|  30.07.2013

European companies – more difficult to be persuaded to acquire other companies

Private equity (PE) exit numbers dropped in Europe last year to 61 from 2011’s total of 85 according to Myths and challenges – How do private equity investors create value?, EY’s annual study of European PE exits

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The report cites a volatile economic climate and low transactions activity as the primary challenges for PE.


However, despite the criticism sometimes leveled at the industry, in aggregate terms PE-owned businesses grew employment by 2% in 2012. Forty-four percent of the businesses studied made adds-on acquisitions, while only 10% made disposal. Eighty percent delivered gross returns to investors above leverage and market returns from 2005 to 2012.


Sachin Date, Europe, EY‘s Middle East, India and Africa Private Equity Leader says: “With Europe and many other regions showing little or no GDP growth over such a prolonged period, the PE portfolio has inevitably been affected. Profits growth in businesses exited in the boom times was running at over 15% a year; the figure for businesses exited in the last two years has fallen to 5% – demonstrating that driving growth in the portfolio has become very difficult indeed. Ultimately, the knock-on effects of this trend lead to some stress in the industry as investment returns decline, investors become selective, and some firms struggle to raise a new fund.”


Since the onset of the crisis, the PE industry has seen low levels of activity relative to the size of the portfolio. The decline in exits in 2012 was even more significant; there were only 61 exits in our 2012 sample, down from the 85 exits in 2011 and almost on par with 2010 levels. While the proportion of trade buyers increased, only 9 of the 24 exits that went to trade were bought by European companies; 10 were sold to US buyers and 5 to strategic buyers from Asia Pacific and the rest of the world.


At under 40% of exits to European trade buyers, this is the lowest percentage ever recorded in our study, a clear demonstration of the lack of confidence European corporates experienced in pursuing M&A strategies. On the flip side, the proportion of trade exits that went to US and buyers from the rest of the world increased in 2012. This is just one sign that international buyers are an important source of exits for PE, while European buyers continue to hold back,” says Bogdan Ţenu, Senior Manager in The Transaction Advisory Services departement, EY Romania.


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