Third Quarter Registers as the Weakest Quarter for European Private Equity Activity

SEATTLE, Nov. 8, 2018 /PRNewswire/ -- European private equity dealmakers have completed 2,327 deals worth a combined €276.8 billion through 3Q 2018 —14.8% and 15.3% decreases, respectively, compared to the same timeframe in 2017, according to PitchBook's 3Q 2018 European Private Equity Report. The third quarter represents the weakest quarter in 2018 for PE activity in terms of PE deal count and value, with just 731 completed deals totaling €82.6 billion. What's more, European PE exit activity also recorded a noteworthy dip in 2018. PE-backed exits at €2.5 billion or greater are on pace to make up the lowest proportion of total PE exit value since 2009. 3Q was also the slowest quarter for PE fundraising this year with €9.4 billion raised across 19 vehicles. Despite weak quarterly results, 2018 dealmaking is on pace for the third-best year on record and fundraising has already hit the third-highest annual level in the past decade thanks to fervent activity earlier in the year. Exit activity is also expected to pick up as GPs seek to profit from their investments.

"European PE investors experienced a banner year in 2017, reaching decade-highs in dealmaking and fundraising; therefore, while we've recorded significant declines in 2018 activity, the European PE market is still shaking out to be a strong year on a historical basis," said Wylie Fernyhough, analyst at PitchBook. "The slowdowns across deal flow, exits and fundraising can be explained by several reasons including, record activity in 2017, lingering concerns over Brexit as well as the highly-priced and highly competitive market."

Investment Activity

• Coming off a record-setting year in 2017 in terms of PE deal value, 2018 has experienced a shortage of PE deals closing above €2.5 billion – a key contributor to diminished deal value. Only eight such deals have closed YTD, compared to 14 completed deals in the same period in 2017.
• Despite the overall slowdown in dealmaking at the top end of the market, European PE investors continued to gravitate towards larger deals as evidenced by the 22% increase in median PE deal value (€24.4 million).
• Additionally, EV/EBITDA multiples have risen to an all-time high at 10.0x, driven in part by the ease with which general partners (GPs) can finance deals with leveraged loans, an attractive alternative to high-yield bonds.
• PE investors have consistently increased its share of carveout deals throughout 2018, accounting for more than 20% of all carveouts YTD – up from 14% in 2009. Private equity's growing involvement in the broader M&A market is expected to continue as PE's assets under management rises faster than growth in European asset value.

Exits

• Through the first three quarters of 2018, PE firms have recorded 718 exits for a combined €150.5 billion across all exit types, down 24.3% and 30.4%, respectively, from the same period in 2017. Exit activity fell short most notably at the top end of the market (€2.5 billion+), which saw the lowest proportion of PE exits since 2009.
• Secondary buyouts (SBOs) continued to proliferate as an exit strategy throughout 2018. YTD, SBOs accounted for 55.0% of total exit value and 52.2% of total exit count on an absolute basis —both annual records if those figures hold through 4Q. The €1.5 billion sale of North Sea Midstream Partners as well as the €1.3 billion sale of Exclusive Networks by a consortium to Permira, were the largest SBOs completed in the third quarter.  
• Europe's exit market saw the fewest PE-backed IPOs (five) since 3Q 2012, down from 19 PE-backed IPOs in 2Q 2018, another significant factor in the overall decline in exit value.

Fundraising

• Private equity fundraising remains healthy on a historical basis, with €55.8 billion raised across 54 funds in the first three quarters. Though, 2018 activity is skewed by 1Q 2018 PE fundraising results – More than half of 2018's total capital raised was accounted for in the first quarter where 15 funds raised €31.5 billion, which included three mega-funds—the only mega-funds to close in 2018.
• The UK and Ireland continued to be stable hubs for PE fundraising, making up nearly half (44%) of the proportion of total PE fundraising, followed by the Nordic region (33%), which is more than twice the record-setting proportion of PE fundraising the region recorded in 2008 (16%).
• Following the trend witnessed in the broader PE market, investors continued to raise fewer, larger funds to keep pace with ballooning deal sizes. To date, 77.9% of all capital raised was in funds above €1 billion, outpacing the record of 73.5% in 2013.

Additional coverage in this report includes:

• Overview
• Deals by sector & size
• Deals by region
• Spotlight: Carveouts
• Exits
• Fundraising

Download the full report here.

About PitchBook
PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company's data and analysis are available through the PitchBook Platform, industry news and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, San Francisco, New York and London and serves more than 18,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.

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