The mood is upbeat once again in the European private equity sector. After a more pessimistic feel among PE investors in 2012, more deals are anticipated this year, especially in Scandinavia, Germany and even CEE2. Really big transactions are still expected to be the exception however, partly because the economic situation remains uncertain, with Spain, Portugal, Italy, France and Greece even likely to continue to experience a slight decline.
Thus, despite more liquidity in the market, debt financing will remain difficult, leading to no spectacular increases in purchasing prices. All in all, in light of the difficult economic context, two thirds of the 1,200 European executives surveyed are of the opinion that the business model of PE companies needs to be examined and adjusted to fit the new market environment. These are the key findings of the new "European Private Equity Outlook 2013" study by Roland Berger Strategy Consultants, outlining main expectations for the PE market in 2013.
Development of private equity M&A market in 2013 – The number of M&A deals with PE involvement is going up
The mood in the European private equity market is slowly but surely picking up. Since the overall economic prospects are expected to remain unchanged, this can be attributed to improvements in financial markets and a more positive development of the euro crisis. Currently, 52% of those surveyed believe the number of M&A transactions with PE involvement will go up compared to last year, especially in Scandinavia (+2.7%), Germany (+2.4%), Poland (+1.9%) and overall in CEE (1.5%), whereas a slight drop in market activity is only expected in those countries struggling most with the euro crisis – more specifically Greece (-1.0%), France (-0.7%), Spain/Portugal and Italy (-0.6%).
In terms of targeted industries, investors expect most activity will take place in pharmaceuticals and healthcare (54%), consumer goods & retail (51%), energy utilities (41%) and IT & telecommunications (41%). In the upcoming years, these sectors promise either stable growth or an increase in the number of transactions, thus providing private equity companies with the opportunity to acquire profitable targets. At the other end, a low number of PE transactions is expected in the building/construction and automotive sectors, particularly hit by the financial crisis.
Analyzing deal sizes, large transactions exceeding EUR 500 million will most likely remain the exception in 2013. The mid-cap segment is hence forecast to dominate, as 91% of the respondents expect most deals to have enterprise values of less than EUR 250 million and 59% even below EUR 100 m. This is not very surprising however, since many of the deals are expected in the CEE area, where values most often do not exceed these caps.
Regarding main growth drivers of the PE M&A activity, the economic outlook is considered to be the most relevant factor (26%), followed by the availability of attractive acquisition targets (25%) and development of the euro crisis and financial markets. With no significant changes expected in the economic outlook and the euro crisis, a substantial improvement to boost the sector could only come from renewed access to attractive acquisition targets and a slight improvement of the financial markets.