The biggest private equity industry focuses in Europe

5 minutes
August 30, 2022

The European private equity industry has been resilient in the face of major market changes, and because of this it has instilled fund managers and investors with greater confidence in the future.

Private Equity funds have continued to outperform any other asset class, with consistently higher returns than in previous years. In most cases, the reasons are the type of investment made and the trends followed by investors. For example, one detail that recurs frequently in recent times is the increased focus on environmental, social, and governance (ESG) factors. General Partners (GPs) and Limited Partners (LPs) in private equity are embracing more sustainable and responsible investments, and this trend is set to increase in the next years.

In addition, another very important aspect, was the choice of the sector in which the largest investments have been made. In this article we will discuss key trends for private equity investors in Europe.

The European Private Equity Landscape: What's the Situation?

Although all sectors see solid growth, one in every three buyouts in any industry involves a software firm. Fintech, healthcare IT, and tech-enabled business services were some of the fastest expanding industries in recent years.

Private equity sees software-related businesses as some of the best-performing companies on earth. These high-tech firms are recognised for their rapid expansion, recurring income, gross margins of around 90 percent, and the potential for significant cash flow margins. As a result, it's a competitive market where firms can dominate.

Software is simply becoming the business of everything. Some of the largest private equity firms in Europe are raising growth equity funds to compete in the tech sphere. In addition, hedge Funds are all of a sudden becoming severe players in late-stage software venture capital.

The Biggest Private Equity Firms in Europe

In the current environment affecting Europe, many firms are looking to explore bolder private equity strategies for strong returns.

LPs are attracted to large PE funds run by firms with strong experience and a great track record. Still, they're also drawn to those with a specialised area of interest or a distinct viewpoint when it comes to generating value. It all comes down to finding the right talent that can assist these corporations adapt and navigate an ever-changing world. To capture value across sectors and asset classes, businesses will have to stand out through people and leadership.

As large firms look to invest in sectors like healthcare, agriculture, and food, the scientific advancement and technical expertise aspects become more critical as firms seek to deploy capital. Thriving in today's market necessitates sector expertise as well as an understanding of deep sector dynamics.

The Future of Private Equity in Europe

In 2021, fundraising surpassed previous highs. As a result of the pressure for GPs to invest a significant amount of dry powder, public-private transactions rose by 57% in the following year. The last time the market witnessed such a dramatic increase in major public-private agreements was during the buildup to the worldwide financial crisis in 2006 and 2007.

The public markets have certainly adjusted, and there is still much uncertainty. Consumer spending has slowed down, and many households are suffering from the impacts of inflation and exploding energy prices. However, certain areas are much more immune to the effects of an economic slowdown than others.

Consider healthcare, which will benefit from longer life expectancies. The energy transition is another major issue that has been around for a long time and is only getting worse as a result of the current crisis between Ukraine and Russia. Several trends will continue to be quite strong in both the short and long term.

The top firms are prepared to dive into the market with the mindset to change and improve the companies they invest in fundamentally. Vintages raised during and after a recession have historically been the best performing vintages in the industry. As a result, the future of private equity looks bright and it is well-positioned to take advantage of the current market conditions and emerge even more robust.

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