2021 Preview: Southern Europe looks for 2021 rebound

The southern Europe region recorded 112 buyouts in 2020, worth an aggregate value of €19.2bn, according to Unquote Data. By comparison, 156 deals were inked between January and November 2019, for a total aggregate value of €22bn, while 136 buyouts were recorded in the same period for 2018, amounting to an aggregate value of €29bn.

The quarter with the lowest number of buyouts in 2020 was Q2, which saw only 16 buyouts for an aggregate value of €1.1bn. In July, the market showed signs of a recovery and Q3 recorded 48 deals worth a total €11.4bn. However, with the rise in coronavirus cases and the subsequent restrictions imposed in the autumn, deal activity dropped once again in Q4, and the region recorded 22 deals, amounting to only €1.5bn, in October and November.

Despite the decrease in dealflow, some large deals were inked during the first 11 months of the year, including Permira’s acquisition of Italian sports shoewear designer Golden Goose from Carlyle for an enterprise value of €1.3bn; BC Partners’ investment in Milan-listed company Ima, an Italian manufacturer of packaging machinery, which is leading to a €3.6bn take-private; and EQT’s acquisition of Spanish online property marketplace Idealista from Apax Partners for €1.3bn.

“Following the outbreak, local healthy companies have become more willing to look for the support of a private equity player able to help them face this challenging time, not only with a defensive strategy, but also with a proactive and dynamic approach,” says Clessidra CEO Andrea Ottaviano. “In addition, businesses with special credit needs can also benefit from the partnership of a fund that can bring capital and provide managerial expertise for growth and expansion.”

While platform deals have become more challenging, numerous GPs have also focused their investment activity on add-ons. “The market environment that has emerged after the coronavirus outbreak is particularly favourable to a buy-and-build strategy,” says Stefano Iamoni, founding partner of Consilium Private Equity.

Several buy-and-build acquisitions were inked in the first 11 months of the year, including the purchase of Create Flavours by Ambienta’s Nactarome and the bolt-on of Ortofrutticola Del Mugello, acquired by Investindustrial-backed Italcanditi.

Looking at the sell side, the plunge in divestment activity recorded by the region has been significant. The southern European market recorded 82 exits in 2020, while 128 sales were inked in the months between January and November 2019 and 113 divestments were recorded in the same period of 2018.

José María Muñoz, founding partner of MCH, says: “Dealflow has polarised between a small number of resilient and cycle-reactive businesses and the majority of companies that have been affected, at various and different levels, by the pandemic. It has become difficult to price these assets and, in most cases, sellers prefer to wait for a more suitable exit environment.”

This crisis comes from an exogenous shock, not a structural recession, and we expect a steady recovery in the coming months” - Stefano Iamoni, Consilium Private Equity

Fundraising woes
Fundraising activity has been badly affected by the events of 2020, dampening LP appetite for the region and making it more challenging for GPs to develop and enlarge their network of investors.

Local buyout and generalist GPs raised only €1.8bn across nine final closes in 2020. By comparison, €7.5bn was raised in 12 final closes in the months between January and November 2019, and €3.6bn was collected across 14 closes during the first 11 months of 2018.

Several managers – including Quadrivio and Mandarin – decided to postpone their final closes and are expected to wrap up their fundraising in the first half of 2021. Other GPs decided to delay the launch of their new vehicles, including Green Arrow Private Equity Fund 4, which had initially planned to launch in the first half of 2020.

“The difficult market environment triggered by the pandemic has made it more challenging to approach LPs and develop a network of relations,” says Pau Bermudez, partner at Suma Capital. “However, local and international investors are willing to support established funds with a strong track record. Our Suma Capital Growth II fund, for example, has been able to raise most of its capital and should be able to hold a final close in Q1”.

The region also recorded eight first closes this year, a sign that, despite the coronavirus headwinds, the market is still dynamic and capable of attracting local and international LPs, especially for well-established private equity houses.

Furthermore, in the last quarter of the year, the region saw new funds coming to market, including Clessidra Capital Partners IV, which launched with a €600m hard-cap, and Consilium Private Equity IV, which has started fundraising with a €100m target.

Consilium’s Iamoni says: “This crisis comes from an exogenous shock, not a structural recession, and we expect a steady recovery in the coming months, only partially offset by the decline in consumer spending resulting from the income shortfall. The market will need time to regain confidence in its possibilities and become dynamic and active, as it was in 2019. However, despite the worsened performance experienced by many segments, the local economy is rich in attractive opportunities. A careful selection of the most resilient and promising assets will become crucial in the next quarters.”

Alessia Argentieri discussed all this, and more, in the latest episode of the Unquote Private Equity Podcast:

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• Topics
• Southern Europe
• Investments
• Fundraising
• Unquote Data
• coronavirus
• Italy
• Spain
• Portugal