European PE industry ‘pauses for breath’ after record period, as buyouts dip to lowest level in a decade

Buyout activity across Europe’s private equity industry has dropped markedly in 2023, with the pendulum swinging back from the record activity levels seen in the aftermath of the post-COVID period, according to provisional full-year data (up to 14th December) from CMBOR, the Centre for Private Equity and MBO Research based at Nottingham University Business School and supported by Equistone Partners Europe.

• European private equity deal volume (637 buyouts) and aggregate value (€67 billion) in 2023 represents the lowest cumulative value and volume of completed deals since 2013 - the first time in six years that value hasn’t surpassed the €100 billion threshold.
• Europe’s mid-market remains resilient, while downward trend for large-cap deals visible in the summer has continued.  
• Traditional sectors hold steady, while TMT and Healthcare experience major corrections.
• The UK remains Europe’s largest and busiest market, while Germany performs strongly compared to its continental peers.

The 637 buyouts completed in 2023, with a cumulative value of €67bn, represent a dramatic fall from the two highest annual values of the post-2008 period, with 776 deals worth €135bn completed last year and 850 deals worth €156bn in 2021. This sense of an industry-wide pause is underlined by cumulative deal value not surpassing €100bn for the first time in six years.                                                                                                                   

Mid-market deals (valued at €50m to €500m) kept the industry ticking over, accounting for 25% of volume and 31.7% of value (159 deals completed with an aggregate value of €21.2bn), compared to 23% of volume and only 18% of deal value last year. This trend was particularly evident in the UK's active mid-market, where the 43 buyouts valued at £6.6bn surpassed 2018 and 2019 in terms of both value and volume and was on par with 2022 value-wise. 

Conversely, for the first time since 2017, mega-deals (buyouts valued at €1bn or more) accounted for less than half of total European buyout value, with 17 worth €32.3bn, bearing the brunt of the dealmaking slowdown and restricted access to debt financing in a higher-rate environment. However, large-cap buyout activity has shown signs of picking up as European central banks reach the end of an interest cycle and inflation begins to settle, with several landmark mega-deals across the continent poised to be completed over the coming months. 

"Having shown remarkable resilience in 2021 and 2022, the European buyout industry in 2023 experienced a genuine slowdown due to the combination of macroeconomic headwinds and rising rates across the continent," said Christian Marriott, Head of Investor Relations at Equistone. "It feels like 2023 has been a pause for breath, but green shoots are emerging. The mid-market remains robust, and there also appears to be a number of large-cap deals nearing completion in the next few months. 

Exits dip; bolt-ons offer alternative path for deployment 

European exit activity experienced a less significant drop-off than buyouts, with the cumulative value of €84.1bn (from 321 deals) surpassing that recorded in 2019 and 2020. Notably, the cumulative value of trade sales to strategic buyers increased year-on-year, with €43.4bn worth of deals completed compared to €43.1bn in 2022.The greater fall in secondary sales to other PE firms reflected the bigger decline in buyout activity (€31.5bn completed in 2023; €56.2bn completed in 2022).

During this period, PE firms have continued to explore alternative avenues for deploying capital, pivoting towards supporting portfolio companies with strategic buy-and-build acquisitions. 752 deals totalling a cumulative value of €5bn have been completed, showcasing the industry’s continued focus on value creation amid challenging market conditions. 

TMT and Healthcare experience major corrections

Dealmaking within traditional sectors such as Manufacturing (158 deals worth €14.1bn), Business & Support Services (110 deals worth €12.9bn) and Financial Services (31 deals worth €8.8bn) has held comparatively steady as firms seek value and stability in an otherwise difficult market. However, TMT and Healthcare, two sectors which experienced a remarkable pandemic-era boom, have experienced major corrections, with valuations and volumes both falling drastically. TMT saw 148 deals worth €8.6bn, a 75.6% year-on-year decrease in deal value and the lowest figure in over a decade. Meanwhile, healthcare deal volume (38) and value (€7.8bn) were at their lowest level since 2015 and 2016, respectively.

“As often happens in times of economic uncertainty, the appetite for investing in the higher-growth/high valuation segments of the market has subsided in favour of the classically resilient sectors such as business services," adds Marriott. "PE firms are increasingly focused on diversification, value and resilience.”  

Ups and downs across the continent

The UK market once again leads Europe in terms of both deal volume and value, with 160 deals totalling €16.1bn (£14bn). There were notable drop-offs across the continent, with France (98 deals worth €8.1bn) experiencing a significant slowdown, as well as the Netherlands (57 deals worth €1.8bn). Germany performed comparatively strongly (90 deals worth €12.2bn), with the market buoyed in particular by Advent International’s €3.9bn acquisition of DSM Engineering Materials. 

Similar patterns played out in the exit market: the UK was the largest market, with 89 deals worth €23bn (£20.1bn), while Germany again performed comparatively well, ranking second in terms of value with 50 deals worth €19.5bn France ranked third, with 50 completed deals totalling €11.1bn.

"The contrast between geographies paints a different picture to 2022," said Professor Kevin Amess, Director of CMBOR at Nottingham University Business School. "The UK remains the most active, but there's a notable shift in Germany. After experiencing a decline in 2022, with its proximity to Ukraine and particular sensitivity to energy price rises, the region sees firms now beginning to deploy their capital, especially in large-cap deals, with three of the top 10 completed there."