Product

Solutions

Customers

Resources

Company

Solutions

Learn

Customers

Product

Company

Introduction

Authors

Frister Haveman

Co-Founder and Co-CEO

Helen Westermann

Head of PEI Europe

Brian Leenen

Head of Data Engineering

Philipp Wank

Head of PEI DACH

Introduction

Authors

Frister Haveman

Co-Founder and Co-CEO

Helen Westermann

Head of PEI Europe

Brian Leenen

Head of Data Engineering

Philipp Wank

Head of PEI DACH

Introduction

Authors

Frister Haveman

Co-Founder and Co-CEO

Helen Westermann

Head of PEI Europe

Brian Leenen

Head of Data Engineering

Philipp Wank

Head of PEI DACH

The reversal of quantitative easing means easy returns from a market multiple uplift are a thing of the past. This poses a challenge to PE firms who now require more EBITDA growth in order to pass their carry hurdle. That is why we set out to find organic growth and buy-and-build opportunities, leveraging our own unique dataset on Europe’s private asset pool. Results show that even in today’s lackluster macro-environment the European economy offers plenty of growth avenues to construct tomorrow’s winning portfolios.

The reversal of quantitative easing means easy returns from a market multiple uplift are a thing of the past. This poses a challenge to PE firms who now require more EBITDA growth in order to pass their carry hurdle. That is why we set out to find organic growth and buy-and-build opportunities, leveraging our own unique dataset on Europe’s private asset pool. Results show that even in today’s lackluster macro-environment the European economy offers plenty of growth avenues to construct tomorrow’s winning portfolios.

The reversal of quantitative easing means easy returns from a market multiple uplift are a thing of the past. This poses a challenge to PE firms who now require more EBITDA growth in order to pass their carry hurdle. That is why we set out to find organic growth and buy-and-build opportunities, leveraging our own unique dataset on Europe’s private asset pool. Results show that even in today’s lackluster macro-environment the European economy offers plenty of growth avenues to construct tomorrow’s winning portfolios.

Executive summary

With an astounding 58% of current global PE returns coming from multiple expansion, contracting valuations put the whole industry under pressure. Organic growth, buy-and-build and operational improvements will now have to drive performance. But with a meager 1% GDP CAGR Europe appears to be in a disadvantaged position. 

The good news: European private assets still grew on average 7% overall (incl. M&A) over the last 5 years. Even better is that PE-held companies managed to outperform privately held ones by at least a factor of 2. They excel at achieving organic growth and amplify this with add-ons. Additionally, PEs overachieve margin expansion averages. However, the willingness and ability to find and drive organic growth and M&A strongly varies by investor. While there is fundamentally no right or wrong here in terms of strategy pursued, our data shows that the best performing European PEs are in fact differentially good at realizing both types of growth.

To enable investors to capture organic growth we analyzed on a sector-level where to find it in today’s economy. In aggregate, the usual suspects (e.g. TMT) stand out, but when digging deeper, many niches in less obvious sectors display high growth. Means can be deceiving. For instance, more than a third of the fastest-growing companies (>15% organic growth CAGR) operate in lower-growth industries (industrials, materials, consumer). We also find that growth is rare, with less than 24% of companies exceeding 15% annual organic expansion. What is more, few combine it with profitability and in fact less than 4% manage to achieve such a growth level while also delivering >20% EBITDA margins. It means that trade offs are likely a necessity to secure enough deal flow.

The attraction of buy-and-build is that it enables multiple arbitrage irrespective of the overall valuation curve. On top of this, we find that businesses engaged in continuous M&A are able to expand EBITDA margins much quicker than those that do not (+2.4pp vs 0.9pp in 17-22). This means scale benefits and operating synergies are real. We identified the best sectors and niches to find market fragmentation by analyzing their concentration index (HHI). Overall, the services sector is least consolidated. In addition, we compared levels of PE-ownership and ongoing M&A as a method to identify paths into less well-trodden spaces for investment. 

Based on our findings, we recommend European investors sharpen their sweet spot in order to capture much-needed growth. This also includes making it explicit which flaws you are willing to accept, because perfect assets are rare and expensive. PEs should also get more creative to find multiple arbitrage opportunities that do not rely as much on overall market multiples, such as buy-and-build as well as profile enhancement to drive an attractive exit rating. Lastly, we urge investors to think more creatively than to just chase the latest hot TMT vertical. Growth is granular and can be found in a wide range of sectors. There is no denying that PEs will have to work harder to do well in the next decade. Smart data-driven sourcing strategies are one place to start.

Highlighted insights

Feel free to request our dataset to do your own analysis.

Table of contents

Download the report

Dive into the analysis of the top private equity investors in Europe. Share with your colleagues and read the investor ranking on-the-go.

Get the dataset

Leverage our dataset to do your own analysis and discover your unique edge.

Table of contents

Download the report

Dive into the analysis of the top private equity investors in Europe. Share with your colleagues and read the investor ranking on-the-go.

Table of contents

Download the report

Dive into the analysis of the top private equity investors in Europe. Share with your colleagues and read the investor ranking on-the-go.

Join the digital revolution in private market intelligence

Find, understand and track companies that matter to you.

Subscribe and stay in the loop

© 2023 Gain.pro, all rights reserved

Find, understand and track companies that matter to you.

Subscribe and stay in the loop

© 2023 Gain.pro, all rights reserved

Find, understand and track companies that matter to you.

Subscribe and stay in the loop

© 2023 Gain.pro, all rights reserved