The European private equity market experienced growth in the second and third quarters of 2024, with significant year-on-year increases in both the value and count of transactions. Nicolas Moura, EMEA private capital analyst at Pitchbook, noted in a report on Tuesday 15 October 2024, that the estimated deal value for European private equity in 2024 is expected to grow by 27.5% year-on-year. Additionally, deal count would see an 11.5% increase compared to the previous year. Although these figures would still fall slightly short of the highs reached in 2021--6.9% below for deal value and 1.4% below for deal count--the market continued to benefit from favourable conditions, particularly as interest rates decreased across Europe.

According to Moura, inflation is stabilising, and the European Central Bank has cut rates twice since June 2024, while the Bank of England made a single cut. Sweden’s Riksbank and Switzerland’s Swiss National Bank each reduced rates three times. These monetary easing measures supported the convergence of bid-ask spreads, allowing buyers and sellers to find a middle ground. This, combined with near-record levels of ‘dry powder’ held by sponsors, led to increased capital deployment, with expectations of intensified activity continuing into 2025 as market conditions improved.

Megadeals

The appetite for large transactions returned in 2024, with megadeals surging across various sectors. The median deal size increased by 40% compared to 2023, and the total deal value for transactions over €2.5bn was already 24.5% higher than the previous year. Pitchbook noted that several significant deals occurred, including Hargreaves Lansdown’s €6.4bn take-private, IGT’s €5.8bn divestiture to Apollo Global Management and Advent International’s €3.2bn sale of Evri to Apollo.

The IT sector experienced its best year in terms of deal value since 2021, while energy, particularly within sustainable energy and infrastructure, also saw substantial activity. This shift in the type of deals indicated a broader investor focus on industries poised for long-term growth, including software and green energy.

Exit activity

While deal-making flourished, PE exits remained subdued. Exit value was forecasted to finish flat compared to 2023 but 34.3% lower than the 2021 peak. The first half of 2024 provided some optimism with high-profile initial public offerings (IPOs) from companies such as CVC Capital Partners, Galderma and Douglas, but the third quarter proved disappointing with just two small public listings. The report highlighted that half of the IPOs from the first half of the year, including Exosens, Douglas and Renk, were trading below their IPO prices.

A major factor affecting exits was the poor performance of IPOs, which created concerns for sponsors looking to exit. Moura stressed that for a recovery in exits, several large IPOs would need to perform well. The Stoxx Europe 600 index saw a 9.3% increase year-to-date as of 30 September 2024, but public market gains had not yet translated into a stronger exit environment for private equity.

Additionally, there was a shift in the type of exits, with sponsor acquisitions overtaking corporate acquisitions for the first time since 2014. Sponsor acquisitions accounted for over half of the exit count and 47.1% of the total exit value. A notable example was Providence Equity Partners’ sale of a 50% stake in Globeducate to WendelGroup. In contrast, corporate acquisitions were on track to end the year about a third lower than 2023.

Regional shifts

Geographically, France and the Benelux region surpassed the UK and Ireland in terms of exit value and count. France and Benelux accounted for 33.9% of exit value and 30.1% of exit count, largely driven by the significant IPOs of CVC Capital Partners and Exosens. Meanwhile, the UK’s notable exit was the listing of Marex Group, which generated a €1.2bn exit for sponsors such as BXR Group and JRJ Group. However, the report highlighted ongoing challenges for the London Stock Exchange in attracting capital. The possible listing of Shein, valued at £50bn, was seen as a critical test for the LSE, which has struggled to compete with other global exchanges.

Fundraising activity

European PE fundraising continued to perform well in 2024, with €110bn raised in new capital during the first nine months of the year, Pitchbook said. However, fundraising activity slowed in the third quarter, following particularly strong fundraising in the first half of the year. Notably, the European Private Investment Club III closed with €2bn, marking a 1.6x step-up on Castik Capital’s previous fund. Other significant closings in Q3 included Inflexion Enterprise IV and Tenzing Private Equity III, both raising €1.1bn each.

Growth and expansion funds, however, lost market share to traditional buyout funds. Pitchbook’s Moura noted that PE growth/expansion funds raised less than 10% of European PE capital year-to-date, the lowest total since 2017. This decline reflected a shift in investment focus from aggressive growth strategies to profitability and balance-sheet management. Growth funds increasingly applied the ‘rule of 40’--a metric balancing growth and profitability--particularly for high-growth tech and software companies.

Middle-market fundraising

Middle-market fundraising, defined as funds raising between €100m and €5bn, remained strong in 2024. This segment showed slight growth in both count and value compared to previous years, noted Moura, despite broader economic headwinds and fundraising bottlenecks caused by tighter monetary conditions and muted exits. However, median step-ups for European funds decreased from 1.6x in 2022 to 1.4x in 2024, indicating slightly lower returns for investors.

The UK, Ireland and Nordic regions outperformed in fundraising activity, while France and Benelux lagged behind their historical averages. France and Benelux raised just €8.6bn across 16 new funds, far below the region’s ten-year average of €25.3bn across 61 funds. However, a few large funds, including Eurazeo Capital V and CVC Growth Partners III, remained open and could boost the region’s figures by year-end, remarked Moura.