European dealmaking and fundraising bounce back in Q3

Managers are back in business in Europe. Private equity dealmaking and fundraising both started to show signs of recovery in the third quarter, according to data provider Preqin.

Investors closed 364 deals in Q3, corresponding to $19bn, a 58% increase from the previous quarter. Despite the positive move, aggregated value is still 46% below the $35bn reported in the third quarter of 2019.

“No doubt private equity managers have been keen to deploy dry powder in what may prove to be a strong vintage – if history is any guide,” Preqin noted in its latest global quarterly update report.

Fundraising efforts also remained strong in Q3 with the industry raising 36% more capital than the previous quarter but through fewer funds. In total, 33 Europe-focused funds collected $57bn in the period, against 45 funds amassing $36.5bn in Q2.

Preqin data suggests that investors are seeking security in larger managers with larger funds, at the expense of smaller or emerging managers. One reason is the challenges imposed by remote due diligence, which helps to enhance market consolidation, the research company added.

“This trend could accelerate further as investors prioritise their existing manager relationships,” the report highlighted.

As a result, funds closed so far in 2020 have spent longer in market. Globally, a total 45% of funds took more than 18 months to reach a final close, which is the highest level since 2015. Meanwhile the proportion of funds closing within six months declined to 21% – the lowest level since 2015.

Demand for European funds also rose, with the proportion of funds targeted by private equity investors over the next 12 months in Europe accounting for 53% in the third quarter, up from 39% in the second quarter. In contrast, the proportion of fund searches for emerging markets is down to 10%, against 15% recorded from the April through June period.

Source: Private Equity News

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