Our quarterly report identifies the major themes driving EV/EBITDA multiples in European private equity (PE) deals. The objective is to help PE investors understand trends across regions and sectors, leading to better investment decisions.
the average long-term EV/EBITDA multiple for European PE transactions eased from the historic high achieved in Q2 2022
The tempo of European PE activity slowed markedly in Q3 2022. Dealmaking conditions continued to tighten, with rising inflation, higher interest rates and mounting supply-side constraints playing on acquirers’ minds. Against this increasingly complex background, the average long-term EV/EBITDA multiple for European PE transactions eased from the historic high achieved in Q2 2022.
Delving into the data, deal volume in Q3 was down 25% quarter-on-quarter, with a total of 212 transactions versus 283 in Q2. LTM (last twelve months) deal volume was also sharply lower, falling to 1,052 in Q3 from 1,176 in LTM Q2 2022, representing a contraction of 11%.
Deal value saw an even sharper fall. The total value of all transactions in Q3 was €44.9bn, down a hefty 46% compared to the previous quarter. That said, Q2 2022 was always going to be a hard act to follow – the value achieved in that remarkable three-month period (€83.6bn) was the highest ever recorded. LTM deal value data paints a more stable picture, with year-to-date transactions in Q3 2022 totalling €267.5bn – a decrease of 8% on the LTM total of €289.5bn recorded in Q2 2022.
France was Europe’s most prolific PE deal generator in volume terms in Q3 2022, logging 57 transactions, comfortably ahead of second-place UK and Ireland with 49. The French industrials & chemicals sector in particular saw substantial activity with 20 deals, putting France far ahead of other European subregions.
France has emerged as a dealmaking powerhouse of late. Q3 2022 marks the fifth consecutive quarter in which it has held the number-one spot either exclusively or jointly. The Southern subregion (Spain, Italy and Portugal) was Europe’s third-biggest deal generator in Q3, recording 38 transactions.
Turning to deal value, France again seized the top spot with transactions totalling €15.1bn in Q3, up 60% compared to the previous quarter. France was the only European region in which deal value rose in Q3, thanks in large part to a single TMT transaction – the €6.8bn acquisition by Cegid, the Silver Lake-backed French software group, of Spain- based Grupo Primavera. The deal underlines the drive towards consolidation in Europe’s fiercely competitive but fragmented business software market.
Elsewhere, the UK and Ireland racked up deals totalling €13.9bn in Q3, down 51% from the previous quarter. Meanwhile, the Southern region generated aggregate deal value of €7.1bn, down 36% compared to Q2.
Focusing on key sectors in Europe, Q3’s star performers in terms of volume were TMT and industrials & chemicals, each of which logged 51 deals. In both cases, volumes were down compared to the previous quarter. Business services was the next busiest sector, achieving a tally of 42 deals, followed by consumer with 24 transactions.
In terms of overall sector value, TMT triumphed, but only just, with deals amounting to €13.4bn. Trailing close behind, business services generated transactions worth €13.2bn. This sector has been a consistent performer amid the turbulence of the past three quarters. It emerged from Q3 relatively unscathed, with overall value down only 6%, the smallest decrease of any sector. Consolidation opportunities abound and the sector’s services have the added appeal of being non-discretionary for end customers racing to drive efficiencies.
In third place, industrials & chemicals recorded transactions totalling €9bn. Notably, it is the only sector to have bucked the trend of declining EV/EBITDA multiples in 2022. The sector’s average deal multiple has grown throughout the year, rising by half a turn of EBITDA since Q1.