European Private Equity Outlook 2013 - Roland Berger...2013/02/22 · European Private Equity...

1European Private Equity Outlook_ 2013_Final.pptx

Frankfurt, February 2013

European Private Equity Outlook 2013


This document shall be treated as confidential. It has been compiled for the exclusive, internal use by our client and is not complete without the underlying detail analyses and the oral presentation. It may not be passed on and/or may not be made available to third parties without prior written consent from Roland Berger Strategy Consultants. RBSC does not assume any responsibility for the completeness and accuracy of the statements made in this document.

© Roland Berger Strategy Consultants GmbH

Contents Page

A. Focus of study and methodology 4

B. Executive summary 6

C. Results of the private equity survey 2013 10

D. Selected comparison of PE Outlook 2013 vs. PE Outlook 2012 25


Our fourth European Private Equity Outlook reveals how experts see the market and its development in 2013E

UR

OP

EA

N P

RIV

ATE

EQ

UIT

YO

UTL

OO

K 2

013

Prior to 2012, the Outlook consisted of analyses and assessments by selected Roland Berger and PE industry experts and experience from Roland Berger project work

Since 2012, the Outlook has included a survey of more than 1,200 participants from private equity companies across Europe

The results accurately reflect what experts in the market expect for different countries and regions, and what they consider relevant factors for the private equity business in 2013

We hope that you enjoy reading the Outlook. We would be happy to hear your feedback or discuss the results with you in greater detail

The European Private Equity Outlook 2013 is the fourth in a series launched by Roland Berger in 2009

Source: Roland Berger

PRELIMINARY REMARKS


A. Focus of study and methodology


As in 2012, the study is based on exclusive surveys with professionals from leading private equity firms across Europe

Focus and methodology of studyOverview of European private equity

Key topics 2013 Overview of respondents

Development of PE M&A market

Key challenges for private equity

Private equity business model


1) Germany, Austria, Switzerland

4%5%7%7%8%8%Iberia and Italy

Europe in total 15%Scandinavia 16%DACH1) 31%

FranceCEE excl. PolandUKBeneluxPoland

> 10

5 - 10

56%

< 5

23%

21%

Private equity survey 2013

Geographical focus[% of responses]

PE experience [yrs/% of responses]

No. of profes-sionals contacted

1,232


B. Executive summary


Private equity market on the upturn? – Slightly more than half of the respondents expect an increasing number of transactions

Development of private equity M&A market in 2013

> Respondents are slightly upbeat about the development of private equity-driven M&A in 2013 – half of the participants (52%) expect to see an increase in the number of transactions

> Scandinavia and Germany are seen as the leading countries for growth of private equity-driven M&A activity in 2013. Poland, the UK and CEE should grow slightly as well, while declines are expected in Iberia, Italy, France and Greece

> Respondents expect most M&A activity to be in Pharma/Healthcare and Consumer Goods/Retail. Energy/Utilities as well as Technology & Media sectors are ranked second. Automotive and Building/Construction are at the bottom of the list

> No time for large deals – mid-cap segment forecast to dominate. 91% of the respondents expect most deals to have enterprise values of less than EUR 250 million, and 59% expect most deals to be below EUR 100 m

> No changes in the economic outlook are expected, which is considered to be the most relevant factor for European private equity M&A in 2013. A substantial improvement is expected in the availability of attractive acquisition targets. The situation in the financial markets and the development of the euro crisis are expected to improve slightly

Executive summary (1/3)


Active development of portfolio companies will be the focus of 2013 and the mid-term challenge for private equity

Key challenges for private equity investors in 2013> Private equity investors expect to dedicate most of their time in 2013 to actively developing portfolio companies –

extending existing funds and fundraising are not focus activities for 2013> 57% of the participants anticipate a more competitive environment in fundraising, whereas 37% expect no changes> Divestments of family-owned businesses, carve-outs from large corporations and secondary buy-outs or distressed/insolvent

companies are ranked equally as attractive sources for new targets. Listed companies (going private) rank far behind> Improvement in the quality of targets is anticipated by 35% of the participants – 45% expect no changes > The availability of debt financing, particularly for recaps and LBOs, is still expected to become more difficult in 2013> Strategic investors are expected to play the most important role in PE exits, but other exit channels follow closelyPrivate equity business model> Most respondents feel a need to adapt the private equity business model – just one-fourth of respondents see no need for

change> 96% of respondents feel that a more active approach to managing companies will be more important in the future> Strategic and operational actions aimed at improving performance are expected to have the best chances of success in the

coming years



Compared to 2012, the market's mood is improving – No changes in the origin of targets or target sizes anticipated

Selected comparison of PE Outlook 2013 vs. PE Outlook 2012 > Participants feel more positive about market developments in 2013 compared to 2012> In terms of countries, improvement of the PE market especially in Germany and UK is expected compared to last year – on

the lower end of the spectrum, Greece is still expected to decline, but to a lesser extent than in the prior year> Practically no changes in the ranking of industries with PE investor involvement in 2013 compared to 2012;

Pharma/Healthcare and Consumer Goods/Retail remain the top industries> No changes in the expected range of enterprise value between 2012 and 2013 – deal size remains small, with up to

just EUR 250 million in transaction value



C. Results of the private equity survey 2013


Private equity professionals are slightly upbeat about the development of PE-driven M&A in 2013 – Half (52%) expect transactions to increase

M&A transactions with PE involvement in 2013 compared to 2012 [%]


Increase of more than 10%

11%

0% to +10%

41%

0%

26%

0% to -10%

15%

Decline of more than 10%

7%

Expected change in the number of M&A transactions with PE involvement in 2013

> More than half of all professionals interviewed expect the number of M&A transactions with PE involvement to increase in 2013

> However, there is also a significant number (22% of all survey participants) that anticipate a continuous decrease in M&Atransactions with PE involvement

COMMENTS

52%

% of responses [only one answer permitted]

1 DEVELOPMENT OF PE M&A MARKET


Scandinavia and Germany have the highest growth compared to 2012, whereas PE M&A activity esp. in Greece could decline

Change of PE M&A activity in major countries – 2013 vs. 2012 [%]


Expected change in PE M&A activity in 2013 compared to 2012

> Major PE markets such as the UK and Germany are expected to see a small increase in PE M&A activities – 1.5% to 2.5% increase in 2013 over the previous year

> Scandinavia and CEE are expected to gain momentum in 2013

> The opposite is expected in Iberia, Italy, France and Greece

COMMENTS

Greece -1.0%France -0.7%Iberia and Italy -0.6%Benelux 0.1%Austria and Switzerland 0.9%CEE excl. Poland2) 1.5%UK 1.7%Poland 1.9%Germany 2.4%Scandinavia1) 2.7%

1) Includes Denmark, Norway, Sweden2) Central and Eastern Europe includes Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Slovak Republic and Slovenia

1

10

23456789

Expected change of PE M&A activity in 2013 compared to previous year in % [multiple answers permitted]



Pharma/Healthcare and Consumer Goods/Retail are expected to have the most M&A transactions with PE involvement in 2013

Ranking of industries by number of M&A transactions [%]


AutomotiveBuilding and Construction

41%

Financial Services

35%

Chemicals

24%Capital Goods & Engineering18%

Logistics & Business Services

17%

Technology & Media

10%

Energy/Utilities

5%

Consumer Goods/Retail 51%Pharma/Healthcare

41%

54%

European industries with a high number of M&A transactions with PE investor involvement in 2013

> More than half of all respondents expect that Pharma/Healthcare and Consumer Goods/Retail will have a very high number of M&A transactions with private equity involvement

> Low number of PE transactions expected for Building/Construction and Automotive

COMMENTS

1

10

23456789

100% = Max. value

% of participants that expect a high number of transactions [multiple answers permitted]



Mid-cap segment expected to dominate – 91% of PE transactions in 2013 are expected in the enterprise value range of up to EUR 250 m

Expected range of PE transactions in enterprise value in 2013 [%, EUR m]


EUR >1,000m

0%

EUR 500-1000m

19%

EUR 250-500m

1%

EUR 100-250m

EUR 50-100m

EUR <50m

8%

40%

32%

"Most PE transactions in 2013 will be in the enterprise value range of…"> Large-cap deals with enterprise

values above EUR 500 m are likely to remain rare

> 91% of all PE transactions in 2013 are expected to be smaller than EUR 250 m – in 2012, 94% of all PE transactions were expected to be less than EUR 250 m

> 59% of respondents expect that the enterprise value of most PE transactions will be below EUR 100 m in 2013

COMMENTS

91%




No change in the economic situation anticipated, which is the most relevant factor for PE-driven M&A – Availability of targets improving

Overview of relevant factors for M&A business in Europe [%]


Availability of attractive acquisition targets 26%

Development of valuation levels 13%

Situation of the financial markets 16%

Development of the euro crisis 19%

Overall economicsituation 26%

"What will be the most influential factors affecting European M&A trans-actions with private equity involvement in 2013? How will they develop?"

> Private equity investments are driven mainly by the uncertain economic outlook for 2013 – no change in economic situation is expected

> Surveyed participants anticipate an improvement in the financial markets and the pipeline of attractive targets for 2013

> Slight improvement regarding situation of financial markets and development of euro crisis expected

> Valuation levels are not expected to change significantly

COMMENTS

Importance of factors

Development of factors in 2013

1

2

3

4

5

Substantial deterioration

Substantial improvement

No change

% of participants that expect this factor to have a major influence [multiple answers permitted]


--


PE investors will dedicate most of their time to developing portfolio companies – Fundraising and extension of funds not in focus

Focus of PE investors on lifecycle stages in 2013 [%]

Developing portfolio companies

Making new investments

Divesting existing investments

Fundraising Extending existing funds

29% 17%16%

12% 12%

2 KEY ISSUES FOR PRIVATE EQUITY 2013


"On which phase of the PE value chain will you put most of your focus on in 2013?"

> Value creation within the holding period is a top priority for PE funds in 2013 – 29% of all private equity professionals will focus on developing existing portfolios

> Only between 1 and 2 out of 10 private equity investors will continue to raise funds or start new fundraising activities

> Making new investments, divesting existing ones and extending existing funds is a priority task for less than 20%

COMMENTS

% of participants that will place most of their focus on this phase of the PE value chain [multiple answers permitted]


57% of private equity professionals expect a more competitive situation in fundraising in 2013

Expected degree of competitiveness in fundraising in 2013 [%]


"What degree of competitiveness do you expect in fundraising in 2013?"> Two-thirds of all private equity

professionals expect fiercer competition for fundraising in 2013

> Only 5% expect a significant improvement in the fundraising situation

> 37% expect no change in the fundraising situation in 2013

COMMENTS

5%

Easing of the competitive situation

No change incompetitive situation 37%

Competitive situation will become more intense

57%




Except for listed companies (going private), the PE market ranks the attractiveness of all sources for targets as nearly equal

Sources of most attractive targets in 2013 [%]


Secondary buy-outs

42%

Parts of groups/carve-outs

28%Listed companies (going private)

43%

Majority shareholdingsin family-owned companies 46%

Insolvent companies/distressed deals

43%

> Nearly all sources for targets ranked equal: majority shareholdings in family-owned companies, carve-outs from corporations, secondary buy-outs and distressed deals

> Taking listed companies private is by far the least attractive source of targets for private equity funds

COMMENTS

1

2

3

4

5

% of participants that expect this source of targets to be very important [multiple answers permitted]

Sources of attractive targets in 2013, ranked by importance

100% = Max. value



The study participants are likely to expect more attractive targets in 2013 than in 2012


"Will the targets available on the market in 2013 will be more attractive than in 2012?"

> 35% of all private equity professionals expect that more attractive targets for investmentwill be available in 2013

> However, the overall situation is uncertain – 45% do not know if the attractiveness of targets will increase or decrease

> One-fifth of respondents think that fewer attractive targets will be available on the market

COMMENTS


Completely agreeSomewhat agree

28%

Neither agree nor disagree

Somewhat disagree

7%

Completely disagree

45%

18%

2%

35%

Expected development of investment opportunities in 2013 [%]


Debt financing is generally expected to become more difficult in 2013 – Fewer difficulties for working capital and CAPEX lines

Availability of external financing in 2013 [%]


"Compared to 2012, what external financing will be more difficult to raise in 2013?"

> Banks are still reluctant to agree on recapitalizations and finance leveraged buyouts

> Asset-based growth financing (CAPEX, working capital) is not expected to be under as much pressure as other deal financing

COMMENTS

1

2

3

4

Easier to raise

More difficult to raise

Nochange

Recapitalization (i.e. debt substituting equity, dividend to sponsor)

Refinancing (i.e. improvement of terms)

Leveraged buyouts (i.e. new transactions)

Growth financing (i.e. working capital, lines for add-on acquisitions or CAPEX)



Strategic investors are expected to play the most important role in PE exits, but other exit channels are close behind

Change of exit channels in 2013 compared to 2012 [%]


Triple track (i.e. IPO, M&A process and refinancing) 19%

18%IPOs

Dual track (i.e. IPO and M&A process) 19%

M&A to PE investors 21%

M&A to strategic investors 23%

Ranking of exit channel activity: expected significant increase in 2013 compared to previous year

> Strategic investors represent strong competition in PE auction processes based on additional synergy levers – an increase in exits with strategic investors is expected in 2013 (23%)

> Other exit channels, nevertheless, with M&A to PE, dual/triple tracks and IPOs follow close behind

COMMENTS

1

2

3

4

5

% of participants that expect a significant increase in this exit channel [multiple answers permitted]

100% = Max. value



Majority of respondents feel a need to adapt the private equity business model – Just 25% see no need for change

Necessity of adjusting private equity business model [%]


"The private equity business model is just as robust now as it was before the crisis. No adjustment is necessary. Agree or disagree?"

> Two-thirds of PE professionals think that the private equity business model needs to change

> However, one in four see no need to change current investment strategies

COMMENTS

Disagree to some extent

71%

29%

Completely disagree

82%

Agree to some extent

18%

Completely agree

Neither agreenor disagree

Disagree Neutral Agree

65% of all participants 10% of all participants 25% of all participants

3 PRIVATE EQUITY BUSINESS MODEL


96% of respondents feel that a more active approach to managing companies will become more important in the future

Importance of active portfolio management [%]


"Managing portfolio companies actively will become more important in the future – passive management is no longer suitable. Agree or disagree?"

> 96% of respondents feel that an active management approach will be more important

> Passive portfolio management with purely financial engineering is limited

COMMENTS

82%

14%2%1%1%

Agree to some extent

Disagree to some extent

Completely disagree

Neither agree nor disagree

Completely agree

2% 96%




Strategic and operational actions aimed at improving performance are expected to have the best chances of success in the coming years

Chances of success of value-enhancement actions [%]


Financial actions (e.g. recapitalization,refinancing, working capital)

36%Operational actions (e.g. cost cutting, outsourcing)

26%

39%Strategic actions (e.g. buy and build,penetration of new markets)

Value-enhancement actions for PE portfolio companies ranked according to their chances of success in coming years

> Implementing strategic actions is believed to have the best chance of success in the coming years

> Continuous operational actions such as cost cutting and outsourcing can tap additional potential to improve profitability

> The effect of financial actions on value enhancement is still expected to be very limited

COMMENTS

1

2

3

% of participants that expect the value-enhancement action in question to have a very good chance of success [multiple answers permitted]

100% = Max. value



D. Selected comparison of PE Outlook 2013 vs. PE Outlook 2012


Participants feel more positive about market developments in 2013 compared to 2012

M&A transactions with PE involvement in 2012/2013[%]


Expected change in the number of M&A transactions with PE involvement in 2012 compared to previous year

% of responses in 2013 [only one answer permitted]% of responses in 2012 [only one answer permitted]

Increase of more

than 10%

4%

0% to +10%

23%

0%

17%

0% to -10%

28%

Decline of more

than 10%

28%

73%

Increase of more

than 10%

11%

0% to +10%

41%

0%

26%

0% to -10%

15%

Decline of more

than 10%

7%

52%

Expected change in the number of M&A transactions with PE involvement in 2013 compared to previous year


The market outlook for PE M&A activity has improved, especially for Germany and the UK

Change of PE M&A activity in major countries in 2012/2013 [%]


-10.0%-7.0%-7.0%-7.0%

-3.0%-3.0%

CEE (excl. Poland)-2.0%

Benelux

1.0%

Poland1.0%Scandinavia1)

4.0%

UKGermanyAustria & Switzerland

FranceIberia & ItalyGreece

1) Includes Denmark, Norway, Sweden2) Central and Eastern Europe includes Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Slovak Republic and Slovenia

1

10

23456789

Expected change of PE M&A activity in 2013 compared to previous year in % [multiple answers permitted]

0.1%Austria/Switzerland 0.9%CEE excl. Poland2) 1.5%UK 1.7%Poland 1.9%Germany 2.4%Scandinavia1) 2.7%

Greece -1.0%France -0.7%Iberia and Italy -0.6%Benelux

1

10

23456789




Virtually no changes in the ranking of industries with PE investor involvement in 2013 compared to 2012

Ranking of industries by number of M&A transactions in 2012/2013 [%]


Building & ConstructionAutomotiveChemicalsCapital Goods & EngineeringFinancial ServicesTechnology & Media

27%

Energy/Utilities

21%

Logistics & Business Services

14%

Consumer Goods and Retail

13%

Pharma/Healthcare

9%

34%37%37%

51%56%


1

10

23456789

100% = Max. value

% of participants that expect a high number of transactions [multiple answers permitted]

Building and Construction 5%Automotive 10%Chemicals 17%Financial Services 18%Capital Goods & Engineering 24%Logistics & Business Services 35%Technology & Media 41%Energy/Utilities 41%Consumer Goods/Retail 51%Pharma/Healthcare 54%1

10

23456789



No changes expected in the range of enterprise values between the 2012 and 2013 studies – Deal size remains small

Expected range of PE transactions in enterprise value in 2012/2013 [%, EUR m]


"Most PE transactions in 2012 will be in the enterprise value range of…"

% of responses in 2013 [only one answer permitted]% of responses in 2012 [only one answer permitted]

"Most PE transactions in 2013 will be in the enterprise value range of…"

EUR >1,000m

0%

EUR 500-

1000m

19%

EUR 250-500m

1%

EUR 100-250m

EUR 50-100m

EUR <50m

8%

40%

32%


91%

EUR >1,000m

2%

EUR 500-

1000m

19%

EUR 250-500m

0%

EUR 100-250m

EUR 50-100m

EUR <50m

4%

41%

34%

94%

European Private Equity Outlook 2013 - Roland Berger...2013/02/22 · European Private Equity...

Documents

Transcript of European Private Equity Outlook 2013 - Roland Berger...2013/02/22 · European Private Equity...