March 20, 2024
ByChristof Huth,Grégoire Tondreau andMartin Weißbart
Our annual survey expects more favorable market conditions for the private equity sector
After a stagnant 2023 for the private equity sector, the tide is expected to turn in 2024. According to our latest European Private Equity Outlook, 65% of industry experts anticipate an increase in M&A transactions with private equity (PE) involvement in 2024.
_image_caption_none.jpg "European Private Equity Outlook 2024 (3)")
"We see a significant change in sentiment compared to 2023 with anticipated higher volumes of M&A transactions involving private equity."
The Outlook is the 15th consecutive publication in a series launched by Roland Berger in 2010.
In view of the expected normalization of interest rates and the ongoing recovery of most major European economies, the prospects are largely positive. The postponement of many portfolio company exits by PE in 2023 is also likely to boost in 2024 as investors expect more favorable market conditions.
Nevertheless, respondents to the 2024 Outlook see some regional variation in this trend. The DACH region (Germany, Austria, Switzerland) can expect the strongest growth, they say, followed by France and the Nordic region (Norway, Sweden, Finland and Denmark). While things don’t look quite as good for Central & Eastern Europe, more than half of respondents still expect deal activity to develop positively.
Little change in the most promising sectors
As in the previous three years, technology, software & digital solutions, and are the sectors set to yield the most M&A deals with PE involvement. These industries are of particular interest to PE due to their fundamental growth characteristics, resilience, and scalability. Automotive and building & construction continue to show the least potential.
There is also little expected change in the development of PE transaction size classes. According to the outlook, small- and mid-cap segments are the most promising for 2024 as they are less reliant on large amounts of debt financing, with expectations for larger capital classes being more conservative. Debt financing is predicted to develop positively for infrastructure and the small- and mid-cap asset classes.
"The transformative power of AI in private equity is not just in its ability to analyze data, but in its capacity to unveil hidden opportunities, optimize decision-making, and enhance operational efficiency."
Shifts in key targets and the PE value chain
Much like last year, just over 70% of respondents believe valuation multiples are overvalued or slightly overvalued. The number of experts seeing valuations as fairly valued has decreased slightly.
A closer look at valuations by industry shows that almost half of respondents expect valuations for technology, software & digital solutions to increase in 2024. This is followed by pharma & healthcare (40%) and infrastructure (30%). A majority of respondents see a decline in the consumer goods & retail, automotive, and construction sectors.
Majority investments are the most important targets, followed by secondary buyouts, which have seen a huge increase compared to 2023 after many PE exits were postponed. The relative attractiveness of public-to-private transactions is set to decrease significantly.
A further major shift compared to 2023 is expected in the PE value chain, with much greater focus on the development of portfolio companies. The focus on fundraising will decline significantly, according to the respondents.
Lastly, innovation and sustainability will continue to make an impression on the PE sector. Respondents expect AI to be the most important measure for portfolio management and value creation, followed by digitalization and data analytics, and ESG factors.
For further details on the most important trends in the European Private Equity sector, download the full version of the European Private Equity Outlook 2024.
Country Insights
European Private Equity Outlook 2024: Expert insight from the Nordic region:
The Nordic private equity market is resilient, with a focus on the green transition and tech-enabling assets. Quality assets still have high valuations.
After a challenging 2023, the mood is slightly more positive for the private equity market in the Nordic region. It remains a difficult market, but also a resilient one.
In our annual European Private Equity Outlook survey, 67% of respondents expect M&A activity with private equity involvement to increase in 2024. This after being down 47% in 2023 compared to 2022.
A stable economic environment is key. Interest rates have steadied and will most likely fall, which should lead to more stabilized valuations and thus more transactions. High-quality assets still have high valuations, but valuations for lower-quality assets vary considerably across sectors.
Supply versus demand is not the main question: fundraising is going well in the Nordics and there is plenty of dry powder. On the supply side, there are mature portfolios across most buy-out funds, but financing costs are higher compared to the last 15 years of ultra-low interest rates, meaning low-performance assets will struggle.
There is capital to be deployed, but risks are higher, so investors will be more cautious and focus on profitability and cashflow. As a result, we expect more bilateral transactions, public-to-private, buy-and-build, and distressed assets as well as potentially more IPOs.
Tech and sustainability increasingly prominent
There are two general trends to keep an eye on: perhaps unsurprisingly, these are sustainability and technological innovation, both of which are particularly prominent in the region.
As the green transition evolves, we have the likes of H2 Green Steel and battery manufacturer Northvolt, amongst others.
In the technology sector, innovation is, of course, having a growing impact on how companies operate, with every sector looking for tech-enabled improvements. We need to keep a close eye on AI, which will change the way companies operate, particularly in the service and technology industries.
Overall, rising interest rates have impacted valuations for technology firms, with most investors preferring quick returns on investment. But Tech remains a very attractive sector.
Pontus Mannberg
Partner
Stockholm Office, Northern Europe
+46 8 41043812
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Further readings
Christof Huth
Senior Partner
Munich Office, Central Europe
+49 89 9230-8291
Grégoire Tondreau
Senior Partner
Brussels Office, Western Europe
+32 2 6610-389
Martin Weißbart
Principal
Munich Office, Central Europe
+49 89 9230-8420
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