Add-on deals to account for bulk of private-equity buys in 2020

Private equity funds currently fighting fires at portfolio companies may soon turn their attention to boosting operations by making add-on acquisitions, according to a new report from PitchBook.

Already in the first quarter of 2020, bolt-on deals in Europe accounted for 63.4% of deal volume, reaching a Q1 decade peak. Analyst Dominick Mondesir expects bolt-ons to make up the bulk of deal activity through the rest of the year.

Recent add-on deals have included the €401.4m buyout of Denmark-based gym operator Fitness World by UK-based Pure Gym, backed by Leonard Green & Partners. Last month, healthcare specialist ArchiMed’s portfolio company Direct Healthcare Group acquired the Patient Handling Europe division of Swedish-listed group Handicare to bolster its range of products and expand its geographical reach.

Once firms fully assess the risk of coronavirus and develop plans to get portfolio companies through the crisis, Mondesir expects bolt-on deals to become the next priority in order to increase the resilience and stability of companies. In addition, such smaller transactions will be easier to finance, he added.
 “The financing for smaller deals is easier to secure in the current environment because the European private credit markets can step in, as opposed to leveraged buyouts,” Mondesir said.

Private credit funds focused on Europe have nearly €63bn in dry powder, and are looking for opportunities to deploy.
“2019’s record fundraising year supplied GPs with the necessary capital to successfully execute bolt-ons, which have the potential to add product and regional diversity, provide niche capabilities and scale to an existing platform that would otherwise take years to procure,” PitchBook noted.