2019 in numbers: Full steam ahead

Despite all the economic and political distractions, the sheer weight of capital aimed at Europe continued to drive the market forward in 2019. Unquote Data's full 2019 figures show that investors signed off on 3,036 private-equity-backed deals in the year, breaking the 3,000-mark for the first time. This is a year-on-year volume rise of almost 15%; and it is worth bearing in mind that the two previous years saw increases of a similar magnitude.

Looking at the market from a value perspective, the situation was more stable, with just a 4% increase in the value of all deals. It has to be said, though, that this comes on the back of two 25%+ annual increases and means the market is continuing to break new records: the €245bn total for 2019 is €100bn more than it was just three years ago.

The biggest contributor to the significant dealflow increase is not obvious, though – the standout trend in 2019 was the sharp rise in the number of growth capital deals, which surged by 30% to reach more than 1,450. This was driven to a large extent by the booming market for funded bolt-ons and platform plays, as GPs try and pull every value-creation lever they can in an environment still marked by low growth and hefty entry multiples.

By comparison, the number of early-stage and venture deals remained broadly flat compared with the previous year at around 410 transactions, some way off the levels seen in the 2010-2015 period. But, as has become evident when looking at the number of venture rounds in excess of €50m in recent months, the overall value of these deals (at more than €3.4bn again last year) is two to three orders of magnitude greater than it was prior to 2016.

Lots of disappointed private equity players that came second in bids for assets last year will still be feeling the pressure to deploy" – Perry Yam, Mayer Brown

Crest of the wave
There is little doubt the buyout market will continue to draw the most attention in the coming months, given the sheer amount of dry powder still available to European GPs. The market did grow over the past 12 months, but modestly, with a 3.6% rise to 1,129 deals. At €202bn, the combined value of these transactions was also down slightly on the previous year.

Certainly in volume terms, these trends do reinforce the message shared by a number of players from both the investor and advisory communities: private equity is enjoying tailwinds in terms of access to capital, but deploying this is no easy task in the current environment. "Particularly in 2019 - by virtue of the prevailing uncertainty - tough questions were raised about pipelines, run-rates, etc," says Mayer Brown partner Perry Yam. "All that due diligence has a time cost, and takes its toll on the speed of processes. This should alleviate somewhat if confidence grows throughout the market as uncertainty recedes."

Yam adds that the mid-market in particular remains unlikely to see any less competition as 2020 unfolds: "In the core mid-market, there should be plenty of capital looking to find a home in the coming months. Lots of disappointed private equity players that came second in bids for assets last year will still be feeling the pressure to deploy. It could be tougher for players in the bulge brackets, though, given the natural scarcity of opportunities there."

Mother of invention
In this context, the 2019 statistics highlight how GPs have been looking beyond the traditional pool of family- and private-equity-owned companies to source deals. Corporate carve-outs in particular were more prominent: in volume terms, their 29% year-on-year increase is much starker than the one recorded for the buyout market as a whole. Correspondingly, this type of transaction accounted for 14% of all European buyouts last year, versus around 10% in the preceding two-year period.

Although less plentiful in both absolute and relative terms, take-privates were a noteworthy example of that trend, too. Unquote recorded 20 such completed deals last year, marking a 33% increase on the previous year and a return to levels last seen in 2011. But it is the aggregate value of these deals - at more than €33bn – that shows how GPs are not reluctant to tackle arguably more complex and potentially costly processes to tap into the best opportunities.

In fact, eight of the 10 largest European deals recorded by Unquote last year were either take-privates or sourced from corporate vendors. Highlights included a consortium led by EQT and the Abu Dhabi Investment Authority buying skin care company Nestlé Skin Health for an enterprise value of CHF 10.2bn; KKR splurging €2.9bn towards delisting German media giant Axel Springer; and Blackstone and Canada Pension Plan Investment Board buying theme park operator Merlin Entertainments in a £4.77bn take-private alongside Kirkbi Invest.

Healthy appetite
From a very top-level perspective, the fundraising environment in 2019 was equally spectacular. More than €124bn was collected in final closes by European managers across all strategies (excluding infrastructure) during the year, up from €102bn in 2018 and just shy of the record €127bn raised in 2017.

Clearly, the slight cooldown witnessed in 2018 was not the start of a more profound shift in appetite for the asset class - and most market players do not expect this to change significantly in the coming months, given the drivers favouring private equity. Says Antoine Dréan from placement agent Triago: "There are three main factors that continue to boost private equity's success. First and foremost, performance continues to deliver, both in absolute and relative terms, despite the pricing levels seen in the market over the past few years. Resilience is also a factor - GPs have remained disciplined overall, reducing the risk profile for LPs. And finally, liquidity is now another selling point, given the continued boom and creativity of the secondaries market."

On that last point, the secondaries fundraising space remains particularly buoyant, especially when including US players with a remit to deploy in European situations. This culminated in Lexington Partners closing its Lexington Capital Partners IX fund on $14bn in early January - making it the largest secondaries fund globally. But that crown could return to Europe soon, with Ardian launching ASF VIII in July 2018 with a target of $12bn, which should in all likelihood close in 2020. As of January 2019, the fund had collected $9bn, and press reports have floated the possibility of the target being stretched closer to the $18bn mark.

LPs are allocating hefty tickets to the larger funds for the beta opportunity, while targeting these smaller and/or specialist managers to generate alpha" - Antoine Dréan, Triago

Other significant closes have included Hollyport Secondary Opportunities VII, which launched in January 2019 with a target of $750m and closed this month on $1bn. Five Arrows Secondary Opportunities V also held a final close on €1bn, following its announcement in March 2019.

Secondaries investors are expected to amass more dry powder this year: Coller International Partners VIII is currently raising towards a $9bn target, following an interim close on $4.9bn in January; Hamilton Lane is raising for its Secondary Fund V, which has a target of $3bn; and Pantheon's latest vehicle, Global Secondary Fund VI, is expected to hold a final close in 2020 with a $2bn goal.

European funds on the horizon

Fund name	Fund manager	Focus	Fund target	Status
Ardian Secondary Fund VIII	Ardian	Secondaries	c$18bn est	Open
EQT IX	EQT	Buyout	€14.75bn	Open
Coller VIII	Coller Capital	Secondaries	c$9bn	Open
Permira Growth Opportunities I	Permira	Minority	€2bn	Open
DBAG Fund VIII	DBAG	DACH	€1.1bn	Open
Mid Europa V	Mid Europa	CEE	€800m	Open
Sagard IV	Sagard	Buyout	€800m	Pre-launch
Montagu VI	Montagu	Buyout	€3bn	Pre-launch
PAI mid-market	PAI Partners	Mid-cap	€600m	Pre-launch
NorthEdge Capital Fund III	NorthEdge	UK	n/d	Pre-launch

source: Unquote Data

Big-ticket game
Looking at the overall fundraising picture, the actual number of European funds holding a final close did drop in 2019 to a five-year low of 139, highlighting the fact that the market was driven by the super-funds at the top end of the scale. In fact, three funds raised €10bn or more: Advent International IX at over €15bn; Permira VII at €11bn; and Cinven 7 at €10bn. There were a further seven funds weighing in a €2bn+ and 10 more in the €1bn+ club.

The fact that these mega-funds are usually able to close quickly - combined with the success seen for promising first-time-fund managers and a number of highly specialised vehicles - means that life for the squeezed middle is not likely to get any easier as 2020 progresses. "The bifurcation remains very clear," says Dréan. "LPs are allocating hefty tickets to the larger funds for the beta opportunity, while targeting these smaller and/or specialist managers to generate alpha. Managers caught between these two will have a harder time. Overall, the natural selection is only going to get stronger, seeing as performance and the market in general are increasingly transparent for LPs."

The number of funds currently in the market - including heavy hitters such as EQT, on the lookout for more than €14bn, but also a number of generalist mid-market vehicles - means that 2020 will likely offers further hints as to whether this ongoing trend shows any signs of abating. In the meantime, the spectacular fundraising haul of 2019, added to the vast reserves of dry powder accumulated since 2016, should inevitably translate to another strong year on the deal-making side. 

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