A resilient European middle market is ready for a gradual recovery.
M&A advisory club DC Advisory releases the European Private Equity Mid-Market Monitor: Q4 2023 & Outlook. The subtitle is telling: 'Coming out of hibernation. Poised for recovery'.
The European private equity (PE) market has shown resilience and adaptability, according to DC Advisory, and is poised for a gradual recovery, driven by strategic investments and resilient sectors, pointing to a potential recovery in PE M&A activity during 2024.
The report discusses a number of PE trends that DC Advisory has identified:
• The fourth quarter of 2023 marked the highest number of bankruptcies in a quarter since the Covid19 pandemic, as the mid-market faced high debt burdens, weak economic growth and rising energy prices. The number of bankruptcies in Britain reached 30,199 at the end of 2023, with sectors such as construction, retail and hospitality contributing significantly.
• The number of continuation funds processes in the market is increasing, allowing general partners to hold on to their top assets for longer with the aim of prolonging value creation and generating liquidity from underperforming portfolios.
• In the fourth quarter of 2023, the volume of private equity exits was the lowest in more than a decade, resulting in an increase in investments within portfolios. Private equity firms are delaying asset sales until more favorable market conditions and better valuations arise.
• Challenging market conditions, a focus on reducing carbon emissions, recycling and digitalization have led to increased private equity interest in the infrastructure sector.
• European private equity transactions in 2023 will be dominated by the Industry and Technology & Software sectors. The Business & Tech-Enabled Services sector also saw an increase in the number of mergers and acquisitions. This also applies specifically to the Benelux.
• The UK remained the most active region for private equity investment, with a 28.1 percent share of total deals in the fourth quarter of 2023 – the highest in a decade.
“The outcome of the Dutch elections introduced some short-term political and regulatory uncertainty, but it had no direct impact on deal flow”, said Paul de Hek, Robert Ruiter, Verner Uiterwijk from DC Advisory's Benelux team. That is good news for the Belgian market, where elections will take place in June with possibly similar outcomes to the Dutch.
