PE and VC-backed firms see rapid European growth, reveals new report

BY Fraser Tennant

European private equity (PE)- and venture capital (VC)-backed companies are growing rapidly and significantly outperforming privately owned firms, according to a new report by Gain.pro.

In its 2023 ‘Finding Growth in Europe: A Private Equity Perspective’, it is revealed that over the past decade, PE- and VC-backed companies achieved growth rates of 10 to 12 percent – double that of privately owned companies at 5 percent.

Among the key takeaways from the report, PE- and VC-backed companies are more active in buy-and-build than their privately-owned counterparts. An active buy-and-build strategy is applied by 28 percent of PE- and VC-backed companies, meaning they acquire at least one company per year. This compares to only 12 percent for privately owned companies.

In terms of organic growth rates, the report notes that the technology, media and telecommunications (TMT) sector is performing best, showing an average organic growth rate of 8 to 10 percent. TMT is followed by the financial services and science & health sectors. The report also showcases that there are plenty of growth opportunities in the lower-growth industrials, materials & energy and consumer sectors.

“With high-interest rates here to stay, growth is only going to get tougher,” said Sid Jain, head of insights at Gain.pro. “But what we see in the data is that PE-held businesses continue to demonstrate resilience. It is clear that even in today’s lacklustre macro-environment, investors can expect significant opportunities within the European PE landscape.”

According to the report, European investors need to be more vigilant to find growth opportunities, seeking out multiple arbitrage opportunities that do not rely on overall market multiples, but more on buy-and-build and operational improvements.

Mr Jain concluded: “The next decade will be challenging for PE investors, but those who work hard and use smart data-driven sourcing strategies will be well-positioned to succeed.”

Report: Finding Growth in Europe: A Private Equity Perspective: 2023 Edition

PAI Partners completes $7.6bn close

BY Richard Summerfield

French private equity (PE) firm PAI Partners has closed its latest flagship fund, PAI Partners VIII, with $7.6bn, surpassing its fundraising target despite challenging fundraising conditions for buyout groups in light of rising interest rates.

According to a statement announcing the close, fund VIII is about 40 percent larger than its predecessor fund, PAI Europe VII, which closed at €5.1bn in 2018. The fund is expected to be invested in companies in Europe and North America.

“This successful final close for PAI Partners VIII, at a size 40 percent larger than its predecessor in a challenging environment, reaffirms the confidence investors have in PAI’s Real Economy strategy and our ability to perform consistently through the cycle,” said Richard Howell, a managing partner at PAI. “We are grateful for the strong support from both existing and the many new investors that joined the Fund, who share our vision for creating value in traditional industries. We are excited about the investments we have made thus far and look forward to identifying further opportunities that align with our strategy.

The latest fund received “strong support” from leading public and private pension funds, sovereign wealth funds, financial institutions and family offices. PAI Partners, which has about €26bn of assets under management, attracted investment into the fund from groups including the Teacher Retirement System of Texas, Austin, the Washington State Investment Board, Olympia and the Illinois State Universities Retirement System. In total, the fund benefitted from a re-up rate of about 90 percent and more than €2bn of capital sourced from new investors. Fund VIII has already deployed approximately 35 percent of its total capital with seven investments to date, including ECG/Vacanceselect, NovaTaste, the Looping Group, ECF Group, Azets Group, Infra Group and Alphia, Inc.

PAI invests behind thematics within traditional industry sectors that are at the heart of economic activity and that are underpinned by solid fundamentals and sustainable growth horizons. The firm also has a track record of investing in the food and beverage sector. In 2016, the firm helped create ice cream company Froneri, after a merger between Nestle’s European ice cream business and PAI Partners-owned R&R. PAI currently also holds a minority stake in beverage contract manufacturer Refresco Group B.V., after buying the business with British Columbia Investment Management Corporation in 2017.

News: PAI Partners closes new $7.6 billion fund, surpassing target

European PE and VC weak but optimistic, reveals new reports

BY Fraser Tennant

Amid high inflation and interest rates, slowing economic growth, constricted financing markets and uncertain geopolitical conditions, private equity (PE) and venture capital (VC) activity across Europe weakened in the first half of 2023, according to a new report by Invest Europe.

In its ‘Investing in Europe: Private Equity Activity H1 2023’ report, the association reveals that PE and VC capital funds invested €32bn in the first half of 2023, 54 percent lower than 2022’s strong figures and in line with levels last seen in 2016.

Moreover, a total of 3524 companies received backing in the first half, a more moderate 26 percent decline from last year, reflecting smaller average investment sizes across buyouts, growth and VC. Fundraising also weakened from last year’s record level to €33bn. A total of 370 funds raised capital from investors, 15 percent below the average of the last five years. However, VC fundraising was relatively robust and in line with levels recorded in early 2020.

However, while this activity data provides insight into the impact of challenging market conditions on PE and VC in the first half of 2023, a second report released this week, ‘The Insight: State Of The European Private Equity Industry’, in association with global management consultancy Arthur D. Little, gives a more optimistic view of industry expectations over the short and medium term.

“Conditions are as challenging as they have been at any point since the financial crisis,” said Eric de Montgolfier, chief executive of Invest Europe. “Nonetheless, the industry is resilient and adaptable.

“Fund managers are clearly supporting companies through volatile markets while making preparations for the future, not only in terms of increased activity, but also in sustainability,” he continued. “This incldes greener funds for long-term investors, as well as new vehicles that can bring the benefit of PE and VC returns to a wider group of individuals.”

Reports: Investing in Europe: Private Equity Activity H1 2023 / The Insight: State Of The European Private Equity Industry 

Private equity searching for value in a changing market

BY Richard Summerfield

Despite a challenging year marked by rising interest rates and slower growth, successful private equity firms (PE) are adapting to the changing environment, according to Dechert LLP and Mergermarket’s sixth annual Global Private Equity Outlook report.

According to the report, which is based on responses from senior executives within PE firms in North America, EMEA and APAC, 26 percent of respondents, the largest share, believe that interest rates will have the single biggest impact on the deal environment over the coming 12 months.

Also, in response to the US regional bank crisis of earlier this year, 35 percent of respondents intend to move more toward private credit providers. This shift has been visible across all parts of the world.

Ninety-two percent of general partners (GPs) say they are currently utilising earn-outs a strategy to manage the valuation gap that emerged last year in response to macro and market conditions.

Fifty-eight percent of respondents believe that the market conditions for exits will be either neutral or somewhat favourable over the coming year, suggesting GPs are confident in a recovery but remain realistic about the challenges ahead. However, this is a significant fall from 84 percent of respondents who shared that view a year ago.

Ninety-four percent of respondents are likely to consider pursuing take-privates at present, a marked difference from last year when less than 50 percent said they were likely to do so. Increased regulatory scrutiny is expected to have a negative impact on dealmaking over the next 12 months, however. Forty-six percent of respondents reported that they expect antitrust authorities to have a negative impact and 25 percent expect a significant negative impact on their dealmaking plans over the next 12 months.

“Despite a decline in fundraising and dealmaking coupled with debt becoming costlier and scarcer, private equity marches forward,” said Markus P. Bolsinger, co-head of Dechert’s global private equity practice. “The shift towards take-private transactions is an example of how they are not just surviving but thriving in the face of market volatility, finding value in public markets where others see uncertainty.

“Given the additional regulatory complexity and public scrutiny of these deals, active engagement of skilled professional advisers from the very start is a necessity, particularly in the US, where stockholder-plaintiffs have recently secured significant damages awards in the Delaware courts against acquirors in take-privates,” he added.

Going forward, the report suggests that GPs should build portfolio resilience, that parties on both sides of transactions need to think creatively to ensure success, that firms capitalise upon public markets and that GPs should use environmental, social and governance (ESG) as a lever to create value through new revenue, reduced costs, improved access to finance and higher employee engagement and productivity.

Report: 2024 Global Private Equity Outlook

PE landscape resilient and adaptable in H1 2023, reveals CVCA

BY Fraser Tennant

The Canadian private equity (PE) landscape continues to navigate market dynamics with resilience and adaptability, according to a new report by the Canadian Venture Capital and Private Equity Association (CVCA).

In its ‘H1 2023 Canadian Private Equity Market Overview’, the CVCA reveals that C$1.6bn was raised across 161 deals in Q2 – a 4 percent increase in deal volume compared to Q1 2023.

Moreover, despite a 19 percent decline in disbursed capital, the PE industry has maintained a strategic focus on smaller investments and sectors aligned with sustainable growth. The average deal size declined by 22 percent to C$10m, reflecting the industry’s preference for smaller investments.

“The Canadian PE sector’s approach to investment and focus on sustainable growth strategies reflect a resilient response to market dynamics,” said Kim Furlong, chief executive of the CVCA. ​“Investors have shown cautious optimism, remaining committed to the mid-market and choosing sectors with longer-term potential, such as information and communications technology (ICT) and cleantech.”

Sector-wise, ICT claimed the top spot with C$936m invested across 64 deals, contributing to 26 percent of total investment value. The cleantech sector continues to shine, surpassing previous years’ performance with C$885m invested across 16 deals, underscoring the growing focus on climate issues and solutions.

As far as buyout and add-on investment activity is concerned, the industry experienced a decline, with C$435m raised from 47 deals in Q2, reflecting a 50 percent reduction in deal value. However, despite the challenges posed by rising interest rates, investors remain committed to smaller deals that align with their strategies.

In terms of the exit landscape, there were 46 exits totalling C$139m in H1 2023. M&A transactions accounted for 80 percent of exits, while exits via a secondary buyout represented the remaining 20 percent.

“Canada’s PE landscape remains strong in the mid-market,” concludes Ms Furlong. “Opportunities to assist on succession planning and the growth of small and medium sized companies continue to dominate.”

Report: H1 2023 Canadian Private Equity Market Overview