European PE Looking Beyond Europe


July 10, 2017

European private equity firms are setting their sight outside of Europe. The region’s groups invested around €22 billion during the second quarter in non-European assets. This is twice as much investment as the PE firms allocated to local assets.


Shifting focus


S&P Global Market Intelligence reported on the second quarter’s findings that show a strong indication of shifting focus. During the second quarter, local assets received €10 billion while dealmaking outside Europe attracted €22.2 billion worth of investments.


Furthermore, during April and May, the private equity firms had €17.6 billion dedicated for deals outside of Europe. In 2016, during the same months, the figure stood just at €5.8 billion.


Silvina Aldeco-Martinez, an analyst at S&P Global Market Intelligence, was quoted in the Financial Times stating, “Private equity investors have seen very attractive opportunities outside Europe and they went full-on into China and Australia”.


Indeed, the reporting shows how the average PE deal in Europe was worth just €13.4 million when similar deals in Asia-Pacific stood at €1.3 billion. The biggest deal during the second quarter was the acquisition of Endeavour Energy by Qatar Investment Authority for €8 billion.


Political uncertainty


Much of the PE firms’ interest for investing outside of Europe stems from the current Brexit problem. Europe is going through a period of political uncertainty. While Britain’s divorce from the European Union is constantly moving closer to the deadline, what the settlement will look like is not getting much clearer. For PE firms, there are currently no guarantees what the arrangements after Brexit look like.


In addition to the growing political uncertainty, PE firms are also dealing with the issue of dry powder. According to Preqin, private equity firms sit on top of $918 billion worth of deployable capital – finding deals has become much tougher and competition is ripe. Therefore, European PE firms need to have a broader approach to investing.


Private equity firms are looking to diversify assets and ensure they attract high-value with each investment deal. The firms are not just considering a wide range of sectors to invest; they are also ready to invest with a global strategy.


VC funding in the UK remains strong


Interestingly, fintech in the UK continues to attract capital despite the Brexit vote. However, the investments are made by venture capital firms and not private equity. According to London & Partners, the promotional agency for the Mayor of London, VCs invested over £1.1 billion in London’s fintech sector during the past six months.


The start of the year has witnessed over four times more investment in the sector compared to the previous high levels in 2013. Compared to elsewhere in Europe, London is doing well after the Brexit vote. The city attracted over $1.8 billion in VC funding, which is almost twice the amount the second city, Berlin, was able to amass. Berlin’s VC investment stood at £775 million since the Brexit vote last June.


Technology might be the saviour of the British economy after Brexit. However, the issue is continuing to cast a shadow over Europe. In terms of investment, it’s important to get the negotiations moving at a quick pace – private equity is currently hungry for deals, and certainty.

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