2023 was almost a record year for PE fundraising in Europe in terms of capital raised.
Pitchbook has released the 'European PE Breakdown 2023'. In it, the data supplier looks back and ahead on the acquisition market.
2023 will go down as a volatile M&A year. Geopolitical conflicts, rising inflation and rising interest rates contributed to a gloomy deal environment. And yet, dealmaking has been surprisingly resilient in 2023, despite higher financing costs and declining opportunities to apply leverage in transactions.
Although deal values fell by 26.5 percent in 2023, deal values were still ten to twenty percent higher than pre-2021 levels, illustrating the resilience of PE as an investment class despite macroeconomic headwinds.
More add-ons, fewer mega deals
The European Central Bank's (ECB) deposit rate has doubled over the course of 2023, raising the cost of debt for PE sponsors, forcing them to take on less debt. This resulted in smaller deals, often in the form of add-ons, which accounted for 54.7 percent of deal volume, the highest figure in recent years.
Mega deal activity was at its lowest level since 2014, but in terms of fundraising things went very well in 2023. In fact, 2023 was almost a record year for private equity fundraising in Europe in terms of capital raised.
The rise in interest rates has also translated into lower valuations. This led to many corrections, more often at listed companies than at private companies. And even more often for 'asset light' companies, such as software. As a result, we saw that relatively many companies whose share price had fallen in 2022 were delisted.
For example, Software AG and Kahoot! both acquired by Silver Lake and General Atlantic, respectively, after their share prices fell 31 and 58 percent respectively in 2022. The largest take-private deal in Europe took place in the second quarter when Swedish PE giant EQT took veterinary medicine specialist Dechra Pharmaceuticals private for 5.1 billion euros. 2023 became a record year for the number of take-privates in Europe, with a total of 51 compared to 41 in 2022. IT was the sector with the most take-privates (fifteen compared to twelve in 2022).
Looking ahead to M&A in 2024
Pitchbook analysts expect deal values to rise in 2024 from 2023 levels as the effects of monetary tightening fade and GPs have built up record levels of dry powder and are ready to deploy it fully.
Private equity as an asset class continues to attract increasing interest from several new stakeholders who are increasingly moving away from traditional equity and bond portfolios and seeking more innovative portfolios with a greater diversity of asset classes. Pitchbook also sees existing institutional investors increasing their PE allocation and preferring the smooth returns that PE offers rather than the relatively higher volatility associated with the public markets. As such, Pitchbook expects at least double-digit year-over-year double-digit growth in PE activity, with more mega private equity deals than in 2023.
