Q1 Barometer: Price mismatch knocks dealflow

Unquote and Aberdeen Standard Investments
14 May 2019

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European buyout activity fell to its lowest point since Q1 2016 in the first quarter of 2019, but a large-cap rebound bolstered aggregate value, according to the latest Unquote Private Equity Barometer, published in association with Aberdeen Standard Investments.

After a decade of steadily increasing dealflow, it appears the European buyout market has settled at a new plateau, at least for now. While Q1's buyout dip was a little sharp, it confirmed that market growth has levelled off at around 250 deals per quarter. This compares with around 200 per quarter between 2014 and 2016 and around 150 deals per quarter between 2010-2013. Ignoring the odd dip and spike, aggregate enterprise value also seems to have settled at a quarterly rate of €40-50bn. This levelling off is perhaps surprising given the rude health of the fundraising environment.

Some market participants have said conversations with potential sellers have broken down over a mismatch in expectations over pricing. The last several years have been quite healthy for the European economy and this has helped to lift earnings, with many business owners expecting this to continue. However, the last two quarters of economic growth have been more moderate, and many GPs are factoring this into their pricing. Potential vendors are therefore preferring to hold onto their businesses to reap more upside before exiting. This has been especially prominent in the DACH region and also CEE, where some vendors are not just holding out for more earnings upside, but also for the higher multiples being achieved in western Europe.

This pricing mismatch appears to be a phenomenon confined to the small-cap market. The large-cap market had a resurgence in Q1, continuing some of the momentum it picked up last year. There have now been 56 €1bn+ buyouts since the start of 2018 – a huge number. France has accounted for the largest share of these, with 16. DACH and southern Europe were also significant contributors with nine each.

Click here to download the full report, including detailed commentary and statistics for the growth capital and venture capital markets, as well as regional breakdowns.