Private equity sector ready for M&A surge, Roland Berger

The private equity sector could experience a surge in the number of M&A transactions in 2013, with the the highest growth expected in Scandinavia and Germany and a slight decline expected in Spain, Portugal, Italy, France and Greece, according to research published by Roland Berger Strategy Consultants.

The highest number of transactions are anticipated in the pharmaceuticals and healthcare sectors as well as in consumer goods & retail. Automotive and construction industries are expected to be bring up the rear.

Mid-cap segment with transaction volumes of up to €250m will make up the majority of deals, while larger M&A transactions will not be that common.

The upbeat mood follows a more pessimistic 2012 for the about 1200 European executives surveyed by the research firm.

“The mood in the European private equity market is slowly but surely picking up,” said Gerd Sievers, Partner in the Corporate Finance Competence Center.

He added: “Since the overall economic prospects are expected to remain unchanged, this can be attributed to improvements in financial markets and the development of the euro crisis.”

Meanwhile, large transactions exceeding €500m will remain the exception in 2013, as experts believe the availability of debt financing will continue to be difficult.

“This is rather surprising, considering the amount of liquidity in the market and the preparations for sale that we observe involving larger targets,” Sievers said.

Sources of acquisitions will mainly be major shareholdings in family-owned businesses and carve-outs and secondary buy-outs. Strategic investors will make up the majority of potential buyers closely followed by other exit options via PE companies as well as dual or triple tracks.

Finally, two thirds of the investors believe that the PE business model must be examined in terms of their future sustainability.

“The financial crisis showed us that certain adjustments are necessary. For instance, passive portfolio management is no longer sustainable over the long term. The private equity funds should take the opportunity and enforce a more active approach to manage their portfolio companies now. This will help to adjust for the new market conditions and thereby be better equipped to deal with future crises,” Sievers said.

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