Navina Rajan (left), senior analyst, and Nicolas Moura (right), analyst, EMEA private capital, co-authored a Pitchbook private equity report published on 19 July 2023. Photos: Provided by Pitchbook. Montage: Maison Moderne

Navina Rajan (left), senior analyst, and Nicolas Moura (right), analyst, EMEA private capital, co-authored a Pitchbook private equity report published on 19 July 2023. Photos: Provided by Pitchbook. Montage: Maison Moderne

Private equity deal values continued to decline in Q2 2023 compared to the previous year, while European PE exit value showed slight improvement.

Private equity fundraising in 2023 is expected to surpass 2022 levels, despite the challenging environment with longer deal closure times, said a Pitchbook report published on 19 July 2023.

In the second quarter of 2023, overall PE deal value amounted to €144bn,  a 3.4% decrease from Q1 2023 and a substantial 45.5% drop from the peak activity in Q2 2022, according to Pitchbook.

This decline persisted in the first half of 2023, with a significant 62.1% decrease in PE deal value compared to 2022. Similarly, venture capital deal value in H1 2023 fell even further, lagging 75.4% behind the levels seen throughout the entire year of 2022.

The report projected subdued deal value and count for the remainder of 2023, potentially resulting in a total decrease of 24.2% and 23.4% in deal value and count, respectively, compared to 2022 figures, if the current trend continues.

Despite the challenging macro conditions and higher financing costs, the PE industry demonstrates potential resilience in deal activity compared to other private market sectors, as industry players carefully evaluate depressed asset valuations, the research and data firm said on Wednesday.

Regional and sectoral

Regionally, France and Benelux emerged as regions with the most robust deal activity, aligning with their exceptional performance in private market investments.

Despite a challenging start in 2023, the French economy displayed resilience and is projected to have the second-highest growth among the major European economies.

Notably, France accounted for four out of the ten megadeals in Europe year-to-date and witnessed a surge in the €25m to €100m deal range, reflecting the increasing trend of higher add-ons accompanying transactions.

The financial services sector exhibited stronger activity, while healthcare lagged behind.

Larger deals expected later in the year could have an influence on end-of-year totals, favouring specific sectors.

Exit value

Although the overall deal value declined, European PE exit value experienced a slight uptick in Q2 2023 following three consecutive quarters of plateauing.

This increase was driven by mega-exits above €2.5bn, which doubled from Q1 to Q2 2023.

PE sponsors aimed to free up capital, crystallise returns and rebalance portfolios in response to the denominator effect.

Additionally, European exits were fueled by corporate acquisitions, surpassing leveraged buyouts due to the European Central Bank’s tightening monetary policy.

Fundraising

PE fundraising activity in Europe displayed strength, primarily driven by megafunds.

In the first half of 2023, European PE funds raised a total of €49bn.

It is expected that the total for 2023 will surpass the €68.2bnraised in 2022.

Despite this, the number of funds involved decreased to 51, indicating that larger funds are showing more resilience in fundraising markets.

The top five funds that closed in H1 were all buyout vehicles, with Permira VIII being the largest at €16.7bn, followed by KKR European Fund VI at €7.5bn and ArchiMed MED Platform II at €3.5bn.

Getting bigger

Although fundraising levels can vary, the capital raised for megafunds (funds of €5bn or larger) in 2023 suggests that they are likely to exceed the total of €27.1bn raised in 2022, Pitchbook reported.

This indicates that larger funds are on track to outpace the levels seen in 2022.

However, the rate of fundraising for smaller funds (€250m or less) is lower, and it is expected that they will raise less capital compared to their 2022 total.

The full report is available .