European Private Equity: 2020 Outlook

While we have looked this week at the 2020 private equity outlook, today we put special focus on European private equity:

Private Equity International: The call 2020 a “banner year for fundraising,” further noting that “despite political headwinds and macroeconomic concerns across the continent, European giants are returning to market with record targets.”

 

While we have looked this week at the 2020 private equity outlook, today we put special focus on European private equity.
For the 2020 private equity outlook for Europe, one focus area: Brexit

The Guardian: The London paper notes last year’s trend that “data for 2019 shows value of private equity firms snapping up public companies doubled to £21.1bn, up from 2018.” The headline: “40% rise in public companies opting to leave stock exchange.”

Partners Group: The firm takes a special look at the European markets and notes: “Similar to the US, year-to-date senior loan volumes in Europe are roughly 40% of full-year 2018 volumes, a marked decline compared to the strong pace witnessed over the past two years. Meanwhile, CLO issuance remains strong and on track to surpass 2018 volumes. CLO issuance comprises 40% of the overall syndicated loan market and, as long-term capital vehicles, should add stability to the market.”

“Credit fundamentals remain broadly unchanged and more disciplined than those seen in pre-GFC years. Leverage levels in Europe remain stable at 5.8x and equity cushions remain at 47%, still well above 2007 levels of approximately 35%. First lien spreads have seen a mild widening from 3.7% at the beginning of last year to 4.0%.”

Their conclusion: “We see relative value in mid-cap direct loans, especially in “sole” and “club style” executions, where the limited number of lenders in a debt tranche have significant negotiation power, resulting in a return premium and stronger documentation. We also expect more attractive risk/return profiles and solid volumes for mid-cap stretch senior debt and unitranche financings. Having the flexibility to offer multiple European currencies and implement customized prepayment profiles can give private debt providers an edge.”

TechCrunch: Not surprisingly, TechCrunch focuses not on PE, but rather VC. We include the insights here for interest — and for readers to consider any connections between the investment classes.

Writes TC: “If you haven’t noticed, Europe’s startup scene is in full bloom, with more than $30 billion deployed in startups across the continent over the last 12 months and more than 20 countries now home to a so-called unicorn company.”

The post continues: “Investors around the globe are jumping into the pool, too. Consider that the Ontario Municipal Employees Retirement System (OMERS) is currently investing a €300 million fund in Europe. Abu Dhabi’s state investor, Mubadala, last year announced it was launching a $400 million fund to back European startups. And that’s saying nothing of the many Europe-based venture investors who are either raising new funds or recently closed them.”

Financial Times: The FT talked with various market participants. Pascal Blanqué, CIO of Amundi Asset Management, sees the biggest opportunity as “A return to cyclical value in Europe, where investors could also benefit from reduced political risk.”

Joanna Munro, Global  CIO of HSBC Asset Management, makes her “quirkiest” prediction: “Central banks expanding their mandates to incorporate climate change policies. The ECB has already signalled it is moving in this direction and other central banks could soon follow.”

Meanwhile, Sonja Laud, CIO of Legal & General Investment Management, looks at the political headwinds: “2020 is likely to be a year of change — from holders of key posts at major central banks to the EU leadership and the US presidency… After all, the trade hostilities and Brexit process are still bubbling away. Given this, it will be hard to repeat the tremendous returns we saw across many asset classes in 2019. That said, there are still significant upside opportunities if you can separate signal from noise.”

IPE Real Assets: The publication asks if 2020 is “the year UK real estate rebounds?” One interesting note: While the post states that “With a new Conservative government enjoying a majority in parliament and the passing of Brexit withdrawal bill, all eyes are on what will happen to the UK real estate market in 2020,” it also highlights that “US private equity funds are the currently the largest source of capital.”

The post continues: “Looking at Europe more broadly, a report by AEW shows that, despite worsening global economic growth and business confidence, the outlook for European property has improved…The report states that, as ‘political uncertainty dominates global news headlines, business confidence and economic growth appear to be trending down,’ but central banks’ policies are expected to keep rates lower for longer.”

Share This Post: