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Europe investment round-up 2019

Round up M&A Europe for 2019

US lawyers White & Case are confident that ample firepower and increasingly attractive public market valuations will ensure that 2019 is another robust year for M&A in Europe.

The only potential fly in the ointment could be for the UK in Q4, should Brexit go ahead in October. Here’s a quick roundup of their Private Equity (PE) indicators for 2019:

In Q1, investors held back as the UK, historically the largest PE market in Western Europe, neared the deadline for its departure from the European Union. Total deal value was down significantly to US$41.75bn (£34.46bn), the worst dip in 2 years.

In Q2, after the extension of the March 29 Brexit deadline to October, Western Europe’s private equity market staged a frenzied comeback. The value climb was a rebound effect following the quietest quarter for two years. The concentration of capital into fewer, larger funds is naturally resulting in a bias towards megadeals. Some of the largest deals of Q2 were public-to-private (P2P) transactions, including the US$5.8 billion acquisition of Poole based amusement park operator Merlin Entertainments by a consortium including Kirkbi (Lego’s founders) and pension fund CPPIB. This was buoyed, no doubt, by attractive foreign exchange conversions of a weaker pound and euro. P2Ps are an emerging global trend that involve private equity funds acquiring listed businesses and taking them off the stock market away from prying eyes, conflicting shareholder interests and quarterly reporting requirements.

In the final quarter of the year, the US feeling is that Brexit has the potential to knock investors’ confidence and derail PE activity, especially in the UK. Stock markets might also succumb to negative sentiment and potentially share prices could take a nosedive.

France, historically Europe’s second-largest PE market behind the UK, could benefit and take the lead. Especially following Macron’s economic liberalisation agenda which has included labor reforms, lower taxes and updated rules to make it easier for smaller businesses to implement profit-sharing and grant stock schemes. All of which makes France a more attractive investment proposition. France has also enacted its Pacte Law, lowering the minimum squeeze-out threshold from 95% to 90% in May 2019. This brings the country’s takeover laws in line with those of the UK and Germany and will make it easier for PE funds to compel minority shareholders to sell in P2P scenarios.

When ample stores of equity and plentiful debt financing result in high dealmaking value, a downside of the industry being so well capitalised is the intense competition for assets. This, however, is good news for investable businesses. More details of the White & Case findings… There is also a European PE Breakdown report from data miners Pitchbook.

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