Free-spending private equity firms set record pace in Europe

Zurich

A YEAR of pandemic prudence is giving way to jumbo dealmaking in Europe for deep-pocketed private equity houses.

Buyout firms have announced US$29 billion of takeovers involving European companies this year, up 60 per cent year on year and the most for this period on record, according to data compiled by Bloomberg.

That's after months in which many large buyers, including Blackstone Group and CVC Capital Partners, stayed on the sidelines or focused on funnelling much-needed capital to their existing portfolio companies.

Now, opportunities stemming from the coronavirus crisis, an abundance of cheap credit and willing sellers looking to clean up their balance sheets are creating ripe conditions for bigger deals. Soaring equity markets, meanwhile, are driving up prices.

"It's hard to overstate it," said Anthony Diamandakis, co-head of global asset managers at Citigroup. "Chances are high that we will see jumbo deployment this year."

The industry has long had the luxury of holding a record amount of unspent capital, and with the time to pick its bets. Investors continued to pour money into buyout funds last year, even as private equity firms stayed penny wise.

"A number of sponsors have been sitting on the sidelines for a little while," said Michael Abraham, head of financial sponsors for Europe, the Middle East and Africa at UBS. "You can only do that for so long. Private equity has a mandate to invest."

This month has already seen TDR Capital and I Squared Capital enter talks about a potential £2.25 billion (S$4.1 billion) takeover of power generator supplier Aggreko. Blackstone and Global Infrastructure Partners also teamed up on a US$4.7 billion bid for private jet base operator Signature Aviation.

The Signature deal means Blackstone, the world's biggest private equity firm, already has US$9.1 billion worth of deals to its name in Europe this year, more than it announced from April to December 2020, Bloomberg data show.

On a January earnings call, chief operating officer Jonathan Gray said Blackstone expected more activity around Covid-impacted sectors including travel and hotels.

"The pandemic will put more pressure on sponsors to deploy more capital within less time," said Phillip McCreanor, head of UK and the Nordics at investment bank Lincoln International.

Buddying up could become a template for firms in the race to win out on competitive deals this year, according to Mr Diamandakis at Citigroup. "We might even see a situation where two or three sponsors team up with an equity contribution of US$3- 5 billion each, plus co-investment," he said.

Buyout firms are even starting to trump strategic buyers, which have traditionally been able to offer more because they can find synergies with the targets.

In the hotly contested race for Lonza Group's speciality ingredients unit, Bain Capital and Cinven were able to beat bidders including chemical producers Lanxess and Petronas to seal a US$4.7 billion deal. BLOOMBERG