Europe's private equity sector braces for growing uncertainty

18 July 2019 5 min. read

Optimism in Europe’s private equity sector seems to have reached its peak, at least for the coming period. After consecutive years of growing optimism among financial investors, for the first time in several years more private equity professionals expect a decrease rather than an increase in the number of transactions backed by financial sponsors.

Global merger & acquisition activity has boomed in recent years, with private equity firms playing a driving role in the growth. Facing growing demand from institutional investors seeking to broaden their portfolios and gain above-market average returns, and leveraging abundant and cheap capital available in the market, private equity deal activity has been on a high in the past years. In for instance the DACH region (Germany, Austria and Switzerland), deals with private equity involvement in 2018 peaked at its highest point since the turn of the century.

The outlook for the coming period is more of a mixed bag, however. While underlying market fundamentals remain strong, uncertainties are increasingly impacting the market. In a survey of 2,500 private equity professionals by Roland Berger, the firm found that overall, the share of respondents expressing a positive outlook is 20 percentage points lower than in the year previous.

M&A transactions with PE involvement - 2019 vs 2018

The majority of respondents expect stagnation or declines this year relative to last year’s activity, with 35% citing decline at between 0-10%, while 13% believe the decline will be in excess of 10%. Not all respondents are pessimistic however, with around a third (31%) saying that they expect more activity this year.


The most important factor leading to the lower sentiment is the overall economic situation, which is expected to deteriorate in 2019. Brexit is troubling trade and deal-making activity connected to the United Kingdom, while geopolitical uncertainty between the US and China is also having its impact on European trade. Other factors pinpointed as (potential) issues include the Turkish economic crisis, political instability in Italy, elections in Eastern Europe (e.g., Poland, Ukraine) and the continued tension with Russia.

The research further found that overall respondents are relatively neutral about the availability of attractive acquisition targets, while the development of valuations is generally unlikely to affect the outlook, despite growing unease with valuations which in some sectors have risen to record hights on the back of scarcity and piles of dry powder. In Roland Berger’s survey, 91% of private equity professionals believe the targets they are chasing are overvalued.

Change in PE M&A activity in major countries - 2019 vs 2018

While there is net agreement on a slowdown around the level of activity in 2019 relative to 2018, projections about where in Europe the slowdown is likely to occur remains mixed. For instance, some areas have favourable outlooks – such as the Iberian Peninsula and Scandinavia, up 1.7% and 1.6% respectively. Central and East Europe excluding Poland is projected to increase by 1.4%, while Poland is said to see a 1.2% increase.

Major economies are projected to see declines in private equity backed M&A activity however, including in France where social unrest among other issues dog projections. Greece continues to face headwinds, as does Italy. However, the UK is said to see the sharpest declines in activity, at -3.9% over the coming year – largely due to Brexit.

From a sector perspective, the pharma & healthcare, telecom & media and business services & logistics industries are expected to be the most active among private equity deal-makers. Respondents also expect the consumer goods and financial services sectors/industries to account for a large number of M&A transactions in 2019.

Changes in the private equity business model - 2019 vs 2018

Business models

In the study, the authors also assessed the likely investment life-cycle stage driving merger & acquisitions this year. Development of portfolio companies tops the list, noted by 32% of respondents, followed by making new investments, at 25% of respondents. Divesting existing investments is believed to be the biggest focus according to 22% of respondents. Fund-raising and prolongation of existing funds garnered 12% and 9% of responses respectively. The results mark a considerable shift on last year, when divestment was the top score at 30%, and portfolio development was 10% lower.

Investors further highlighted that they are contemplating refining their business modes and investment strategies. Chasing a more active portfolio management strategy tops the list, to which 20% strongly agree and 54% slightly agree. Increases in resilience of portfolio to economic changes was noted by 11% as being strongly agreed and by 46% as slightly agreed. Expansion into new geographies was strongly agreed to by 7% of respondents, with 42% slightly agreeing that the strategy would be more frequent in 2019.