The shifting role of LPs was the overarching theme for the morning session of Day 2, at the 10th edition of IPEM in Cannes. After a full day of yoga,…
European growth capital had a particularly strong year in 2022. According to Invest Europe, it was the best-performing segment, generating a net IRR of 15.34%. Over a three- and five-year period, European growth funds – which typically take minority stakes in high growth firms that are cashflow positive yet lack a long enough track record to take on significant debt (as one would see in buyouts) – have generated 21.63% and 20.39%.
Can European growth equity kick on in 2024?
Growth equity occupies the middle ground between VC and buyouts. With higher financing costs putting the brake on LBOs (M&A deals totaled $393 billion through Q3 2023, down 41%), and concerns over valuations stymying VC deal activity, growth equity has not been able to avoid the prevailing headwinds that have made 2023 a challenging year for fundraising.
According to Invest Europe’s Investing in Europe Private Equity Activity H1 2023 report, through the first half of the year, growth equity funds raised EUR4.7 billion; approximately half the amount raised in H2 2022 (EUR9.5 billion) and nearly 2.5 times less than the amount raised in the same period last year (EUR11.2 billion).
How growth equity investors approach dealmaking in 2024 will depend, to some extent, on whether VC and buyout activity picks up. Not that Europe is lacking in terms of opportunity set, or firms ready to deploy capital.
Alongside Sweden and Germany, the UK is regarded as a leading hotspot for growth equity. Indeed, the UK’s Business Growth Fund is one of Europe’s most active growth equity investors, completing 152 deals since 2018.
As Europe’s venture capital industry continues to mature, so too is the growth equity marketplace. A Pitchbook ranking of the fastest-growing VC markets places Europe in a positive light, with Berlin ranked third. Madrid, Milan, Tallinn, and Vienna occupied the last four spots in its top 10 list.
Firms like Lyon-based Siparex Group, London-based Foresight Group, and Paris-based Capza are only too willing to strike deals and provide growth stage capital to companies they believe have the potential to become unicorns (EUR1 billion valuations). Capza announced this month (15th December) that one of its investee firms, Efor Group, a life sciences consulting firm, was joining forces with Nodarius. The strategic alliance is the next step in Efor Group’s growth strategy as it aims to become a global leader by 2028.
The panel session “Investing in the different shades of European growth capital” during the afternoon of Day 1 (24th Jan) at IPEM Cannes 2024 will provide up-to-date insights on how PE firms are thinking about their investment pipeline, and where they see the best deals coming to light, as they look to put capital to work.