Bolt-on acquisitions to dominate European private equity in 2020
The economic downturn has boosted bolt-on acquisitions in the European private equity landscape. Dominick Mondesir Analyst, EMEA Private Capital, PitchBook said that managers will be focussing on increasing platform resilience, agility and stability during the crisis, while playing offense via bolt-ons to heighten geographic, product, customer, and supplier diversification.
“Sponsors will look to be consolidators within sectors by acquiring weaker competitors that likely have no institutional backing to increase portfolio deal value. It is easier to finance bolt-ons than a large-scale maturity buyout. Corporate managers are receptive to some sort of bolt-ons in the minority sector than an overall buyout. Equity funds too view it as a lower risk defensive way to increase portfolio value during a crisis,” Mondesir told Asset News.
The largest bolt-on in Q2 2020 was Italy-based Dedalus’ €975m acquisition of Afga-Gevaert healthcare information technology business.
In terms of private equity fundraising, less experienced GPs paused on launching new funds. “GPs are definitely focused on increasing portfolio resilience. We anticipate more GPs conducting acquisitions through the crisis. They don’t want to wait till the impact is fully understood before making acquisitions at a discounted price,” added Mondesir, who is the author of the European PE Breakdown (Q2 2020) report.
Buyout funds had 80% of the fundraising share through the first half of 2020, while growth equity funds had 20% traction. “Fund-raising for growth funds will pick up as we move to the next quarter. We will see a shift from large private equity funds to growth funds, as the focus is now on companies that are growing faster and can withstand downturn,” explained Mondesir.
The Covid-19 resulted in European PE deal volumes plunging in Q2 2020, hitting its lowest quarterly figure since Q3 2013. Mondesir pointed out that most GPs either paused or cancelled transactions as portfolio triage took precedent while sellers tabled exit plans amid the volatility. However, deal activity is likely to pick up in the coming quarters, as managers seek to deploy their €237.2bn in dry powder “aggressively but wisely”.
European PE exit value this year is set to be the lowest annual total in six years. However, exit value in Q2 surprisingly saw an uptick from Q2 2019. Mondesir predicted that IPOs may pick up steam in the coming quarters, as public equity markets have whole-heartedly embraced central bank and government stimuli.