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Over the past 12 months, the global private equity market has remained competitive. Regional dealmaking activity has been mixed, ranging from sluggish to stable to stellar. Where activity has been high, strong competition for the most attractive assets has put vendors in the driver’s seat but made it harder for fund managers to deploy their capital. Some fund managers are making efforts to source off-market transactions to chase acquisitions at lower multiples or look for other methods to create value rather than relying on buy and hold strategies.

UNITED STATES

Michael A. Gerstenzang

Cleary Gottlieb Steen & Hamilton LLP

“During the last 12 months, the pace of new investments by private equity funds has been down somewhat, with many funds focusing on exiting their investments, either through direct sales or capital markets transactions. Many view prices as high, particularly in light of macro uncertainty in many geographic regions and sectors. Also, the vibrant stock prices and cash hoards of corporates often put them at a significant advantage to private equity firms in competitive bidding situations. So it can be tough hunting. Sponsor-to-sponsor deals remain common, reflecting the reality that a portfolio company may have significant additional potential, but if it’s owned by a late-life fund, that fund may be motivated to sell it. Selling to another private equity firm is a natural solution.”

CANADA

Benjie M. Thomas

KPMG LLP

“There’s been a high velocity of transactions over the last 12 to 18 months, driven by private equity divestitures as well as corporate carve outs. We saw more corporate carve outs in 2015 compared to 2014 – a trend we attribute to companies divesting non-core assets and focusing on operational excellence. At the same time, the capital available for investments continues to grow, creating an optimal environment for private equity deals.”

BRAZIL

Sergio Brasil

Campos Mello Advogados

“The worsening of the political and economic crisis in Brazil, which culminated in the devaluation of the Brazilian real, along with the capital markets slowdown that reduced IPOs, influenced private equity investors to postpone their exit process. Compared to 2014, which was a year of political uncertainty due to the presidential elections, 2015 has shown that the capital markets slowdown will continue longer than expected. In addition, due to the current lack of financing mechanisms for Brazilian companies, private equity funds have become an important capital-raising alternative for Brazilian companies, which are more open to negotiating their assets.”

UNITED KINGDOM

Nick Rainsford

Ashurst

“In terms of M&A exits, the public markets have remained buoyant for the last 18 months, providing a successful exit for many PE-owned groups. Significantly higher public market valuations seem set to continue to promote IPOs as an exit strategy. Private sales continue to be through selected auction processes in an attempt to build competitive tension. The increase in activity from trade buyers that have ridden the economic storms of recent years has been music to the ears of PE sellers. In contrast, it has led to increased competition in the acquisition space with a trend for trade buyers being able to pay more in view of synergies following acquisition. With the amount of dry powder that funds have and the desire to put money to work in that fund’s investment cycle, many sponsors are deploying capital through bolt-ons to existing portfolio companies.”

GUERNSEY

Robin Fuller

Guernsey Investment Fund Association

“We have seen a high level of dealmaking activity over the last 12 to 18 months and strong competition for the most attractive assets. Virtually all PE deals have competition putting the vendor in a strong position and making it a challenge for some PE managers to deploy capital. Managers are making every effort to source off-market transactions to ensure acquisitions at low multiples or looking for other methods to create value rather than pure buy and hold. GPs have been focused on returning cash to investors when there are favourable valuations and there has been significant activity around exiting historical portfolios. Importantly, these exits have been achieved through a range of avenues, trade sales, secondaries and public listings.”

JERSEY

Oliver Morris

KPMG Channel Islands Limited

“Activity levels in private equity (PE) deal-making continue to increase across the Channel Islands, particularly in the fiduciary sector. Over the last 12 to 18 months, we have seen a number of transactions such as the Electra acquisition of Elian, Bridgepoint’s acquisition of Appleby, the Inflexion exit of Sanne Group, and the more recent exits of Duke Street Capital from Sandpiper and the IK Investment Partners exit from Vistra. In addition, we continue to see a strong appetite from private equity houses looking to invest in potential Channel Islands portfolio companies across a variety of sectors and a variety of deal sizes.”

IRELAND

Declan Murphy

PwC

“We are seeing greater confidence in an improving economic environment alongside better access to finance which is helping to facilitate increasing volumes of private equity deal-making. Commercial real estate was the most active sector last year, followed by healthcare and pharmaceuticals, and IT and telecoms, reflecting Ireland’s strong international position in these sectors. We also see an increased focus in loan origination. Loan origination funds were approved by the Irish regulator in 2014 to bridge the funding gap between supply and demand from Irish credit institutions. We also see increased interest by US hedge funds originating loans through unregulated securitisation vehicles as an alternative to regulated funds.”

GERMANY

Markus Nauheim

Gibson, Dunn & Crutcher LLP

“Activity in private equity deal-making, particularly LBO exit activity, has picked up considerably over the past 12 to 18 months. Private equity funds that have reached the end of their investment cycles or that may have had to hold their portfolio companies longer than originally contemplated due to the financial crisis, are using this window of opportunity of high valuations to divest. With debt being cheap and private equity investors having massive dry powder that needs to be invested, we are seeing more secondaries and tertiaries again. As the German market has remained relatively stable during the eurozone crisis, it offers attractive assets with strong balance sheets and credit stories, particularly in the Mittelstand. The euro having fallen against the US dollar has resulted in attractive opportunities in Germany from a foreign investor’s perspective.”

LUXEMBOURG

Philippe Neefs

KPMG Luxembourg

“Private equity global players continued to use Luxembourg for their deal structuring at the investment portfolio level, but less and less for fundraising through Sicar or alternative vehicles, such as SIF or offshore fund structures. These vehicles typically use Luxembourg SPVs for acquisitions and investments. We are waiting to see how AIFMD will impact this trend. Today, the majority of the growth is on the debt side rather than on the asset side – in fact, the debt market is booming. In many respect, this market is plugging the gap left by the banks in the wake of the September 2008 financial crisis.”

PORTUGAL

Ricardo Andrade Amaro

Morais Leitão, Galvão Teles, Soares Da Silva & Associados

“While no up to date public data is presently available, private equity (PE) activity levels in Portugal appear to be relatively high, with various buy-side and sell-side deals, from the fund manager’s perspective, concluded in the past few months. The main trend in private equity deal-making at this stage is probably the occurrence of several high-profile exits. This is due to the fact that many of the largest Portuguese private equity funds are now reaching maturity and also because in 2015 Portugal has been experiencing increasing levels of private investment and economic growth, both of which have encouraged asset sales by PE funds.”

CROATIA

Zoran Zemlic

KPMG Croatia Ltd

“We have seen increased activity in private equity deal-making in the region over the period of last 12 to 18 months. This is due to several factors, including the high liquidity of CEE funds, or other funds that have the former Yugoslavia region in their focus, and an increased appetite of local banks to finance deals. Also, as markets like Poland or the Czech Republic are by now quite saturated and competition for good deal opportunities has increased valuations, funds are seeking to geographically diversify their investments and are increasingly looking at the former Yugoslavia region. A couple of big deals, such as KKR’s acquisition of SBB and Mid Europa’s acquisition of Danube foods, both in Serbia, have also contributed to putting the region on investors’ map.”

AUSTRALIA

Quentin Olde

FTI Consulting

“The landscape for private equity (PE) deals in Australia has been more stable over the last 12 to 18 months than in recent years, with the sector overall showing reasonable growth. Overall, there was strength in the growth and expansion segment as well as the buyout segment with each accounting for about 40 percent of the market and early stage ventures accounting for less than 5 percent. The market remains dominated by the three large firms, Pacific Equity Partners Pty Ltd, Champ Group Holdings Pty Ltd and Archer Capital Pty Ltd, which account for over 60 percent of activity by value.”

SOUTH AFRICA

Michael Rudnicki

KPMG

“Three primary trends and activity levels have emanated from the private equity (PE) industry in South Africa over the last 12 to 18 months, some of which bear a resemblance to deal making activity in 2006 and 2007. Investment activity in South Africa for the 12 months ending 31 December 2014 amounted to approximately R17.4bn. During the last two years the number of reported investments in South Africa has averaged approximately 300 per annum. Some of the most notable deals included Ethos Private Equity’s acquisitions of Autozone and the RTT Group and the Carlyle Sub-Saharan Africa fund’s acquisition of the Tiger Wheel and Tyre Group. Funds returned to investors during the 12 months ending 31 December 2014 amounted to approximately R14.2bn.”

CONTRIBUTORS

Ashurst

Campos Mello Advogados

Cleary Gottlieb Steen & Hamilton LLP

FTI Consulting

Gibson, Dunn & Crutcher LLP

Guernsey Investment Fund Association

KPMG

KPMG Channel Islands Limited

KPMG Croatia Ltd

KPMG LLP

KPMG Luxembourg

Morais Leitão, Galvão Teles, Soares Da Silva & Associados

PwC