Private equity firms face exit problem in Europe as larger deals begin By Reuters

Written by Emma Victoria Farr and Andres Gonzalez

LONDON (Reuters) – Private equity funds in Europe, although flush with cash, are thinking twice before buying companies that may be difficult to sell, and are carefully working on their exit plans before making further acquisitions, bankers and investors said.

In one example, Brookfield walked away from making a binding offer to Spanish waste disposal company Urbaser due to concerns about exit options, a source familiar with its strategy said. One reason is that it may eventually be too big to sell, the person said.

A Brookfield spokesman declined to comment. Urbaser’s owner Platinum Equity did not respond to a request for comment.

“In the last cycle, the funds did very well in terms of entry, very well in terms of execution, but the exit was “More difficult.” Mergers and acquisitions.

Paz Galindo said large transactions would still take place in Europe, but would likely be for less money.

Bankers told Reuters they expect 2025 to see private equity funds come under pressure not only to deploy record levels of unspent capital, but also to sell assets they have held for longer than they have traditionally.

In Europe, selling companies back from one financial investor to another has proven difficult, and auctions of private equity-backed companies have seen fewer bidders, bankers and investors said, and sales are also taking longer.

“There is concern that some assets are simply too large, and we are seeing sponsors considering divesting divisions or stakes to reduce size,” Stephen Beck said. Barclays (LON:)’ EMEA M&A head said of how some companies are trying to secure an exit.

Meanwhile, the US private equity market has been more active and is expected to see some larger deals in 2025, as financial sponsors face increasing pressure to return liquidity to their limited partners.

The regulatory environment, which is expected to be more business-friendly under President-elect Donald Trump’s second administration, is also expected to lead to an increase in larger transactions, bankers and lawyers said.

accumulation

the total (EPA:) Deal values ​​involving financial sponsors in Europe, the Middle East and Africa (EMEA) so far this year have reached $297 billion, up 23% from 2023 but still far from the peak of $509 billion in 2021, it shows. Dealogic data.

The value of shares sold in public markets by all investors, including private equity, has reached just $146 billion so far this year across the region, down from $294 billion in 2021, Dealogic data provided by JPMorgan shows.

Selling to another private equity owner is a challenge, because “many of the value drivers that private equity uses have already been realized,” said Tibor Kosa, co-head of investment banking in Germany and Austria at Goldman Sachs.

The pressure to return cash to investors continues.

“It is clear that private equity exits have not been put on hold, they have only been postponed… so we expect more to come, as pressure from investors in private equity funds continues to grow,” said Christopher Droege, head of mergers and acquisitions in Germany and Austria. on returns on capital. At Goldman Sachs.

“There are a large number of backlogged companies that have been owned by funds for a relatively long time,” Droege added.

Bain and Cinven are working on an IPO for German drugmaker Stada, which could be worth about 10 billion euros ($10.50 billion), after talks over a sale to rival financial sponsor GTCR faltered, sources close to the matter said.

Resolving M&A may still be a fallback option, one of the people said.

Bain, Cinven and GTCR declined to comment.

There are still deals underway, such as the Swiss Partners Group’s sale of German metrology company Techem for €6.7 billion to US asset manager TPG and co-investor GIC.

“There are a large number of large portfolio companies that rely on IPOs to exit, since there is currently no M&A market for them given their size,” Paz Galindo said, adding that equity capital markets are still an exit route for these companies.

Although there have been only a few exits from large IPOs this year, there are signs that equity capital markets are gradually recovering and bankers say the window is open, allowing private equity firms to consider selling shares again. .

By the end of the third quarter, just 9% of total private capital exits were IPOs, data from Preqin show, up from 7% in 2023, the lowest level since 2008.