European Private Equity Activity Drops Sharply in Q2 2020 Amid COVID-19 Uncertainty

SEATTLE, July 16, 2020 /PRNewswire/ -- PitchBook, the premier data provider for the private and public equity markets, today released its Q2 2020 European Private Equity Breakdown, which found European private equity (PE) deals and fundraising sharply declined through the first half of the year. As the COVID-19 crisis unfolded, lenders concentrated on existing loans, sellers tabled exit plans amid the volatility and most GPs either paused or outright cancelled transactions as portfolio triage took precedent. Deal count and value plunged to the lowest quarterly figures since Q3 2013 and Q4 2016, with the UK & Ireland recording the largest year-over-year decline in deal volume. Exit value in Q2 saw an uptick from Q2 2019, propelled by the largest European IPO in nearly a decade, but is still on track to set a six-year low for annual exit value. On the whole, we expect exit activity to remain tepid through the second half of 2020. Capital raised in Q2 was subdued, with a new annual low expected for fund counts. LPs evaluating the denominator effect, liquidity schedules and allocation targets substantially contributed to the lackluster fundraising amounts, while less experienced GPs paused on launching new funds amid the volatility. That being said, LPs recognize 2020 vintages have the potential to produce top-tier metrics in this no-interest-rate environment, due to lower multiples, less competition and an expanded opportunity set. As a result, brand-name European managers will grow their LP wallet share during the downturn.

"With the virus more contained in Europe compared to other regions and the continent reopening, we believe deal activity will gradually pick up in the coming quarters as managers seek to deploy their record EUR237.2 billion in dry powder aggressively but wisely," said Dominick Mondesir, EMEA Private Capital Analyst at PitchBook. "We anticipate more established managers will find opportunities to invest in discounted assets that are cyclically but not secularly under pressure."

To download the report and underlying data, click here.

Investment Activity

    --  European PE deal activity slowed considerably in Q2 2020 to EUR79.8
        billion across 650 deals, a year-over-year decline of 18.7% and 31.5%,
        respectively.
    --  Median deal size fell to EUR25.0 million in the first half of the year
        after record highs in 2019, driven by a lack of activity in the upper
        end of the market. Only two transactions sized between EUR1 billion and
        EUR2.5 billion closed in Q2, collectively worth EUR3.3 billion.
    --  Bolt-ons as a percentage of buyout volume stand at 61.2% through H1 2020
        and are apace for a record year. The largest bolt-on in Q2 2020 was
        Italy-based Dedalus' EUR975.0 million acquisition of Afga-Gevaert
        healthcare information technology business.
    --  Although PE deal volume declined across every European region, the UK &
        Ireland attributed the largest drop at 62.3%. Both the severity and
        length of the region's COVID-19 outbreak and a no-deal Brexit
        contributed to sponsors' hesitancy to invest.

Exits

    --  Exit value in the first half of the year puts 2020 on pace for its
        lowest annual total in six years. However, the EUR55.2 billion worth of
        liquidity events in Q2 2020 - largely propelled by JDE Peets' outsized
        IPO - represented a 4.9% increase over the same quarter last year.
    --  In Europe's largest IPO listing since 2011, JDE Peets' raised EUR2.3
        billion at a pre-money valuation of EUR14.9 billion. This offering in
        part pushed the year's median IPO size to EUR722.6 million, up from
        EUR186 million in 2019.
    --  The number of exits closed in Q2 declined 44.6% from 2019. Of the 122
        exits, only five were over EUR1.0 billion compared to 10 this time last
        year.
    --  The lower end of the market (exits sized between EUR25 million-EUR100
        million) was disproportionately affected by the pandemic, with exit
        volume falling nearly 90% year-over-year.

Fundraising

    --  European PE fundraising has been extremely subdued through the first
        half of the year, with only EUR19.6 billion raised across 38 vehicles -
        on pace to hit a new annual fund count low.
    --  No funds closed above EUR2.5 billion in H1 2020, which significantly
        contributed to the lackluster fundraising total, as LPs reviewed
        portfolios and evaluated the denominator effect, liquidity schedules,
        and allocation targets. COVID-19 has disproportionately affected the
        fundraising trail for first-time GPs, spinout GPs, and those without a
        solid track record.
    --  With a number of European brand-name mega-funds in the market, we
        anticipate capital raised will increase considerably in the coming
        quarters. While not included in our Q2 datasets, CVC Capital Partners
        recently closed on EUR21.3 billion in Europe's largest-ever buyout fund.
    --  At the halfway point in 2020, buyout funds have dominated the
        fundraising market, accounting for an 81.2% share with EUR15.9 billion
        in capital raised. Growth equity funds have also been gaining
        considerable traction, contributing around 20% of the year's total
        commitments.

Additional coverage in this report includes:

    --  Introduction
    --  Overview
    --  Deals by size and sector
    --  Spotlight: France & Benelux
    --  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 45,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.

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