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ANNUAL REVIEW

Private Equity & Venture Capital 2017

December 2017  |  BANKING & FINANCE

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Though geopolitical challenges could have disrupted activity in the private equity and venture capital space, 2017 has been an impressive year for the asset class. Dealmaking, particularly in key jurisdictions such as the US, Australia and across Europe, has remained strong in an increasingly sellers’ market. With dry powder continuing to accumulate and new players entering the market, competition for assets is increasingly fraught. Financial sponsors, strategic bidders, sovereign wealth funds and other asset managers are all entering the fray, helping to drive up prices. As a result of this increased competition, many sellers are recording high EBITDA multiples, particularly in the consumer and technology sectors.

 

UNITED STATES

Adam Larson

Kirkland & Ellis LLP

“Private equity (PE) dealmaking in the US has been robust in virtually all industries over the last 12-18 months. With the S&P 500 up roughly 20 percent over the past 12 months, there has been a consistent desire among institutional investors for asset class diversification. This has pushed more investors and funds into the PE space and allocations to PE have continued to rise. As a result, there is strong competition for deals in all asset classes. While we have not seen the return of the ‘mega buyouts’ of the pre-2008 period, deal activity has been healthy across the board, and particularly in the middle-market.”

 

CANADA

Martin Kovnats

Aird & Berlis LLP

“We have seen a sizable increase year over year in inbound investments made by foreign groups, particularly American, into Canada. We expect this trend to continue, as the deal pipeline includes more foreign firms looking at Canadian assets than we have seen in a couple of years. While mega deals which run into the billions of dollars happen occasionally, they are not typical of the Canadian market. Instead, Canada sees its share of deals valued in the several hundreds of millions of dollars and has a large number of mid-market transactions, with enterprise values of C$75m to $500m.”

 

UNITED KINGDOM

Neel V. Sachdev

Kirkland & Ellis International LLP

“Despite the geopolitical uncertainty of the last 18 months we have seen strong deal activity in the European market. Record levels of dry powder, coupled with increased competition from financial sponsors, strategic bidders and other asset managers, has meant that bidders continue to chase quality assets in what remains a sellers’ market. We are seeing financial buyers outbidding corporates for the most competitive assets, with sellers achieving some spectacularly high EBITDA multiples on exit, particularly in the TMT and consumer sectors. Increasingly, financial sponsors are attempting to pre-empt the most competitive auction processes to avoid missing out on the best assets or overpaying for them.”

 

SPAIN

Francisco J. Martínez Maroto

Cuatrecasas, Gonçalves Pereira, S.L.P.

“The performance of the Spanish economy in the last 12-18 months has been very positive. Despite some uncertainty as a consequence of political and regional tensions, Spain’s macro parameters remain remarkable. The country’s economic growth is having a considerable influence on activity within the Spanish PE market, with significant deals ongoing, grabbing the attention of a number of national and international investors and turning the market into a sellers’ one, with competitive processes dominating the scene.”

 

PORTUGAL

Ricardo Andrade Amaro

Morais Leitão, Galvão Teles, Soares Da Silva & Associados

“Private equity dealmaking in Portugal has seen a number of changes over the last year. Turnaround or distressed transactions involving private equity players are down for 2016, while management buyouts, a structure which has not been common for quite a few years, have significantly increased. Regarding investee companies, quite a few of the players are turning their attention to Portuguese small and medium-sized enterprises (SMEs) with leading positions in niche sectors. Nevertheless, investment in infrastructure by yield-seeking international funds remains strong. Another trend is the award of European structural funds to private equity fund managers for the capitalisation of SMEs.”

 

NETHERLANDS

Nathalie van Woerkom

AKD

“Over the last 12-18 months we have seen a significant increase in competition in terms of private equity (PE) dealmaking in the Netherlands. On the one hand, we have seen a lot of foreign PE investment funds become active in the country. PE firms and venture capital funds with a focus on technology are more active in the Dutch investment market. The costs associated with the development of technology in the Netherlands appear to be markedly lower than, for example, in the US; as a result, more US venture capital funds are investing in the Netherlands. On the other hand, the valuations of companies in which shareholders are seeking investment are significant higher than before.”

                                                                                                              

GERMANY

Hendrik Röhricht

White & Case LLP

“Market activity has been high with a number of deals and deal values exceeding reference values for 2014/2015. While the number of private equity deals will likely exceed 400 again in 2017, the value of deals is likely to fall short of 2016’s €44.7bn. The ready availability of equity and debt funding combined with the shortage of adequate private equity targets has created a sustained sellers’ market, driving valuations and reducing risks remaining with sellers. Warranty and indemnity insurance has played an active role in the latter, in particular with stapled solutions being prepared by sellers.”

 

SWITZERLAND

Philippe Jacquemoud

Jacquemoud Stanislas

“Switzerland is a small market and, as such, private equity (PE) actors are not as organised here as they are abroad. With few exceptions, in particular in the biotech scene, general partners (GPs) do not manage blind pools of assets; instead, they raise money on a deal-by-deal basis, which complicates the fundraising process. PE firms focusing on the country tend to believe that the Swiss market for dealmaking is not large enough to deploy dry powder by setting up a fund. We are seeing a lot of entrepreneurs who still do not want to sell their businesses to PE. This is due to mistrust in PE players. I am sure that such mistrust comes from the lack of strong local PE funds.”

 

ITALY

Guido Testa

Orrick

“Since the 2014 recession, the number of private equity (PE) deals in Italy has increased year-on-year. In the first quarter of 2017, 75 transactions were completed in the Italian PE market for a total deal value of €5bn and, compared to the volumes seen in 2016, this is further evidence of positivity in the sector. In Q2 2017, compared to Q2 2016, the number of transactions in the consumer, industrial and manufacturing sectors decreased, but the decrease was compensated by a remarkable increase of deals in the automotive sector. The industrial strength of the country is mainly based on small and medium-sized companies; these businesses are the main targets for PE funds operating in Italy.”

 

CZECH REPUBLIC

Helen Rodwell

CMS

“Despite a strong start in the first three quarters of the year, early indications are that in 2017 overall deal value for private equity (PE) transactions in CEE will be down year-on-year, and that deal volume figures will remain relatively stable. Particularly with respect to small to mid-sized deals, PE firms currently have the capital to sweep up a good offer, but they are looking for more than undervalued targets and are becoming more discerning about their investments. More so than ever before, firms have become sector focused and specialised, and are intent on directing investments into their narrow fields.”

 

CHINA & HONG KONG

Yuval Tal

Proskauer Rose LLP

“We have had significant ups and downs that have primarily been caused by the regulatory changes in China and other countries in the region. The overall level of Asian-based minority investments activity was somewhat weaker over the past 12 to 18 months than in prior years. However, there were some periods of strong activity and the last couple of months have seen an increase. At the same time, there has been a significant decline in outbound deals, which have been partially replaced by a number of financing deals generated by Chinese sponsors that need to offload or share transactions.”

 

JAPAN

Shigeki Tatsuno

Anderson Mori & Tomotsune

“There has been a marked increase of deal flow in Japan involving private equity funds over the last year, indicating that the Japanese market is gaining in popularity. In particular, private equity funds, both domestic and abroad, have shown increasing interest, not only in large buyout type transactions, but also in Japanese ventures involving leading edge technologies like the Internet of Things (IoT), artificial intelligence (AI), FinTech, life science companies and innovative manufacturing. This has heated up the competition among private equity funds and other investors in identifying and acquiring ventures with high-growth potential.”

 

AUSTRALIA

Mark Malinas

Allens

“The Australian private equity (PE) market has continued to grow and develop. We have seen strong investment activity from PE, with traditional buyouts accounting for the vast majority of that activity. The key sectors of focus have been consumer, business services, healthcare, food and agriculture and technology. Financial sponsors are also investing in distressed and special situation opportunities and increasingly in venture capital and growth equity. The diversification in investment strategy from PE funds has contributed to the increasing maturity and sophistication of the local market, with traditional PE funds, sovereign wealth funds and alternative capital providers all competing for opportunities.”

 

SAUDI ARABIA

Nabil A. Issa

King & Spalding

“Private equity and venture capital dealmaking in Saudi Arabia is extremely robust. Most of the deals are considered mid-market. Transactions in sectors such as healthcare, education, transport and food & beverage have been particularly active. We are also seeing a number of private equity deals being restructured. There is active competition for deals, particularly for healthcare deals. A number of such deals have been run as auctions with multiple bidders. The Saudi Arabian government has also announced the planned privatisation of a number of sectors in grain silos, airports, hospitals and aspects of the electricity and water sectors.”

 

UNITED ARAB EMIRATES

Rob Cant

Freshfields Bruckhaus Deringer LLP

“Across the Middle East and Africa, private equity has had a relatively busy last 12 to 18 months, but the number of completed acquisitions is down from where it was 24 to 36 months ago. There remains fairly significant dry powder, and therefore pressure and desire to deploy, so there have been a number of opportunities being actively pursued. However, with significant macro changes across the globe, finding a meeting of minds on valuation has often proven challenging. Auction sales remain rare, so most of the private equity transactions we see are bilateral deals – although it would be fairly safe to assume that most assets will have been looked at by one or other competing investor at some point over the prior years.”

 

NIGERIA

Isa Alade

Banwo & Ighodalo

“The private equity (PE) space in Nigeria has been quite active and interesting over the last 12 to 18 months. In particular, there has been a marked increase in PE investment in the consumer goods, agriculture, financial services, solid minerals, telecommunications, media and technology and oil & gas sectors. This is partly due to the new government’s focus on diversifying the economy from oil & gas dependency. The partial liberalisation of the exchange rate by the government has also been a boost of confidence for private investors as it has reduced the need to manage their foreign currency exposures.”


CONTRIBUTORS

Aird & Berlis LLP

AKD

Allens

Anderson Mori & Tomotsune

Banwo & Ighodalo

CMS

Cuatrecasas, Gonçalves Pereira, S.L.P.

Freshfields Bruckhaus Deringer LLP

Jacquemoud Stanislas

King & Spalding

Kirkland & Ellis International LLP

Kirkland & Ellis LLP

Morais Leitão, Galvão Teles, Soares Da Silva & Associados

Orrick

Proskauer Rose LLP

White & Case LLP


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