The average completed deal value was little changed at €155m year-on-year in 2019, the fourth-highest figure since records began. That's despite the total number of €1bn-plus deals falling to 22 from 29 in 2018.

Bigger blockbuster deals were particularly evident in the UK. When looking at transactions of all sizes, the UK recorded its lowest annual volume this decade, with 186 deals. But a handful of more significant transactions led to an aggregate value of €26.4bn, making 2019 the third-highest year in the 2010s, topping 2018’s total of €25.7bn. Average deal value in the UK was €141.7m, almost double the level in 2016. Five of Europe’s seven completed €1bn-plus buy-outs during the year took place this side of the Channel.

Supporting the shift to blockbuster deals, P2P transactions had a great year. There were 20 European deals, worth a record €22.6bn, topping the decade’s previous best for deal value in 2018. In the UK, the three largest deals were P2Ps – Merlin Entertainment, Inmarsat and BCA – with an aggregate value of £10.7bn, almost half of the UK’s total for the year.

“There are two factors behind this trend,” explains Christian Hess, Private Equity Client Group Head at Investec. “On the one hand, public company valuations have declined, and in combination with a cheap pound, UK companies look attractive to global investors. On the other hand, traditional private equity processes such as auctions have become so competitive that buyers are more willing to look elsewhere for value.” 

That competition for assets pushed up price expectations and suppressed deal completions in 2019. Management buy-ins (MBIs) held up well. But with just 102 deals across Europe, 2019 was the worst year since at least 1985 for the number of management buy-outs (MBOs), with mid-market deals (€50m to €500m) taking the brunt.

Cementing the trend for fewer and bigger deals, the final three months of the year was the worst quarter for total European deal volume since 2010 on a completed deal basis. But the average transaction across Europe, including the UK, was worth €258m, a new record. In the UK, for example, the fourth quarter accounted for more than half of 2019’s total value (£12.8bn of £22.9bn).

The CMBOR research shows that PE funds significantly increased their commitment levels in 2019. PE-backed exits fell to the lowest since 1997 and values for exits dropped.

Both trade sales and secondary buy-outs also declined last year. There were fewer floats (albeit at higher values than last year), and there were more creditor exits.

“This represents a significant shift in the market,” says Equistone Partners’ Christiian Marriott. “The pendulum has swung away from the dynamic of the last few years of private equity taking advantage of a great exit environment and distributing more cash to investors than they were able to deploy.

“There is also a valuation gap: volatile public markets and significant macro headwinds around Brexit and global trade wars created disconnects in pricing expectations between buyers and vendors.”

No country did well on exits in 2019, but with just 105 deals, the UK saw 65 fewer exits than in 2018. And exit values were just €7.2bn, nearly half 2011’s €13.3bn, the decade’s previous low.

“In the mid-market, particularly in the technology sector, we’ve seen private equity funds buying top quartile or top decile assets that are still experiencing double-digit growth,” adds Investec’s Jonathan Arrowsmith. “These funds are in no hurry to sell into a choppy market, and are exploring ways to hold on to these assets for longer.”

That’s good news for investors who don’t need to realise capital and are also keen to maximise fund performance in terms of exit multiples.

However, fund managers will now be facing a problem they’ve not had for a while: “On average, private equity funds will now have more assets on their books than they’ve been used to,” explains Investec’s Jonathan Arrowsmith. “Funds will have to work harder to ensure that their portfolio stays on track. If you had ten companies on your books this time last year, today you might have 15. Many funds will be looking at either selling some assets earlier than they’d otherwise planned, or employing a larger team to focus on managing – rather than acquiring – assets.”

The UK retained its position as the engine room of European dealmaking, posting more transactions than the next two busiest countries combined - France saw 81 deals, Germany 86, based on deals completed by 9 December 2019, not announced deals. However, the underlying message is that Europe was a story of split fortunes.

The Netherlands continued its march: 2019 saw the most deals in a calendar year this decade. Deal values dropped after last year’s mega-blockbusters – but the country has cemented its strong position as a private equity playground.

France saw activity slow markedly in 2019: there were just 81 deals versus 124 in 2018 and aggregate value sunk below €10bn for the first time since 2013. The one impressive statistic? Five of the biggest seven European exits in 2019 were French.

Germany returned to ‘normal’: deal numbers dropped to 86 last year after volume and value peaked in 2017 and 2018 (when the country notched up 128 transactions). Still, 2019's outturn is the fourth-best of the decade.

Switzerland saved by a blockbuster: the country delivered only 11 deals in 2019, moderate by its standards. But the €9.4bn buy-out of Nestle’s skin health business, Europe’s largest deal last year, pushed values to €12.6bn, second only to the UK.

Spain had a great year: 2019 delivered its highest deal count for the decade (55) and quadrupled its 2018 performance in deal value to €11.1bn – more than either France or Germany. The €1.5bn deal for transit caterer Areas and CVC Capital Partners’ €1.1bn bid for Universidad Alfonso X El Sabio bolstered the country’s totals.

Scandinavia had a rare flop: after a consistent decade, 2019 saw just eight deals for Finland (its first single digits in more than 10 years) worth €333m, a drop of 90% in aggregate value. Sweden, Norway and Denmark also recorded decreases in deal activity when compared to 2018.

The 2019 CMBOR data is full of diverging trends: volumes were down; values were up; buy-ins were robust; buy-outs meagre. That split is also evident in the sectors that took the year by storm, and those that hit the pause button. 

Hot-spots included: 

• Technology, Media and Telecoms: 131 deals for €21.1bn, a decade high for value, overtaking manufacturing, which fell from €28.8bn in 2018 to €17.2bn in 2019.

• Healthcare: 61 deals for €16bn, the highest of the last ten years, boosted by the huge buy-out of Nestlé’s skincare business.

• Leisure: only 31 deals, down from 48 in 2018 – but valued at €13.5bn, a decade high. Blackstone and the LEGO family investment vehicle KIRKBI’s joint £4.8bn take-private of Merlin Entertainment was a highlight.

And the not-spots?

• Business and support services: delivered just 75 deals, the second lowest of the decade, for its worst aggregate value in the 2010s – €7.6bn.

• Property and construction: €720m is nearly a third of 2018 deal values and a decade low, from just 14 deals. In the UK, in particular, Brexit has pushed property to the sidelines.

• Financial services: went from 54 deals in 2015 to 28 this year. The sector saw €12.6bn of buy-outs in 2018, falling to just €2.8bn in 2019. However, exits increased to 19 from 14 in 2018.

Fewer deals, bigger deals and more extended holding periods seemed to be the themes of 2019. Private equity is deploying its capital, and it’s banking on businesses delivering growth to enhance value. That suggests we might see a change in 2020, as the PE funds return to the mid-market in search of growth. But there’s one other factor that promises to set 2020 alight in the areas 2019 left behind.

Back in July, our analysis of CMBOR's first-half data was clear: despite a slowdown, there was “a thaw coming once UK/EU uncertainties are resolved.” Thanks to the extension of the October deadline for leaving the EU – and the subsequent UK general election – those uncertainties remained unresolved. The thaw did not arrive, certainly for the mid-market.

But the result of the election was decisive. Across asset classes, the immediate reaction to a thumping majority for the party whose Brexit deal with the European Union is “oven-ready” was a boost to investor confidence.

So while it might seem like Groundhog Day, it’s entirely legitimate to repeat July’s assertion. And for UK dealmakers, in particular, the thaw now has a date set in stone to deliver certainty backed by ever-increasing values of dry powder. 2020 is bound to be another big year.