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European buyouts beween 2009 and 2013 |
European private equity funds are looking forward to a standout year, but freely available debt and large amounts of dry powder are leading to intensified competition for new deals. The wide range of choices available also means that the debt raising process is becoming increasingly complex.
A recent White & Case report found that initial public offering (IPO) exits are up 350% in the first quarter of 2014 compared to the same period last year.
“We’ve seen an explosion in IPOs due to pent up demand which has been unleashed, but this will stabilise,” said Ian Bagshaw, co-head of White & Case’s European private equity practice in London. “There is a wall of money which is ready to be put to work but in a much more responsible and mature way.”
“While mega deals are not back yet, deal size range is increasing quickly as sponsor confidence and firepower, especially US sponsors, is rising faster than at any time since 2007,” he added.
KEY TAKEAWAYS
European private equity funds may be looking forward to a standout year, but deal-making has become more complex since the global financial crisis;
A key trend is the emergence of alternative sources of acquisition finance;
As lending from the US and Europe converges, deciding whether to use US or continental legal frameworks can complicate the debt-raising process.
Financing trends
As commercial banks withdrew lending lines in the wake of the financial crisis, alternative sources of acquisition finance emerged to fill the space.
“The European market is the most diverse it has been since 2004 in terms of the variety of different sponsors,” said Bagshaw.
US dollar-denominated funds account for the majority of new market entrants. “Increasingly common is US financing for European deals,” said Lee Cullinane, bank finance partner at White & Case in London.
“The global debt markets are converging with US financing structures and terms being adopted and used in English law governed European fundings,”
“The ability to tap into the optimum financing structure and terms will be a key differentiator for sponsors going forward,” he added.
However, as lending from the US and Europe converges, deciding whether to use
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There is a wall of money which is ready to be put to work but in a much more responsible and mature way |
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US or continental legal frameworks can complicate the process. “New York law/US financings are predicated on the application of Chapter 11 to any insolvency,” said Cullinane. But, he continued, this may not be the case in the context of a European-based business requiring amendments to standard New York law documents to ensure they have the intended effect in the event of a restructuring or insolvency other than pursuant to Chapter 11.
PE hubs of the future
The UK has led Europe’s private equity recovery, accounting for more than a quarter of the region’s buyout volume and value.
Southern Europe has emerged as another hotspot, driven by investors taking advantage of opportunities to execute turnaround strategies and buy assets at a discount.
Rob Irving, co- head of White & Case’s private equity practice in Budapest tipped the Nordic and central and eastern European markets as the ones to watch.
“People seem to believe that the combination of the wall of money held by corporates and private equity firms, and banks being open to financing what they think are good deals, will provide a very positive exit environment,” he said. “No one can predict what will happen after the next 12 months, so they are rushing to get assets to market.”
White & Case’s report is available in full here
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