Private equity valuations in Europe showed only a modest increase in the first quarter of 2025, with the European Lincoln Private Market Index (Lincoln PMI) ticking up just +0.5 percent – its weakest performance since early 2022.
The gain came solely from strong earnings growth, which added +3.1%, but this was almost entirely offset by a sharp -2.6 percent contraction in EBITDA multiples, reflecting investor caution in a turbulent macroeconomic environment.
What’s driving the numbers?
Earnings growth was positive, driven by revenue expansion. However, profit margins slipped slightly (EBITDA margin fell from 23.4 percent to 22.8 percent), signaling potential cost pressures and vulnerability to global tariffs.
Valuation multiples dropped three times more than the historical average, mirroring declines in public markets like the STOXX 600 EV Index, which saw median multiples fall 2.1 percent.
The contraction shows that private markets are not immune to global uncertainty, though they remain less volatile than their public counterparts.
Regional & sector highlights
UK private companies outperformed, rising +1.5 percent, likely due to greater exposure to resilient business services sectors. In contrast, Eurozone companies slipped -0.2 percent.
Industrials led the way with a +2.6 percent gain, while Technology was the only sector to decline, falling -4.6 percent, as investor appetite cooled.
April flash: early Q2 trends
Preliminary data from April shows continued pressure: enterprise values dropped -1.9 percent as a result of further multiple contraction, despite +1.0 percent EBITDA growth. This was attributed to growing concerns over the global ‘Liberation Day’ tariffs that began on April 2, affecting trade-sensitive sectors.
Credit landscape: strength with strain
Lincoln’s European Senior Debt Index climbed +2.7 percent, outperforming broader benchmarks thanks to solid company fundamentals.
However, stress signs are emerging: growth for smaller companies’ EBITDA nearly stalled (+0.2%), and covenant issues hit a record high of 3.8 percent, indicating growing fragility among lower-tier borrowers.
The bottom line
Private market valuations stayed afloat in Q1 2025, but only due to underlying earnings growth. As macro shocks like trade tensions and margin compression take hold, the stability of private markets may continue to be tested in the months ahead.
