PE’s record of value creation comes through loud and clear despite the background noise that has surrounded it. As exit markets normalize over the coming years with the return of trade buyers to Europe, and as PE works through the exit overhang, our research points to continued outperformance as a result of the industry’s focus on selective investment, sustainable growth and business improvement.
Our analysis of the current portfolio finds evidence of considerable value that has yet to be realized, with some of PE’s best portfolio companies still to come to market. Distributions from these investments will help to underpin continued growth in the fund-raising market. In 2013, US$114b was committed to European funds, and the signs so far this year suggest the totals will be higher in 2014 — LPs are demonstrating a vote of confidence in European PE.
Strong fund-raisings, coupled with an increasingly mature debt market in Europe, are increasing deal totals as PE continues to source high-quality deals across the continent. Last year saw US$87b of PE deals in Europe completed, the highest value since 2008. This trend has followed through into 2014 as M&A activity has picked up and secondary buyouts have continued apace.
With exit, fund-raising and investment totals all on an upward path, PE has now turned the corner after a difficult few years.
Meanwhile, over recent years PE has taken great strides to improve its reporting to LPs and to engage more effectively with wider stakeholders. This is a significant, long-term development and will help to improve the industry’s image and standing. In addition, the industry is now taking on increasing regulation in the form of AIFMD in Europe and Dodd-Frank in the US. These developments will ultimately lead to advancements in disclosure and communications and further establish PE as an integral part of the capital markets landscape.
The last decade has been one of enormous upheaval for European PE, particularly given its relative immaturity before the crisis. Nevertheless, the PE model in Europe has proved it can withstand external, macro shocks by delivering outperformance versus public market companies through an unstinting focus on creating value in the businesses it backs.
Courtesy of EY