Global law firm White & Case LLP predicts a 'war chest' of funds will be put to work across the European private equity market with sharp-eyed firms embracing new hybrid US-European finance options.
The findings are revealed in new White & Case research – Defying the odds: the rise of European private equity – published with Mergermarket.
Much of the private equity revival has been led by mid-market firms, while co-investment strategies in which institutions invest directly in deals alongside buyout firms will also rise this year, the report states. White & Case's EMEA private equity practice also predicts the UK's position as Europe's private equity hub will strengthen further over the next decade, with US funding flowing into Europe via London. A new stream of deal activity will also be seen from new entrants including family offices and investment originating from Central & Eastern Europe.
It follows a flow of major deal completions by the White & Case European private equity practice across several European countries, including the UK, in the first quarter of 2014.
Meanwhile, statistics compiled in the report show €233 billion in investments has been made across private equity in Europe since 2007 – a war chest suggesting a new wave of deal activity to come.
London-based partner Ian Bagshaw, co-head of White & Case's EMEA private equity practice, said: "We've seen an explosion in IPOs due to pent up demand which has been unleashed, but this will stabilise. There is a wall of money which is ready to be put to work but in a much more responsible and mature way.
"While mega deals are not back yet, deal size range is increasing quickly as sponsor confidence and firepower, especially US sponsors, is rising faster than at any time since 2007. We're also seeing increasing use of a new US-European funding hybrid which has sprung up from a converging of global debt markets. While this is more complicated and requires greater skill to handle, it will see sponsors using it reap significant rewards."
London-based partner Richard Youle, co-head of the Firm's EMEA private equity practice, said: "Deal-making in Europe has revived but is also becoming more complex. A large amount of dry powder is available and debt markets have diversified, but firms need to have a firm grip on changes. Competition is set to intensify although the industry is emerging from the financial crisis on a 'lessons learnt' basis."
Other key features of the report include:
UK leading the recovery in Europe with total deal value in 2013 accounting for 26 percent across Europe.
Southern Europe accounted for 30 percent of deal volume in Europe in 2013. Western and global funds now more active in the region with a strong pipeline pointing to a record year.
Co-investment set to rise with the report quoting a survey of 140 private equity investors and 80 fund managers found 52 percent of investors plan to grow co-investment activity in 2014.
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