The first quarter of 2024 marked a significant downturn in private equity deal activity across Europe, following a resilient year of dealmaking in the previous year, according to data firm Pitchbook. Its report, published on Tuesday 16 April, stated that PE deal value plummeted by 37.2% quarterly and 19.6% year-on-year during Q1 2024.
Only five megadeals were observed in Europe during the quarter, amounting to a combined value of €8.1bn, a stark contrast to the substantial €108.4bn recorded in 2023.
Pitchbook analyst Nicolas Moura, EMEA private capital, noted a notable shift in strategy, with a preference for buy-and-build strategies through smaller add-on deals. These smaller transactions, aimed at capturing market share, represented 45.0% of deal value in Q1, significantly surpassing the 10-year average of 27.6%.
Despite the subdued activity in Q1, Moura anticipates a rebound in dealmaking activity. Factors contributing to this anticipated recovery include the substantial levels of dry powder available, positive performance in public markets and expectations of monetary easing in the near future.
Exit activity and IPOs
The report also highlighted a continuing lack of exit activity in Q1, marking the second consecutive quarter of decline and excluding Q2 2020, represents the poorest quarter for European PE exit value since Q1 2013.
However, despite challenges in the exit landscape, there were some positive indicators, such as IPOs emerging from the Dach region, including listings like Galderma, Parfümerie Douglas and Renk. In the report, Moura suggests that sponsors will closely monitor the performance of these IPOs to gauge investor appetite for listings in 2024.
The report also delved into valuation trends, noting a slight increase in trailing 12-month enterprise value-to-Ebitda to 11.7x, compared to 10.2x in 2023. While this indicates a potential uptick in valuations from their low point, they still remain 12.3% below their peak levels in 2021, noted Pitchbook.
Nonbacked companies
The report’s spotlight section focused on the rise of PE deals in European nonbacked companies, which have increased from 57.5% of deal count in 2014 to 68.2% in Q1 2024. Nonbacked companies are defined as those that have not yet accepted institutional funding, often representing businesses owned by their founders or employees.
Fundraising
The fundraising landscape also saw notable developments, with a record quarter of capital raised in Q1, amounting to approximately half of the total raised in 2023. Megafunds continue to dominate, with the top three funds accounting for 75.9% of capital raised in the quarter.
Despite challenges such as fundraising bottlenecks, Moura remained optimistic about the outlook, particularly with expectations of monetary easing in the second half of 2024 and early 2025. This optimism is driven by the potential for increased liquidity in the exit market, allowing for reinvestment of distributions into fundraising activities.