Private Equity in Europe: Headlines Bad, Reality Good

August 1, 2019 | Private Equity

As valuations drop, Europe’s private equity investors are chasing bargains

In recent years, investors have grown tired by Europe’s ongoing “tomorrow-story.”

The Eurozone has experienced an economic downturn since mid-2018. Most forecasters have cut their outlooks for the region. And, the European Central Bank expects that growth will hover around 1% for the year.

Disillusioned investors have pushed down equity valuations to attractive levels. By the end of 2018, European stock valuations fell below their 10-year average, according to Bloomberg.

Ongoing concerns about the Brexit, Italy’s banking system, sluggish economic growth, and more pressed forward one-year P-E ratios to their lowest levels since 2013.

That pullback has private equity firms circling for deals. LBO activity has remained strong in Europe. Bloomberg reports that pending and completed buyout deals through the first eight months of 2019 totaled $51.3 billion. That figure is higher than the first eight months of 2017; however, it trails the $55.6 billion allocated during the same period in 2018.

Still, the figures indicate a post-crisis recovery.

Private equity dry powder and the attraction of cheap valuations

Private equity funds are holding record levels of cash.

Estimates now peg global dry powder at $2.5 trillion. This remarkable sum heightens competition for large-sized deals across Europe. Notable, recent deals include Advent’s $4.8 billion offer for British defense giant Cobham Plc, Blackstone’s $6.1 billion push for Legoland operator Merlin, and Bain’s $3.8 billion bid for German lighting giant Osram Licht.

It’s clear that despite ongoing economic woes, dealmaking is thriving.

“The headlines are bad, the reality is good,” David Marcus, the head of Evermore Global Advisors, told Bloomberg. “There’s so much value in European businesses.”

Dealmaking could receive another boost in the months ahead. Markets anticipate another round of monetary stimulus from the European Central Bank. Any momentum from this stimulus will likely spark more interest in buyouts leveraged with even cheaper money.

So far, shareholders have benefited from ongoing LBO activity in the region.


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