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Record private equity dealmaking for Europe as deal volume surges post-pandemic: PitchBook

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European private equity dealmaking has hit a new annual record with three whole months of the year to go, with a surge in deal volume behind the outstanding figures, new research shows.

Almost 5,500 deals worth about €548bn were closed in the first nine months of the year according to the latest data from PitchBook, dwarfing the previous record of 4,511 deals from 2019 and €493.4bn from 2018.

PitchBook’s new European PE Breakdown said the three largest-ever quarters for private equity deal activity occurred in 2021, with deal volume rather than deal size behind the record deal value.

On an annual basis deal volume tracked up 96.1% when compared to the first three quarters of 2020, while both median and average deal sizes saw substantially lower YoY increases.

PitchBook said, “The industry has essentially tripled in size from a deal value perspective over the past decade, powering through what turned out to be a brief pandemic shock in Q2 2020.

“The first three quarters of 2021 saw the best environment for private equity dealmaking ever. Strong leveraged lending markets were driven by institutional investors’ search for yield and unprecedented monetary stimulus.

“The deals opportunity set increased as sellers, such as sports teams and leagues, that previously shied away from private equity became receptive to private equity capital as the pandemic decimated the sports industry’s cash flows.

“Willing sellers also wanted to take advantage of the frothy valuation environment. Furthermore, the industry’s heightened dry powder meant sponsors had the firepower to aggressively acquire companies.

“Finally, the massive government fiscal injections and vaccines kept the European economy and markets relatively stable, which was critical for dealmaking.”

While dealmaking soared across the first three quarters of 2021, European private equity fundraising cooled slightly after an explosive first half of the year, the report added.

Just over 100 private equity funds have closed this year so far worth an aggregated €88.3bn, putting 2021 on pace for its lowest annual fund count total since 2012.

Capital raised could hit €100bn by year-end, however, given the several large funds in the market.

PitchBook said institutional investors’ sustained flight of capital to safety with established, larger GPs explained the low fund count totals despite healthy capital raised numbers. More than 46% of capital raised through Q3 2021 came from only three mega-funds.

The report said, “LPs are backing GPs that provide first-class service, have a strong track record, and have a clear differentiated strategy in secular growth industries such as impact, climate change, IT, and healthcare.

“For instance, in Q3, GHO Capital III amassed €2bn in about six months for the largest
European healthcare-focused private equity fund.

“The fund surpassed its initial €1.3bn target and aims to invest in companies in the medtech, pharma & biotech, and patient services healthcare subsectors.

“In addition, we saw Apax Midmarket X close on €1.6bn, surpassing its €1.2bn target for a fund focused on acquiring high-growth digitally enabled businesses across IT, healthcare, and services.

“Looking ahead, while LPs are somewhat concerned about higher inflation and tightening policy, they remain positive on their private markets allocations, especially buyouts and growth funds.”

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