What a difference a year makes!

Survey conducted with the support of:

Key findings:

  • 71% of European GPs feel the business environment in Europe will be better in 2021.
  • 84% of respondents considered national government recovery policies were supportive.
  • Asked to name concerns, 31% of respondents named high valuations as their 1st choice, with 56% expecting valuations to increase.
  • Pharma and technology sectors fare best on the attractiveness scale for both Growth and Buyout GPs
  • 97% of European GPs are more inclined to invest into their domestic market than beyond.
  • An overwhelming 82% of European GPs believe that PE will raise its game in ESG because of the pandemic.
  • Only 30% of respondents feel that PE makes a positive enough contribution to issues around poverty and inequality, rising just slightly to 42% on matters of diversity representation.

The 3rd annual IPEM survey gauges the mood and outlook of European private equity fund managers for 2021.

This survey was conducted with the support of 16 national private equity associations from across Europe. In total, 223 interviews were completed online between the 18th of November 2020 and 11th of January 2021 by the CSA institute, just as European governments were shutting down their countries, but with the positive news on the horizon, and then implemented, after some turbulence, of a new President in the US, and a last-minute Christmas Eve Brexit deal signed between the EU and the UK.

Antoine Colson, IPEM CEO and Managing Partner commented: “From the findings it clear, that Europe’s GPs are not letting the small matter of a global pandemic thwart their ambition. Private equity firms have been quick to adapt to a new way of working and are now keen to exploit market dislocations to grow their portfolio companies and their own franchises. Tellingly, however, and perhaps in contrast to the aftermath of the financial crisis, there is an unmistakable sense that managers must invest for more than mere financial outcomes,” Colson says. “In a shift that could prove vital for the sustainability of the asset class, private equity is embracing the opportunity to support the economic recovery, whilst also promoting the agenda for environmental and social reform.

2020 in hindsight

  • Overall, deal making was deeply disrupted in 2020. Sourcing new opportunities (60%) and conducting exits (57%) were the most challenging operations in the last months esp. in the buyout segment. These are also viewed as the processes that are the least easy to digitalize for GPs.
  • During the crisis, GPs were especially focused on securing liquidity for their portfolio companies (91%), incl. accessing governmental packages (81%) plus on taking care of their portfolio companies’ workforce (80%). The buyout segment was also very active in exploring build up opportunities (81%).

PE is praising European governments for their action in the crisis + wants to play its part in future recovery plans

  • Governments’ action during the crisis is largely praised by European PE (83% think their government was supportive to the economy / 71% to their portfolio companies). This was even more the case in France (92%), the Nordics (78%), UK (75%). GPs in Southern Europe (Italy / Iberia) are much less positive about their governments’ support.
  • A majority (54%) of European GPs think that PE will become a partner of choice for future recovery policies. This is especially the case in France (70%) and the Benelux region (69%); much less in the DACH (45%) and the Nordics (39%).

GPs’ high sectorial / geographical convictions come at a price

  • High valuations are still the industry’s top concern in 2021, quoted by 89% of respondents. 56% of respondents see valuations increasing in 2021 (vs 42% in 2020) and 9% expect valuations to increase significantly (vs 2% in 2020). A decrease in valuations is only expected by 13% of respondents (vs 22% in 2020).
  • The industry is also much more worried in 2021 about its level of dry powder (mentioned by 71% of respondents in 2021 vs 49% in 2020) and its ability to deploy capital. A lack of attractive investment opportunity is highlighted by 68% of respondents. However, 2021 will be a good year to deploy capital for 85% of responding GPs (compared to 71% in 2020) and for 93% to manage their portfolio (vs 84% in 2020). 33% of European GPs do not see 2021 as a good year to exit portfolio companies – this is the highest figure in records since IPEM have launched this survey. High / excessive leverage is also a looming concern for many GPs (56% expect more leverage in 2021 than in 2020, up very significantly).
  • There is a strong conviction for some industries, both in the VC and the buyout segments. In buyout, only 20% of respondents show no industry preference in 2021 (vs 32% in 2020). 55% of buyout managers mention IT / software (up from 32% in 2020) and 54% pharma / healthcare (vs 42% in 2020) as attractive industries. Environmental services’ appeal is also improving (the industry is mentioned by 36% of buyout GPs). In VC, health / MedTech is still viewed as the most attractive industry (quoted by 45% of respondents), but cleantech (32%) and e-commerce (28%) are showing great traction too.
  • Most GPs seem to focus on their domestic market in 2021. Only 59% expect to invest in Europe beyond their domestic market in 2021 (vs 70% in 2020); whereas 51% plan to invest more in their domestic market in 2021 than in 2020 (vs 32% in 2020). This local focus is clear in all markets, but especially in the UK / Nordic and Benelux regions.

ESG and diversity – still work to do – but a clear road ahead

  • European Private Equity feels it is making a positive impact on major issues, especially climate change / energy transition (66% of GPs believe their impact in this field is already positive), health (66% also) and education (52%).
  • Interestingly, respondents acknowledge that social issues – beginning with inequalities / poverty and diversity representation are not as well tackled. Only 30% of responding GPs feel that Private Equity has a positive contribution on inequalities / poverty, and 42% on diversity issues.
  • Impact investing is already a big theme for respondents. 15% of them have already launched an impact strategy / fund (especially in France and Benelux) and 18% expect to join the impact movement in the next 12-24 months (especially in the Nordic region). Overall, 1/3 of European GPs could become impact investors in the next two years!
  • 82% of European GPs believe that Private Equity will “raise its game in ESG” because of the pandemic with a strong consensus i n every region, segment of the industry or size of funds. 74% expect LPs to be even more demanding on ESG policies in 2021.

IPEM, The Greatest Private Capital Event

Cannes, France
July 6/7/8 2021