European private equity deals plunge to seven-year low
European private equity deal volume plunged to its lowest point in seven years during the second quarter, with the UK suffering the greatest drop.
Deal count and value dropped to their lowest quarterly figures since third quarter 203 and the fourth quarter of 2016, respectively due to uncertainty surrounding the virus.
Pitchbook data shows 650 transactions closed in the period for a total of €79.8bn ((£72.29bn), a drop of 31.5 per cent and 18.7 per cent respectively.
This is in large part because as the coronavirus crisis unfolded, lenders looked to their existing loans, which saw leveraged lending activity fall precipitously. Similarly general partners either paused or outright cancelled transactions as they looked at how best to support their portfolio companies.
Dominick Mondesir, EMEA private capital analyst said: “They focused on defending portfolio companies they deemed could ride out and thrive post crisis by identifying pandemic-related risks and opportunities, while still trying to assess consequences related to the wider macroeconomic environment.”
The UK and Ireland suffered the greatest drop in deal volume – 62.3 per cent – in part because the region has had the worst coronavirus death rate in Europe. This led to lockdown measures lasting through the bulk of the second quarter. The backdrop of Brexit and fears of a second wave are doing little to quell nerves.
The healthy European private equity transaction environment has been flipped on its head, with median deal size for the first half of the year falling to €25m (£22.66m). This was driven by a distinct lack of activity in the upper end of the market, with only two transactions between €1bn and €2.5bn closing in the second quarter.
That said, there will likely be a pick up in activity towards the end of the year it moves from a health crisis into an economic crisis. Mondesir predicts that, given the virus is more contained in Europe and lockdown restrictions starting to loosen, “confidence should gradually revive in European consumers and businesses.”
Firms will look to deploy their €237.2bn in dry powder into discounted assets “that are cyclically but not secularly under pressure.” They are likely to circle Aim-listed firms as the market dislocation between the main market is exacerbated.
Sponsors may also look to provide liquidity to SMEs via rescue or bridge capital and accelerate bolt-on investments, which refer to the acquisition of smaller companies usually in the same business for strategic value.