2011 to see €59bn by year-end – updated unquote" forecast

Anneken Tappe
05 October 2011

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After a promising start, buyout activity in Europe might slow down even further in the fourth quarter of 2011, and risks falling behind last year’s levels. Anneken Tappe reports

A marked slowdown in buyout activity since the summer means 2011 is likely to end with less than €60bn worth of deals done, according to unquote" data. This is down a quarter from unquote's July estimate of €80bn: following a very strong second quarter, activity has slumped with figures down by a quarter in volume and almost a half in overall value invested between Q2 and Q3.

The reason why the previous outlook - extrapolated from average historical numbers - was so optimistic is that market volatility was averaged out. In the current situation, buyout activity is expected to be much lower, rendering this estimate useless. Using the median value of the decade instead of the mean makes for an even more optimistic outlook for the rest of 2011, and more optimistic means less realistic.

This leads us to make a comparison with 2008, the year with the most exceptional data in the past 10 years. The most remarkable anomaly in terms of dealflow was the absolute crash of activity between quarter three and quarter four. Buyouts slumped by more than 50% in volume and by almost €13bn in value.

Extrapolating from 2008 figures - if a similar scenario was to be replicated - a conservative estimate brings 2011 totals to 405 transactions worth an overall €59.3bn. This means that more than 70 buyouts worth in excess of €5bn have to be completed by year-end, and would put 2011 on par with 2010 volume-wise but short of the €65bn worth of transactions witnessed last year.

But again, 2008 was an exceptional year: the last quarter was exceptionally bad. It is unlikely that 2011 will be just as catastrophic - the difference between then and now seems to be that the private equity market of 2011 is slow rather than disastrous. Even if the 2008 scenario was to be repeated, the strong first half of the year would at least ensure that 2011 doesn't end too far off last year's encouraging activity levels.