H1 Review: Deal volume steady in southern Europe; value drops

The region recorded 70 buyouts worth an aggregate value of €11.2bn in the first six months of the year. While dealflow remained almost identical, the value was considerably lower than the €15.3bn invested in the previous semester and the €15.0bn recorded in H1 2018. However, 2018 was an extraordinary year for private equity activity in the region, which reached an all-time peak in both value and volume of deals. When compared with the less atypical figures reported in H1 2017 and H1 2016, the difference results in a much smaller drop in value of only 6.7% and 4.3%, respectively.

"Despite a visible slowdown in the economic cycle, the abundant liquidity available on the market and the approach of the ECB have affected private equity activity and postponed the downturn that we have been expecting in the past 18 months," says Andrea Mugnai, founding partner at PM & Partners. "Furthermore, for private equity firms operating in the mid-market in southern Europe, a slowdown is not necessarily bad news. The segment is mainly composed of family-owned businesses, and higher levels of uncertainty can induce families to speed up some strategic decisions, thus increasing the array of available opportunities."

In the mid-market segment, activity held steady with 46 buyouts, the same number of deals recorded in H1 2018, despite a slight decrease in value from €4.1bn to €3.7bn.

Meanwhile, in the large-cap space, the region recorded seven buyouts above €500m, three of which reached or exceeded €1bn in value: the acquisition of Spain-based Universidad Alfonso X by CVC; the purchase of pharma company Doc Generici by ICG and Mériuex; and Carlyle's buyout of Italian machinery producer Forgital.

"Despite activity in the first six months of 2019 lacking the fast pace recorded in 2018, the pipeline for the second half of the year appears quite rich and we expect several potential transactions close to €1bn or above in the coming months," says Matteo Zenari, head of financial sponsors for Italy at Intesa Sanpaolo. "The sectors where we are more likely to see mega-deals are healthcare, TMT, software, infrastructure, payment systems, consumer food and retailers."

Healthy prospects
Across all segments of the market, one of the best performing sectors was healthcare. The year started with nine buyouts worth an aggregate value of €1.9bn, maintaining the positive run shown in the previous semester and posting a noticeable increase on the H1 2018 figure.

"Given the forecast downturn, it is important to focus on resilient sectors able to deliver profitability even in a challenging economic climate," says Roberto Quagliuolo, private equity director for Italy at Tikehau Capital. "We look primarily at underpenetrated segments open for consolidation, as well as sectors driven by macro trends such as urbanisation and an ageing population."

Looking at the sell-side, the region recorded a very positive performance with 58 exits, up on the 54 divestments inked during H1 2018. There were 15 trade sales and 20 SBOs, equal to the first semester of the previous year. In addition, there was the mega-flotation of digital payment company Nexi, which reaped an impressive €2bn in its IPO, despite the strong volatility that has been affecting the Italian stock exchange.

Fundraising was solid in the first half of 2019, reaching almost the same heights recorded in the corresponding period of the previous year. There were seven final closes for a total €2.8bn in H1 2019, while in the first semester of 2018 the region almost reached €2.9bn across nine closings.

Among others, Italian lower-mid-market private equity firm Gradiente held a final closing for its second fund on €135m, while in Spain, ProA Capital closed its third buyout fund on €475m, exceeding its €450m target, and Nazca Capital closed its lower-mid-market-dedicated fifth fund on its €150m hard-cap. 

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