Southern Europe: After the dawn

Buyouts

Buyout activity in Southern Europe, here defined as Italy and the Iberian Peninsula, has recorded consistent growth throughout the decade only to collapse in line with its fellow European regions in 2009. While private and family owners increasingly warmed to the private equity model, with overall more than 60% of transactions sourced from this vendor type, readily available leverage supporting buyouts led to a rise in average deal sizes, peaking at around EUR230m in 2005 with total deal value reaching almost EUR20bn.

This was mainly due to numerous large transactions completing that year including two delistings: the EUR4.3bn take-private of reservation systems provider Amadeus by Cinven and BC Partners in Spain and the EUR1.44bn buyout of clothing retailer Cortefiel by CVC, Permira and PAI partners in Italy.

Remarkably, while buyout activity in other European private equity regions contracted significantly in the wake of the credit crisis in 2008, Southern Europe breached the 100 deal level for the first time, albeit only due to the buoyant Italian market. As a result, total deal value in 2008 saw a rather modest drop by 20% to EUR12.6bn from EUR15.6bn the previous year, in stark contrast to more dramatic drops recorded in other regions. That said, the European lull in activity finally caught up with the region in 2009 as buyout volume and value in the first three quarters collapsed to 24 deals worth only EUR2bn.

Early-stage

Not surprisingly, appetite for investing in start-up businesses in Southern Europe peaked in the dotcom bubble at the turn of the millennium, a time when venture markets around the world were gripped by an investment frenzy. The subsequent crash in 2001, however, had a more devastating effect on early-stage activity in the region than elsewhere in Europe. In fact, it was not until 2007 that the region saw a more substantial uptick in deal volume and value with 31 recorded investments worth almost EUR100m. This positive trend continued into 2008 as technology and in particular life science investments staged a comeback. In addition, local venture capital houses such as Nauta Capital in Spain or Innogest in Italy, which were set up around the middle of the decade, are contributing significantly to the resurgent regional venture activity. And while 2009 figures so far are lower than 2007/2008 levels, the positive investment trend is likely to continue as activity is already higher than at any time during the market trough of 2001-2006.

Expansion

Growth-capital activity peaked during the dotcom bubble in 2000 in line with the extraordinary investment levels seen in the early-stage segment. That said, the burst of the bubble did not result in a similar dearth of investment activity as witnessed at the early-stage level. Although total deal value imploded by almost 90% in 2001, with average expansion deal values plunging from EUR40m to just above EUR10m per transaction, deal volume recorded a relatively less dramatic fall, halving to 65 investments.

Additionally, activity levels remained consistent throughout the decade, while total value recorded a more significant increase in 2007 and 2008, due to substantial expansion deals in Italy such as Permira-backed Valentino's EUR1.6bn acquisition of Hugo Boss and the EUR1.1bn investment in Weather Investments by Apax Partners, Madison Dearborn Partners and TA Associates. However, investment activity in 2009 has significantly contracted in line with the buyout space.

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• Southern Europe