European private equity deal doers have put the brakes on their frenetic exit pace, with the €100bn+ generated in each of the last four years from divestments now falling to just €39.9bn for the first six months of 2018, according to provisional H1 data from the CMBOR at Imperial College Business School, sponsored by Equistone Partners Europe and Investec Specialist Bank.
The sum sees the overall value of exits in Europe drop by nearly a third (30%) from €56.9bn in H2 2017, though it was a half of two quarters, with €25.8bn completed in Q1 and €14.1bn in Q2 this year. More than half the value (€20.6bn) was derived from sales to other private equity firms.
These exit figures fly in the face of what has been deemed to be a sellers’ market, suggesting that buyout houses have been more focused on deploying the capital they have raised over the last two years. “After four years in which the environment has been conducive to selling assets, helped by the availability of debt on the buyside, there has been a pronounced downturn in the exit market – particularly in the UK,” says Christiian Marriott, Partner and Head of Investor Relations at Equistone Partners Europe. “These changing market dynamics require sponsors to be more adaptable, as reflected in the increasing popularity of highly targeted, bilateral deal processes that allow both the buyer and the seller to bypass the hyper competition now inherent in most auctions,” he says, drawing on experience gleaned from Equistone’s three exits in a two-week period at the start of the summer.
The H1 data also reveals a softening of new deals, with €40.7bn recorded for the first six months of the year, down slightly from €43.2bn in H1 2017 – though a number of yet-uncompleted deals in the pipeline could see values for the first half of 2018 boost. What is telling is the breakdown of deals by size: the €100m-1bn ranges saw sharp drops in the number of transactions, while the sub-€10m enterprise value (EV) space recorded a strong 26% uptick from H2 2017 to 168 deals.
France stood out for its strong mid-market performance, with 63 buyouts worth €11bn completed in H1 2018, up markedly from 51 deals worth €6.3bn in H2 2017 and bolstered by seven of Europe’s 20 largest buyouts in the period, including that of Sebia (€2bn*), Kiloutou (€1.5bn*) and Albea (€1.2bn*). Private equity exit activity in the French market also held relatively strong, generating €10bn across 34 sales during the first six months of 2018.
Comparatively, Germany hosted 22 of Europe’s 185 exits in H1 2018, worth a combined €10.8bn – more than twice the country’s buyout total of €5.2bn across 69 deals, bucking the overall trend of a generally slower exit market in the first half of this year. Germany secured the two largest European exits of 2018 so far with the €5.8bn* trade sale of Ista and the €2.6bn PE sale of CeramTec.
The UK saw the steepest drop in exit activity, with £6.0bn (€6.8bn) generated, down from £13.6bn in H2 2017. The largest exits in the UK so far in 2018 are the £1bn* sale of Iris to ICG and the recently completed £1bn sale of Callcredit Information Group to NYSE-listed TransUnion.
The number of deals completed in the UK’s small buyout market (EV < £10m) nearly doubled in H1 2018, from 24 deals in H2 2017 to 44. “We are seeing strong appetite from private equity houses – many of which have recently raised capital – to back primary deals, particularly as the business’s first injection of institutional capital. Such funding is often providing succession solutions for owner-managers or to support ambitious management teams to achieve their development aspirations, whether organically or through acquisition. This is in essence private equity getting back to its roots of providing flexible funding and assistance to fast-growing businesses, and equally helping to promote those companies where accessing capital is often the most difficult,” points out Shaun Mullin at Investec. The sentiment is backed up by the data: the proportion of deals sourced from private vendors has increased from 46% to 61% in the UK between H2 2017 and H1 2018, with the value of these private deals accounting for 19% of the total amount in the UK (up from 15% over the same period). The increase in private equity investment in private, founder-led businesses was seen across Continental Europe as well, though was less marked.
The uptick in small buyouts may be sowing the seeds for tomorrow’s mid-market, as many small, family-owned businesses take on private equity backing to accelerate their growth. Recent examples include:
- The recent WHP Telecoms acquisition by Equistone: came after a three-year partnership with Palatine, during which time the business’s revenues grew from £30m to nearly £75m.
- The evolution of UK digital out-of-home advertiser Ocean Outdoor: the firm has had three private equity backers over the last decade. Its first backer, Smedvig, invested £5.7m in the business in 2008, when it operated 28 sites, before selling Ocean to LDC in 2012 for £35m. the business grew further under LDC’s stewardship before being sold to Searchlight at the end of 2014 in an £80m deal. The latest deal saw Ocelot acquire the business for £200m.
- The build-up of Motor Fuel Group: the business underwent a £40m buy-in in 2011 when Investec introduced oil industry veteran Alasdair Locke to Patron Capital. The business grew acquisitively and was sold for £500m to Clayton Dubilier & Rice in 2015. In February 2018, the business acquired the UK’s largest petrol station operator MRH in a £1.2bn deal.