PE deal-making surge of 2021 could break one more record

European private equity deal-making has got off to a record-breaking start in 2021. Deal volume and value are at their highest ever, and average deal sizes are at their most elevated in history, according to Mergermarket data.

But there remains one pre-financial crisis high watermark that has yet to be exceeded: the largest European private equity buyout in Europe remains the KKR-backed £12.1bn (then €17.8bn) take-private of Alliance Boots in 2007.

Recent trends in the mega-deal segment of the market – those above €10bn in value – indicate it is a record that is close to being broken.

One deal has already come close to surpassing Europe's largest private equity transaction recently: Advent and Cinven acquired Thyssenkrupp Elevator last year for €17.2bn.

Close call
There is one PE transaction underway that has the potential to exceed the KKR/Alliance Boots deal: PE funds earlier this year approached Dutch telecoms company KPN about a deal that would have valued the target at an equity value of €12bn and an enterprise value of €17.3bn. KPN's board rejected the offer on valuation grounds and media reports have indicated that interest has since cooled. But were KPN's PE suitors to return with improved offers, the transaction has the potential to be Europe's biggest ever.

Whether or not the KPN buyout materialises, trends in the market indicate that the KKR/Boots deal will eventually be surpassed.

Average PE deal sizes have been trending upwards since hitting a low following the 2008 financial crisis, and in 2021 they are at their highest ever. Sponsor-led buyouts in Europe have jumped to an average deal size of €511m per transaction so far this year, representing the highest annual average on record, and well ahead of the €330m seen in 2020.

PE activity in the €2-10bn bracket, as opposed to mega-deals, has been the primary driver of that deal-size inflation so far in 2021: 18 PE deals had been announced in this category up to mid-May worth a combined €61.8bn, just one deal behind the figures seen during the entirety of 2020 (19 deals, €71.8bn).

So far this year, sponsors have spent a total of €149.8bn across 849 deals, representing the highest year-to-date value and volume on Mergermarket record. This year's value is now only €30bn away from last year's full-year value and is on track to outpace the pre-crisis record of €250bn set in 2006.

Taking stock
Plenty of this activity has focused on large-cap, stock-market-listed targets. Recent examples include KKR's proposed €2.3bn takeover of UK-based infrastructure investor John Laing, and Clayton Dubilier & Rice's €3.2bn offer for healthcare services firm UDG Healthcare.

Mega-deals have also been a factor driving deal values upwards in 2021. The €18bn CDP/Blackstone tie-up with Atlantia-owned road toll operator Autostrade is the year's largest transaction to date and is comparable in size to last year's Advent/Cinven acquisition of Thyssenkrupp Elevator. This transaction is not included as a private equity buyout in the analysis above since Blackstone and the other private equity funds investing in the transaction are doing so alongside state-controlled Cassa depostiti e Prestiti, which will be Autostrade's biggest shareholder.

Another transaction close to an announcement that will likely boost average PE deal sizes this year is for New Suez, the infrastructure unit being carved out of Suez as part of its merger with utilities peer Veolia. The unit is being bought by PE and infrastructure funds at a price tag that could exceed €10bn.

Three mega-deals, excluding the New Suez deal, have been officially announced this year. In addition to the Autostrade transaction, two corporate-to-corporate mega-deals have been agreed: electric utility National Grid is buying Western Power from PPL Corporation for £14.2bn (€16.6bn), and Vonovia made a €28.9bn cash and stock offer for Berlin-headquartered real estate peer Deutsche Wohnen.

With 2021 deal-making off to a record-breaking start, perhaps it will also be the year that sees the PE industry surpass its KKR/Alliance Boots €17.8bn high-water mark.

Note: The £15.6bn takeover of Heathrow by a Ferrovial-led consortium in 2006 has been excluded from the definition of PE buyout since Ferrovial, a listed corporate, was the largest shareholder in the consortium. In addition, this year's CDP/Blackstone acquisition of Autostrada per l'Italia has also been excluded since the main bidder is majority owned by Italy's government.

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