Market Spotlight: The New PE Landscape in Europe

By Suzy Bibko, Content Marketing Manager, EMEA

COVID has changed so many things for dealmakers: where they work, how quickly they can adapt, and the tools they use to get deals done. How has this affected PE in Europe? What lies ahead? Is tech now a constant in the industry? Giovanna Maag, Merlin Piscitelli, Immo Rupf, and Frans Tieleman discussed how the PE landscape in Europe is changing during our recent webinar.

Acceleration of the impossible
With the high levels of dry powder at the ready, the acceptance of a new way of working, as well as the increased availability of the vaccine, 2021 could shape up to be quite explosive for private equity.

“Last year was one of such extremes, when you look at the beginning of last year and the end,” recounts Piscitelli. “We saw the second half last year really come screaming back to close the year. People got comfortable with the situation that we're in and became – no pun intended – immune to what was going on and said, ‘hey, we have to get deals done’. At Datasite, we saw a 16% increase in private equity users and administrators on our platform with companies looking to buy or looking to realize returns in a very good market. And then at the beginning of this year, we started seeing record highs, with 800 new projects on our platform in January. In February, as people are seeing a buoyant market, they are seeing that dry powder being put to work. And what I find exciting and unique is that you have everything operating very well, despite the COVID environment. I think it’s going to be extremely busy in the year ahead for private equity.”

“I believe it's going to be a very active year,” agrees Maag. “The Covid situation has shown people that we can do projects in a way we thought were impossible before. I think the shock to the system has been digested and sell-side advisors have developed a way how to make processes work in the digital world. In general, sellers have become less concerned to put businesses on the market. We’ve seen a lot of activity, especially at the end of last year and beginning of this year.”

Adapting on many levels
This level of activity has meant that private equity is changing and adapting quite quickly. Not only in terms of how we work but also how the industry is perceived and how those in it must understand technology from a different perspective.

“There's a lot of dry powder, there's a lot happening,” says Tieleman. “But I think the main thing I see is that in the current environment, private equity is really one of the few asset classes that delivers returns to their investors. We're now a mainstream industry instead of niche firms with just a few people. And because we are now a mainstream industry, we have to answer to the public, we have to take into account all the constraints that that brings in terms of being socially responsible. We are not the private equity of five years ago; we are really a player now.”

Along with this change to the industry itself is a change to the companies that private equity works with, which needs to be taken into consideration in every deal.

Rupf explains: “Digital is now sort of omnipresent. Every company has digital aspects to it, which we have to take into consideration when looking at valuations, and they’re different animals than the traditional companies we used to look at. Moreover, every portfolio company has a digital enhancement aspect. This involves being able to understand the tech stack, and understanding a bit about online marketing, and so on. These are all things that five or ten years ago wouldn't have had that much weight, but that we now need to examine and understand.”

Tech for success
It’s clear the industry is aware of the changes taking place and adapting to get the deals done. But what will it take to be successful? A lot appears to hinge on technology – both the sector and the tools.

“Europe has emerged in the past five years as really a very interesting tech hub,” explains Maag. “We are an active investor in that space.”

“Tech obviously is hugely important right now,” says Rupf. “It's almost a third of all deals done in the last half of last year. It's a sector over the last five to 10 years that has had the highest money multiples amongst all sectors. Tech will be good looking forward, but you do have to get it right and understand the business model and the revenue model very well because it would be an expensive mistake if you buy a tech company that is not growing as you expect.”

And one of the keys to understanding these models is analytics. “Last year, before COVID really took effect, we surveyed over 2,000 M&A practitioners for our New State of M&A report, asking them how they expect technology will change the M&A process going forward, including what technology would have the most transformational impact for them,” says Piscitelli. “The vast majority of practitioners believe new technologies and innovations around analytics will be the most important factor for them going forward, because the amount of and need for data has increased, and they’re looking for machine learning and artificial intelligence to help them get down to the most important pieces of information that they should focus on.”

“We've seen this in terms of custom analytics and how people want to predict buyer behavior, who engages and who doesn't, and who and how they interact with the due diligence materials that you provide to them,” explains Piscitelli. “There's a lot more going into predicting who you should engage with and how you're going to be able to pull it across the finish line if you're selling an asset. And then we've also seen how people acquire businesses and we're starting to see really fast adoption of Datasite Acquire, which is helping to automate that onboarding of data that workstreams that are associated with it. So, the pandemic has accelerated the trend towards digitization and the use of data analytics has increased, so it’s not only about working remotely, but it's a shift towards technology overall.”