European Private Equity Deal and Fundraising Activity Near Record Highs in 2020 Despite COVID-19

SEATTLE, Jan. 22, 2021 /PRNewswire/ -- PitchBook, the premier data provider for the private and public equity markets, today released its 2020 Annual European PE Breakdown Report, which found European private equity (PE) dealmaking rebounded from COVID-19 pressures to record its third-highest annual value in over a decade. After an initial pullback in Q2 2020, demand for new debt issuance and lofty dry powder levels encouraged sponsors to pursue acquisitions of discounted assets that were cyclically but not secularly under pressure. Managers moved quickly to close on assets that benefitted from the transition to a virtual workforce, leading to record deal volume in the information technology (IT) sector. Fundraising also experienced a strong year, with capital raised hitting its second-highest value despite lower fund counts. Large, brand-name managers with long-standing LP relationships generally benefitted from the remote fundraising environment as allocators reupped with existing GPs. Unlike deal and fundraising numbers, exit activity was lethargic in 2020 as sponsors waited for a more sanguine environment to offload assets and managers opted to invest more into portfolio companies. However, exits are likely to bounce back later in 2021 as governments begin to loosen restrictions and SPACs become a meaningful liquidity path for European PE-backed companies.

To download the full report and underlying data, click here.

"European private equity dealmaking proved to be incredibly robust and resilient, notching its fourth highest deal volume figure in 2020 after slumping over 30% year-over-year in Q2 when Europe was confronted with its worst economic outlook since the Great Depression," said Dominick Mondesir, PitchBook EMEA Private Capital Analyst. "Looking to 2021, we expect the risk-on atmosphere paired with the record EUR294.0 billion in European PE dry powder will propel deal activity to a new high, epitomized by tight credit spreads, pent up demand, willing sellers and low interest rates. When analyzing previous downturns, it took managers around one year post-crisis to deploy capital at scale, and we expect outsized figures in 2021 to reflect that trend."

Investment Activity

    --  European PE invested EUR449.1 billion across 4,179 deals in 2020 --a
        minor year-over-year decrease of less than 3% on both the value and
        volume front. Deal volume reached a new quarterly peak in Q4 2020 with
        over 1,200 transactions.

    --  The use of bolt-on deals, one of many trends underway pre-pandemic,
        accounted for a record 61.4% of all buyouts in 2020. The strategy was
        especially prevalent in the IT sector, where bolt-on deals represented
        56.8% of all closed IT transactions.

    --  IT deal activity hit record proportions on both a value and volume basis
        in 2020, making up 21.7% and 25.9%, respectively, of overall European PE
        deal flow. The IT sector has been the number-one source of interest for
        PE managers over the past five years and will likely remain so for the
        next decade.
    --  The average deal size hit a new annual high of EUR248.9 million after
        collapsing in H1 2020--a 22.3% year-over-year increase from 2019. The
        average deal size was buoyed in Q3 3030 when a consortium of investors
        carved out Germany-based ThyssenKrupp elevator business for EUR17.2
        billion, making the transaction the largest European LBO in over a
        decade.

Exit Activity

    --  European PE exit volume and value fell by 18.3% and 10.9%, with under
        1,000 exits closed for a total of EUR233.6 billion. Exits sized under
        EUR25 million saw approximately 50% slashed off the 2020 volume, the
        largest of any exit size bucket.

    --  For the first time on record, sponsor-to-sponsor deals (SBOs) accounted
        for as many exits as corporate acquisitions, though both saw substantial
        declines. SBOs and corporate acquisitions accounted for 333 exits apiece
        in 2020--year-over-year drops of 34.5% and 38.9%, respectively.

    --  Although IPOs lagged, accounting for less than 5% of exit volume, they
        represented the smallest year-over-year fall of all exit types in Europe
        at less than 10%. The combined EUR24.7 billion listings of
        Netherlands-based JDE Peet and Poland-headquartered Allegro were the two
        largest exits of 2020, underpinning public equity investors' willingness
        to pay astronomical valuations for growth.
    --  Close to 20% of all exit volume came from the IT sector, up from 12% a
        decade ago and reaching a new high. The bulk of PE assets that are
        actively trading have been in sectors benefiting from the pandemic due
        to valuations holding steady and, in some cases, rising. This helps
        explain why the median exit size ticked up 10.1% in 2020 to EUR114.2
        million in 2020.

Fundraising Activity

    --  European PE firms raised EUR92.0 billion across 90 funds, marking both
        the second highest value ever and the lowest fund count in a decade.

    --  Median and average PE fund sizes jumped to record highs in 2020 at
        EUR377 million and EUR1.1 billion, respectively, as established managers
        generally uncovered more success in the remote environment than nascent
        sponsors.

    --  Median time to close for funds sized greater than EUR1.0 billion also
        dipped to 10.8 months from 13.7 the previous year. CVC closed the
        largest European buyout fund in 2020 at EUR21.3 billion in seven months.
    --  Mezzanine capital commitments set a record with EUR11.1 billion raised
        across the strategy, near equalling growth equity commitments for the
        year as the COVID-19 pandemic brought on strong demand for
        non-investment-grade credit platforms. However, the bulk of mezzanine
        annual commitments came from one PE mega-fund (EUR5 billion+) closed by
        HPS Investment Partners.

Additional coverage in this report includes:

    --  Introduction
    --  Overview
    --  Deals by size and sector
    --  Spotlight: 2021 European PE Outlooks
    --  Exits
    --  Fundraising

For more information about PitchBook, click here.

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