By Amy-Jo Crowley, Andres Gonzalez, Mathieu Rosemain and Anousha Sakoui
LONDON (Reuters) – Buyout fund CD&R’s keenly awaited 16 billion euro ($17.36 billion) deal to take control of Sanofi’s consumer health unit, could herald an upsurge in big private equity transactions in Europe, investors and analysts say.
A record amount of uninvested capital at funds, cheaper financing as interest rates fall, and pressure for asset sales from investors seeking returns, are among the reasons the people cited for an upturn in deal activity and size.
As the trend gained momentum, on Monday a consortium of investors announced the acquisition of Britain’s Nord Anglia Education in a deal that valued it at $14.5 billion.
“We do see big leveraged buyouts happening in Europe and there are already a few in the offing,” David Gross, co-managing partner at investment firm Bain Capital, said.
“Private equity is getting bigger, we all have big pools of capital and can do large transactions.”
Managing Director at Insight Partners Henry Frankievich singled out the technology sector, saying it was poised for “larger private equity-backed deals”.
“The key driver behind this rebound is growth,” he said. “Traditionally, private equity centred on optimising margins by cutting costs, but the current focus is on businesses with durable growth.”
Already private equity-backed deal volumes in Europe, Middle East and Africa (EMEA) have jumped 41% in the year to date, versus the same period last year, according to Dealogic data.
Over the same period, the number of $5 billion-plus deals in the region has more than doubled compared with a year ago.
Globally, buyout deals were on track to finish the year at $521 billion, up 18% from 2023, with the rise driven by a higher average deal size rather than more deals, analysts at consultancy Bain & Co said in a report.
‘DRY POWDER’ IS GETTING OLD
Even with this year’s recovery in deals, global private equity and venture capital funds held a record $2.62 trillion in total of total uncommitted capital as of July 10, according to S&P Global Market Intelligence and Preqin data.
Funds added $49.44 billion to their cash piles – or dry power – in the six months since December 2023, more than 1.7 times the amount added during the previous 12-month period, the analysts said.
“Right now, there are peak levels of dry powder in private equity, and that dry powder is getting older and older. Over 25% of dry powder out there is at least four years old. That’s not very good for anybody,” Douglas Hallstrom, director at Advent International said.
He added, however, the pace of deals was accelerating.
“We’re seeing a re-energising of the transaction environment in general. Both smaller and larger deals will be carried by that,” Hallstrom said.
While traders anticipate more European bank rate cuts that would make financing easier, and funds appear ready to invest, some dealmakers are unconvinced.
“There is a dichotomy, which is that people are sitting there and they are desperate to deploy capital but then they sit there thinking again and say: that’s really risky for my portfolio,” DC Advisory’s European Executive Chairman Richard Madden said.
He added difficulty fundraising, the poor performance of some portfolio companies, and uncertainty over valuations on both the buy and sell-side meant people were still hesitant.
“When confidence is drained, you become risk averse, and that risk aversion continues to outweigh the pressure to deploy,” Madden said.
Francois Jerphagnon, a member of private equity fund Ardian’s executive committee and managing partner of Ardian France, also said caution persisted and it was only the strongest propositions that were succeeding.
“What we’re seeing today is that in a complicated environment, the projects that are making progress are those that have the magic combination of resilience and growth,” he said.
($1 = 0.9217 euros)
(Reporting by Amy-Jo Crowley and Andres Gonzales in London, Mathieu Rosemain in Paris. Writing by Anousha Sakoui; editing by Barbara Lewis)
