European private equity yet to spend €270bn worth of capital

European private equity companies have €270bn worth of unspent capital they need to invest.

“The sheer weight of dry powder, following a period of record fund raising, demands the deployment of capital,” the report from stockbroker Peel Hunt has estimated.

Peel Hunt anticipates there will be a focus on takeovers of quoted businesses within the UK as firms accept the new reality of financial conditions.

“Potential acquirers of UK plcs have accepted that the cost of debt has structurally increased and that near-zero rates are unlikely to be seen again soon, if ever,” the broker said.

Deal volumes fell last year as rising interest rates brought the end of cheap money and the private equity firms struggled to structure deals. Peel Hunt reported that firm offers fell 22% in 2022 compared to 2021.

Get the week’s top news delivered directly to your inbox – Sign up for our newsletter

“Uncertainty over rates has been the critical factor undermining deal volumes, as investors cannot reliably model returns on investment without clarity over the funding structure,” Peel Hunt said.

“However, in recent weeks there have been some signs of stabilisation of expectations for rates over the medium/longer term, combined with economic signals that inflation might be coming under control.”

Several London-listed companies were bought buy foreign private buyers last year, including Ted Baker and Aveva.

According to Canaccord Genuity, which tracks businesses that are vulnerable to being bought, companies that might be on private equity’s radar include: Jupiter Fund Management, Morgan Sindall, Mite, Playtech, Next Fifteen and Clarkson.

Source: Investment Week

Can’t stop reading? Read more