Q2 2014 Investments by EMEA Private Equity Firms Fall Year-On-Year, says S&P Capital IQ
PE Investments Rise in Spain and Fall in France
London, 7 October 2014 – Investments by private equity (PE) firms in the European, Middle East and Africa (EMEA) region slowed in Q2 2014 compared with the same period last year, says S&P Capital IQ in a new report. In the latest issue of its quarterly report, EMEA Private Equity Market Snapshot, S&P Capital IQ notes that firms based in EMEA made 1,157 new investments totaling €19.8bn in Q2 2014 - 30.7% less than the €28.6bn deployed in Q2 2013.
EMEA general partners (GPs) also deployed less capital between January and August 2014, making 2,793 investments totaling €58.6bn compared to 3,007 new deals totaling €62.2bn between January and August last year. However, the figures also show that PE investors in Asia are showing growing interest in the EMEA region.
“The increased competition from strategic M&A buyers coming to the market since 2013 could be a factor prompting this slowdown in deal-making,” comments Silvina Aldeco-Martinez, Managing Director, Product and Market Development at S&P Capital IQ.
According to S&P Capital IQ data, the biggest trend emerging from April to August 2014 was around investment levels in France and Spain. Private equity investment in France decreased over the period and was 68% of the level of capital invested in 2013. In contrast, Spanish investment volume and deal count increased by 45% and 22%, respectively.
Private equity investment in France has traditionally focused on the consumer discretionary and industrial sectors with 23.5% and 33.7% of all capital invested since 2000 assigned to these two sectors respectively. However, this year, investment in French consumer discretionary has been out of favour, with total investment volume over the January-August 2014 period falling to €373.5mn, or just over a tenth of the €3.5bn in the same period in 2013. Investment in Industrials in 2014 also fell by 23% to 1.7bn, while investment in industrials for growth strategies was down significantly by 82%.
Overall, investment for growth purposes other than venture capital in 2014 has fallen by 50.2% compared to the same period in 2013, pointing to a significant lack of faith in deploying growth capital to French target companies, even in the traditionally attractive sectors of the French economy for PE investors.
“The major driver behind the slowdown in private equity capital invested into France seems to be grounded in the political and economic uncertainty seen over the course of this year,” continues Aldeco-Martinez. Indeed, the French economy produced no meaningful growth in the second quarter – the second in a row – and there are growing concerns in the market about the government’s economic policies.
A recent spate of deals in Spain has pushed deal count and volume higher, and shifted focus to the acquisition of financial sector assets and real estate. In H1 2014, there were 16 deals in the financial sector with €5.1bn invested, an increase on H1 2013’s figures by a third for deal count and 24% for transaction volume. These transactions are primarily acquisitions in the financials subsector of real estate development or operating companies.
“In Spain we are seeing a meaningful diversion from the historical trend where traditionally the industrials sector has been the most attractive within the region for private equity. Since the year 2000, 17% of all deals and 24% of all invested capital have been in this sector,” continues Aldeco-Martinez. “Spain is also historically attractive for its consumer discretionary sector companies.”
According to S&P Capital IQ, there is potential for further growth of this trend given the continued level of interest in Spanish assets. Announced transactions in Spanish target companies and assets stand at 188 for 2014 over the year to end-August, representing an increase of 22.9% compared to last year. Total outstanding announced deal volume stands at €2.4bn, suggesting that appetite for Spain is unlikely to wane before the year-end.
S&P Capital IQ also highlights that Asian PE investors have been showing increasing interest in the EMEA region - in the first half of 2014 there were already 23 investments from Asian PE firms into EMEA targets totaling €4.8bn. This was the highest level of investment in the first half of a year since the €5.4bn invested in H1 2010, and suggests that this nascent trend could continue throughout 2014, says S&P Capital IQ.
According to industry experts S&P Capital IQ spoke to, one reason for the interest in EMEA assets is a desire to bring established Western brands and/or technology into Asian - and particularly consumer - markets. For example, in 2014, British restaurant chain Pizza Express was purchased by Chinese PE firm Hony Capital, and Baring Private Equity Asia bought a stake in British retailer Cath Kidston. Furthermore, according to S&P Capital IQ data, the lower valuations for EMEA-based companies relative to their Asian counterparts are also a factor.
In each edition of EMEA Private Equity Market Snapshot, S&P Capital IQ provides in-depth analysis of the market and highlights some of the latest emerging trends. Click here to read the current issue and to subscribe to EMEA Private Equity Market Snapshot.
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