By Merlin Piscitelli, Chief Revenue Officer, EMEA
Globally, 2021 has seen record-breaking levels of M&A. So it is unsurprising that private equity (PE) activity – including in the EMEA region – has been similarly spectacular.
The number of PE buyouts in EMEA rose by 56% year-on-year to 2,467 transactions, while their aggregate value more than doubled over the same period to €420.2bn. Four out of the top ten largest transactions of the year were PE buyouts.
The largest of these was the €35.5bn offer for Telecom Italia by US-based PE firm KKR. The deal is pending the customary shareholders’ and regulators’ approvals, as well as approval by the Italian government, which can intervene in deals it deems are not in the national interest. Another significant take-private of 2021 was Clayton, Dubilier & Rice's (CDR) takeover of UK grocery chain Morrison’s for €12bn.
Low interest rates, lots of liquidity, and more
PE activity in EMEA has been driven by some of the same factors as in other regions – interest rates and abundant liquidity, as well as compelling deal drivers like digitalization and the energy transition. Globally, PE houses are estimated to have US$2.3tn in unallocated capital (or dry powder) as of October 2021, according to data from S&P Global. Not only that, dry powder is accumulating in the hands of the largest funds—according to S&P, the top 25 largest PE firms hold over half a trillion dollars in unallocated capital.
But an additional motivation for PE activity in EMEA is the growing gap between public company valuations in the US and in Europe. Although European listed companies have historically traded at a discount to their US peers, this disparity has grown starker since the pandemic began.
After the initial plunge in stock prices in February and March 2020, the S&P 500 staged a remarkable recovery, with the index now trading at 35% above pre-pandemic levels. And while the Euro Stoxx 50 index is also trading above pre-pandemic levels, it is only at a premium of approximately 11%.
Looking at the UK specifically, the valuation gap is even wider – the FTSE 100 was trading at below pre-pandemic levels for much of 2020 and 2021, only overtaking its February 2020 levels at the end of December 2021. This has translated into a rise in take-private activity. Total value nearly doubled from €46.7bn in 2019 to €87bn in 2020, rising again to €110.4bn in 2021, according to data from Dealogic.
Although the PE industry is facing headwinds in the form of rate hikes, financing conditions are set to remain benign by historical standards, and with so much firepower at their disposal, PE firms will continue to hunt for assets aggressively and listed European firms will undoubtedly continue to draw their attention.