Insight

Private Equity Trend Report 2015 By Steve Roberts PWC, Upward momentum inspiring confidence

2014 was a good year for the private equity market. 2015 will get even better... Germany – most attractive market. Industrial production and consumer sector on the rise.

2014 was a good year for the private equity market
  • 81% of current respondents saw new investments increase in 2014. This finding is encouraging, as it compares to only 37% in last year’s cohort. 
  • 63% of German respondents report being very satisfied with the development in their portfolio companies, compared to less than half (47%) of international respondents. Germany-based respondents perception of portfolio company performance contrasts with announced figures for 2014: last year, the average EBITDA multiple for exits with German sellers was 7.6 times earnings, compared to 12.7 times earnings for exits with Europe sellers overall.
2015 will get even better...
  • A large majority (91%) of respondents expect the private equity (PE) deal market to improve in 2015. Only 60% of last year’s respondents predicted an improvement in 2014.
  • The majority of respondents (67%) say the number of existing PE firms will increase over the next 12 months. While this figure likely points to positive growth, it is a decline from the 85% of the same respondent pool who saw an increase in the number of PE firms in 2014. 
Germany – most attractive market
  • Western Europe is the most appealing investment geography, with most respondents pointing to it as the top market for international PE investments. These figures are likely somewhat biased in favour of Europe, because of the survey’s European respondent pool. The US both historically and currently is the biggest market for PE investment globally. Still, Western European targets were popular in 2014, accounting for 28% of PE volume globally, and 24% of value. Based on respondents’ enthusiasm for the region, its importance as a PE destination looks set to continue into 2015.
  • The largest share of respondents consider Germany to be among the most popular target markets for buyouts. While the UK and France currently stand as Europe’s most popular destination, this could point to increasing confidence in investment in the country.
Industrial production and consumer sector on the rise
  • The industrial production sector (38%) and the consumer sector (32%) top the list of attractive target sectors in 2015. This chimes with announced figures for 2014, with industrials and consumer seeing the largest share of deals by volume.
Improvements in credit conditions, debt to equity ratios and covenant breaches
  • About half of respondents expect an improvement in credit conditions in 2015, and half expect no change. Very few expect credit conditions to worsen over the coming year. This is marked improvement from the previous edition of the report, in which only around a quarter of respondents expected that conditions would improve in 2014.
  • Only 14% of international respondents and no German respondents reported using debt to equity ratios of 50% or higher in 2014. This is a marked improvement from the previous study, in which 20% of international funds and 13% of German funds used debt to equity ratios of 50% or higher.
  • 88% reported that fewer than 10% of their portfolio companies experienced covenant breaches last year. This marks a positive change from the previous edition, when respondents were more likely to cite the 10% to 20% range or the > 20% range.
Further focus on operational improvements
  • Sales force effectiveness, operational improvements and financial modelling will factor most heavily into investment rationales this year. This is something of a departure from the previous edition of the report, in which operational improvements, buy and build, and market consolidation were tipped to be the main drivers in 2014.
  • The vast majority of 2014’s survey pool cite expansion of capital opportunities, distressed opportunities and add-on acquisitions as the top three deal drivers of 2015. This is broadly in line with market trends in 2014: although distressed activity has been a fixture of the European private equity landscape since the sovereign debt crisis, there seems to have been greater emphasis on growth capital.

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