EMEA Private Equity Market has Settled into a New Normal, says S&P Capital IQ in New Publication

Volatility in the sector's aggregate deal counts and transaction volumes has decreased

Mar 17, 2014 / 09:00 AM
London, UK

London - March 17, 2014 - The private equity (PE) market in Europe, the Middle East and Africa (EMEA) has consolidated around key regions and settled into a new, post-financial crisis, normal, highlights S&P Capital IQ in a new quarterly report.

In the inaugural issue of EMEA Private Equity Market Snapshot, S&P Capital IQ provides a broad overview of the EMEA PE market in 2013, and highlights some of the most notable trends. Specifically, the report looks at the performance of the market over the last year and its attractiveness as a target region for investment, the industry sectors that were the most successful for EMEA PE firms, and trends around sector allocations and deal sizes within the region's venture capitalist (VC) industry.

On the surface, 2013 deal counts and transaction volumes for EMEA-based PE firms appear disappointing, showing declines across the board compared to 2012. The aggregate capital invested by EMEA general partners (GPs) in 2013 was 16.8% lower than in 2012, and the number of investments made by EMEA-based firms was also down by 6.8%. Even exit-transaction data exhibited a drop, with aggregate capital captured at exit falling by 13% and the number of total exits dropping 4.1%.

However, S&P Capital IQ does not believe that these statistics infer a slowdown within in the industry. "It is important to note that the volatility around deal numbers and capital flows has been consistently declining since 2009," commented Silvina Aldeco-Martinez, Managing Director, S&P Capital IQ. "It would seem that EMEA PE firms have settled into a new, post-2009 normal - a normal where the industry has consolidated around key regions and stability is not as dependent on the minor fluctuations in the region's economic outlook."

"Looking more closely at capital flows, in 2013, exit-capital continued to outweigh entry capital by EUR 51.2bn," continued Paul Bishop, Senior Research Assistant, S&P Capital IQ. "This is a positive indicator showing that the EMEA private equity market is still able, on aggregate, to create and realise value from its investments."

The report also reveals that the EMEA region remained a key destination for global private equity firms in 2013, with targets attracting EUR 10.7bn of total capital for 4,121 entry transactions. Whilst capital invested remained virtually static - declining by 0.95% year-on-year - the number of entry-transactions declined by 6%, pushing the average deal size upward by 5.3% to EUR 25.9mn - a positive sign for the industry. Despite the slight decline of 0.95% in entry-values, aggregate exit-value has increased by 33.5% on 2012, suggesting that many PE investors are managing to realise capital gains from investments made during, or immediately prior to, the global financial crisis.

In terms of attractive targets for EMEA-based private equity firms in 2014, S&P Capital IQ points to the information technology sector, which continues to attract the most attention from PE firms, with 40.1% of all PE entries and 56% of all VC investments executed in the sector. However, in the VC market a target-rich environment could be contributing to a decreased deal size as, in 2013, aggregate transaction volume decreased for the first time since 2009 by 22.9% year-on-year.

In each edition of EMEA Private Equity Market Snapshot, we will provide in-depth analysis of the market and highlight some of the latest emerging trends.  In the appendix of each issue is a data pack which provides a top-down view of the market compared to its position at the same point in time last year.  Included in the data pack are charts showing transaction numbers and volumes among EMEA-based PE and venture capital targets, transaction volumes and deal counts undertaken by EMEA-based PE firms and VCs, and sector-level multiples for private equity and the region's broader merger and acquisition market.

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