The European private equity sector experienced a decline in deal activity with private equity participation in 2022, especially in the DACH region (Germany, Austria, and Switzerland). The main reasons were a combination of high inflation, rising interest rates and an overall tense economic and geopolitical situation.
According to PwC Germany’s Private Equity Trend Report 2023, the total value of European Private Equity deals fell slightly to EUR 214.8 billion ‒ still above pre-pandemic averages. The number of transactions declined by 19% to 2,544. The high level of interest in technology companies prompted by the pandemic is dying down, and investors are increasingly setting their sights on targets from the energy, logistics and infrastructure sectors. Investors are also increasingly looking to the consumer goods sector. The UK and Ireland lost their leading position in the European PE market for the first time, with France becoming the most active takeover market, followed by the UK and Ireland, with Germany – an important territory for Swiss investors as well – in third place.
Germany still a prime target
According to the report, 93% of investors who have already invested in Germany intend to continue doing so, but only 42% want to increase the amount they have invested, compared with 80% in 2021. Despite this, 83% of respondents believe that Germany is a good location for PE activities. When asked which region will become more attractive for PE investments in the next five years, respondents put Germany in third place with 68 per cent of mentions, behind the United Kingdom (81 per cent) and the USA (76 per cent).
“We are optimistic that the traditionally good DACH players in the private equity market will find their way to come to terms with the current challenge.”
Trending investment themes
Private equity firms are increasingly investing in digitalisation, with 99% of respondents wanting to invest further in this trend in the coming year. Another finding of the survey is that data analytics is often used for due diligence and valuation of companies. In addition, there is a growing conviction that a focus on environmental, social, and governance (ESG) issues is also beneficial to a company’s financial performance, with 71% of respondents agreeing with the statement that the ROI of ESG exceeds the costs (up from 36% the previous year).
PE activity in Switzerland
Banking troubles and rising interest rates will make investing in buyouts more challenging after a long period of easy refinancing. Expected returns will decrease accordingly, and fundraising for the new generation of funds and platforms will become even more challenging.
And the journey ahead?
There are obstacles in the way of unfettered PE activity in Europe, including growing financial costs and regulation and the difficulty of raising financing for deals, and 2023 won’t be plain sailing. Even so, financial investors are cautiously optimistic, with 44 percent expecting the European private equity market to improve in 2023.
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