of investment, with private equity firms taking the opportunity to digest and integrate recent acquisitions. There are also growing signals that asset pricing is readjusting as buyers and sellers factor in new risks and an uncertain near-term outlook. Mid-market private equity multiples declined to 10x EBITDA at the end of December 2021, down from a peak of 11.6x EBITDA in the second quarter, according to the Argos Index¹.

Private Equity Appetite for Europe Remains Robust

Private equity sponsors have continued to be active in Europe, with deals reaching agreement and completion throughout March. Cinven agreed the €2.4bn purchase of Bayer’s Environmental Science Professional business that provides products and services to manage pests, eliminate vector-borne diseases and create healthier environments, marking one of an expected wave of carve-outs from large European corporates.

Firms also continue to hunt for large potential acquisitions in public markets, drawn by further downward pressure on valuations. New York-based Apollo Management confirmed that it was investigating an all-cash offer for education publisher Pearson that sent shares in the UK-listed company up almost 20%. Pearson revealed that it had rejected two approaches for the business, including one that valued it at about £7bn. While UK shares have outperformed other regions since the start of 2022, the FTSE 100 was down 3% by mid-March, and remains one of few major market indices not to have regained its pre-pandemic level.

After the fast-paced investment timetables of 2021, processes are progressing more slowly as buyers take time to carefully assess business outlooks. Financing is also becoming more challenging, with banks reported to be sitting on some $37bn of debt for recently agreed European private equity deals due to slowing syndication markets².

Banks’ Caution Reflected in Weaker IPO Outlook

While deals have continued through first quarter uncertainty, volatility has had a dramatic impact on Initial Public Offerings in Europe. Amidst booming markets in 2021 there were a record 422 European IPOs raising a total of €75bn in proceeds³, more than three times higher than 2020’s result, according to PwC’s IPO Watch.

Listings provided a number of attractive exits for private equity and venture capital firms alike, with the European SPACs also beginning to take off later in 2021. However, some disappointing debuts injected a note of caution into the market coming into 2022. Netherlands-based filesharing service WeTransfer pulled its planned listing in January, while total proceeds from EMEA IPOs were down 79% to $3.1bn in the first two months of the year, compared with over $15bn over the same period of 2021⁴, Refinitiv data showed.

Private equity firms including KKR have reportedly acknowledged that IPOs are effectively off the table for the time being⁵, although some IPO workstreams will likely survive as part of a dual-track process in combination with an M&A workstream. Despite such potential disruption, sponsors do however remain relatively positive about the outlook for M&A generally as market dislocation continues, potentially creating pockets of value and bilateral opportunities.

Long Term Optimism in Tech Start-ups Persists

After record venture investment in Europe in 2021, capital has continued to flow strongly into European tech and biotech in 2022. In the week to March 11, European tech publication tech.eu tracked over 80 funding deals worth €2bn⁶. The following week, French healthcare disruptor Doctolib raised €500mn at a €5.8bn valuation to overtake mobile phone refurbisher Back Market as the highest valued French start-up⁷.

Investment is increasingly spread across the continent. In early March, payment management start-up Payhawk became Bulgaria’s first unicorn after a $100mn funding round that will help it increase headcount and expand this year⁸.

The presence of U.S. investors in Europe has pushed up the size of funding rounds, which will in turn drive valuations. Data from Pitchbook shows the median European round with U.S. investor participation nearly doubled to €38mn in 2021, while deals without U.S. investors were substantially smaller at €6.3mn⁹. Nevertheless, European late-stage valuations remain a fraction of those in the U.S., feeding expectations of continued investment at better valuations with higher potential returns in Europe.