2017 European private equity exits continue bull run; buyout recovery led by UK activity

European buyout houses have generated more than €100bn in exit proceeds for the fourth year in a row, rising 12% in 2017 to reach €112bn across 436 divestments according to provisional data from the CMBOR at Imperial College Business School, sponsored by Equistone Partners Europe and Investec Specialist Bank. This is in spite of uncertainty around Brexit progress as well as national elections in a number of Europe’s major economies, suggesting unwavering appetite from buyers for European private equity-backed assets. With an average hold period of 70 months for harvested deals, it seems backers are prioritising multiples over IRRs for their investors.

• Total European private equity-backed exit value rose by more than 10% this year to exceed €112bn in 2017 – the fourth year in a row when the overall value of private equity divestments exceeded the €100bn mark
• Deal values rebounded to total over €90bn – on a par with pre-Referendum 2015 level and led by the UK doubling buyout value year-on-year
• Manufacturing sector saw particularly high levels of new deal activity and exits

“Private equity fund managers have continued to realise their investments at a consistently high rate, with an impressive €489bn generated through private equity-backed sales over the last four years,” says Christiian Marriott, Partner and Head of Investor Relations at Equistone Partners Europe. “All exit routes have been open, including foreign buyers increasingly looking to buy European companies. The upshot of this is high-quality buyout houses generating strong returns for their investors who, in turn, are re-investing increasing sums back into the asset class.”

Indeed overall buyout activity has recovered to 2015 levels, with €90.2bn recorded for 2017, up approximately 50% on last year’s figure.

“The uptick in activity is likely down to a ‘back-to-business mentality’ as investors have had 18 months to get comfortable with a new European backdrop,” says Shaun Mullin of Growth & Acquisition Finance at Investec. “The run-up to and particularly the period following the UK’s Brexit vote saw investors pause and deals delayed, but the beginning of this year saw significant fundraising announced and strong deal activity coming through, some of which may have been pent-up from the Referendum aftermath. Our pipeline is currently fuller than it has been for two years.”

Mullin adds: “With leverage readily available and high-quality assets coming to market as vendors gain confidence to put their assets on the block, we are confident this strong buyout activity will continue through next year.”

The recovery was led by a robust UK market, which comprised 30% of activity as value doubled to €27.1bn (£23.8bn) in 2017 across 181 deals. Germany and France also recorded sizeable levels of buyouts, with the former totalling 91 deals worth €17.7bn (14% and 20% of volume and value, respectively) and the latter 92 deals worth €14.1bn (15% and 16%). Benelux recorded a near doubling of buyout value from €5.4bn in 2016 to €9.8bn in 2017 (11% of the total). Marriott comments: “Following the post-Referendum hiatus, activity levels in the UK market have been growing steadily through 2017, with no discernible adverse impact on private equity deal activity yet from either the triggering of Article 50 in March, the snap election in June or the ongoing Brexit negotiations.”

Highlights

Exit markets remain very strong, with 2017 the fourth year in a row where exit value exceeded €100bn. The year saw €112bn divested across 436 assets, with appetite from financial as well as trade buyers as they accounted for 198 and 195 of these sales respectively. Trade buyers had bigger wallets, though, with their deals comprising €51bn of the year’s exit total against €46bn for private equity buyers. Five of the year’s largest exits went to trade buyers, highlighting the allure of private equity-backed businesses to acquisition-hungry firms in Europe and overseas. Notable sales to trade include CVC’s €7.5bn (£6.4bn) sale of Formula One to Liberty Media; Nordic Capital’s €4bn sale of Lindorff to Intrum Justitia; and EQT’s sale of Bureau van Dijk Electronic to Moody’s for €3bn. 

IPOs accounted for 25 of the exits in 2017 worth a combined €15bn, with Cerberus Capital Management’s flotation of Austrian Bawag, worth €4.8bn, the largest.

The surge in exits in 2017 was led by large deals, with average exit size at the second highest on record at €257m, rather than by volume, with 436 fairly flat on last year’s 449. Average exit values have exceeded €200m in each of the last four years – even reaching €308m in 2015.

Private equity backers continue to provide patient capital. Five of the year’s ten-largest exits saw hold periods of five years or more, with the largest exit happening after a 12-year hold. In fact it may be that the best things come to those who wait: the last four years have seen the strongest exit values, and it also happens to be among the longest hold periods, suggesting more value is placed on multiples rather than IRRs. The average hold period for assets exited in 2017 was 70 months, the seventh year in a row where average hold periods have been 70+ months. Prior to that, the average hold period peaked at 65 months.

Manufacturing continued to attract investment, accounting for the highest proportion of deals by volume that it has done since 2008. The industry saw 191 deals worth €22.3bn – a quarter of the overall value of deals completed in 2017. This also makes 2017 one of the highest-value years for the perennially popular sector, alongside 2008 (€22.6bn) and 2015 (€22.8bn). Its popularity may be down to its proven ability to generate returns: the sector clocked up 144 exits worth €26.6bn across Europe, accounting for a third of exit volume and a quarter of the value. Notable deals in 2017 included Advent International’s €2.4bn buyout of OT-Morpho in France in the spring; Lone Star’s €2bn acquisition of Germany’s Xella from PAI and Goldman Sachs; and Apollo’s €1.4bn acquisition of Lumileds in the Netherlands from Philips. Business & support services and TMT also accounted for a high proportion of exit activity in Europe in 2017, accounting for 13% and 14% of volume and 18% and 15% of value respectively.

The UK drove the European activity recovery. 18 months after the Brexit referendum and it seems the post-shock hiatus was temporary. European deal value landed at €90.2bn, up a half from 2016’s €60.8bn. This was largely down to a recovery in the UK, which saw activity double, from €14.7bn (£11.8bn) last year – approximately half the 2015 value – to €27.1bn (£23.8bn) this year. It was the case of larger deals driving this though, with the number of deals down year on year to reach 181 – the lowest number since 2009. It thus follows that average deal sizes are up, and indeed at €150m (£131.5m), they are back to the 2007 peak. The UK recorded six mega-deals (£1bn+) for 2017, up from just two in 2016, and 11 deals with EVs between £500m-£1bn, up from two in 2016. With PaySafe expected to complete before the end of the year, total UK value could rise towards the £27bn level.

The UK also recorded robust exit activity, with €38.5bn recorded, up from €28.5bn in 2016. Trade sales accounted for 47% of the number of the 167 exits and secondary buyouts 39%.

The UK has reinforced its position as Europe’s largest market, with Germany and France a distant second. The UK clocked up €27.1bn of private equity-backed buyouts in 2017, up markedly on 2016’s €14.7bn, but it was a year of two halves for the country, with volume dropping in the second half and value rocketing by 43% to €16.0bn (increasing to more than €19bn if PaySafe completes). This is a sizeable move from €11.2bn in H1 and up nearly three-fold on H2 2016 when just €5.5bn was recorded. Germany recorded €17.7bn across 91 deals, against €6.4bn for 95 deals the previous year. France ended on 92 deals worth €14.1bn, versus 93 deals worth €11.7bn in 2016. Elections in these countries may have meant investors initially pursued a ‘wait-and-see’ approach before gaining comfort in results. Benelux saw value nearly double year-on-year from 71 deals worth €5.4bn in 2016 to €9.8bn across 66 deals in 2017.

Notes to editors:
 
About CMBOR - Methodology
The data compiled by CMBOR summarises trends in buyouts across Europe (Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Czech Republic, Hungary, Poland, Romania and Turkey and the UK). Data cut-off date: the data in this press release is for deals completed by 6 December 2017.

CMBOR defines buyouts as over 50% of shares changing ownership with management or private equity, or both having a controlling stake upon deal completion. Equity funding must primarily be from private equity funds and the bought-out company must have its own financing structure, e.g., MBO/MBI.