Private equity activity reaches new peak but firms brace for difficult year
European private equity activity hit a new peak in the first quarter, but firms are bracing for a significant slowdown as the impact of coronavirus hits.
The first quarter saw 1,025 deals close for a total €132.9bn, a new quarterly peak, according to PitchBook data.
It is in part because transactions that closed in the quarter were likely negotiated well before coronavirus hit Europe. Additionally, the average PE deal size ballooned to €282.6m.
Favourable debt dynamics have been encouraging larger leveraged buyouts, including Blackstone’s €5.5bn buyout of IQ Student Accommodation.
However, there will likely be a slowdown in deal activity in the coming quarters as many GPs turn their attention to protecting their portfolio companies. It could drag activity down to levels not seen since the global financial crisis.
Indeed the usually resilient student housing sector will feel the effect of the closure of higher education institutions during lockdown.
European bolt-on activity grew in the first quarter, accounting for 63.4 per cent of deal volume according to PitchBook. It will become more pronounced through the remainder of 2020 as GPs pivot away from huge buyouts due to coronavirus.
Take-private deals reach decade-high
Coronavirus is likely to increase the number of take-private deals. €9.8bn worth of take-private deals in Europe closed in the first quarter, the highest figure in a decade.
Five of Europe’s six take-private deals occurred in the UK and Ireland, including the take-private of Ei Group by Stonegate Pub.
An analyst note by PitchBook said the severe market dislocation will mean GPs will hunt for targets on the public stock markets. However it may prove difficult to win shareholder approval as companies wait to see if government stimulus will see them through the crisis.
Private equity fundraising drops off
Fundraising dropped off in the first quarter, with €10.9bn raised across 20 vehicles. 2020 is on pace for one of its lowest readings of recent years, as the coronavirus makes it difficult for LPs to perform onsite due diligence.
While no mega-funds closed in the quarter, UK-based Intermediate Capital Group’s Strategic Equity Fund III (€2.7bn) and ICG Europe Mid-Marke Fund (€1bn) were the two largest vehicles to close.
It will become much harder for first-time or newer GPs with little chance of fundraises amid the lockdown. Travel restrictions and social distancing will make it increasingly difficult for managers to entice new commitments.