BERLIN Feb 26 European investors gathered in
Berlin for the annual SuperReturn conference are reluctant to
toast the return of big-ticket takeovers in 2013, even though
U.S. peers have long since popped the champagne corks.
Buy-out houses, which buy and sell companies for profit,
have agreed some $72.6 billion of deals so far in 2013, up 209
percent from the same period last year but a far cry from 2007
when $200 billion worth of deals were done in the first quarter.
So far this year, 86.8 percent of deals by value have been
completed in the Americas, Thomson Reuters data show. Europe has
accounted for 10.6 percent of global activity, with $7.7 billion
worth of deals agreed.
When it comes to the size of private equity deals done in
recent years, "Europe has never been able to keep up with the
U.S. and will not in the future," Joerg Rockenhaeuser, head of
Permira Germany told Reuters on the sidelines of the conference.
The global financial crisis hit Europe hard, with Greece,
Portugal and Ireland yet to fully recover, and Spain and Italy
still dependent the European Central Bank's pledge last July to
rescue the euro.
This month, the United States saw the largest leveraged
buyout since the financial crisis. Silver Lake partnered with
technology billionaire Michael Dell to take his eponymous
personal computer maker private for $24.4 billion.
Warren Buffett's Berkshire Hathaway Inc is shelling
out $12.12 billion in equity as part of its $23.2 billion
takeover of ketchup maker H.J. Heinz Co.
In Europe, mergers & acquisitions are far more modest.
Private equity firms are reviving plans for a potential 10
billion pound ($15.7 billion) buyout of the UK's biggest mobile
operator EE, in what would be the largest deal in Europe since
KKR took UK pharmacy chain Alliance Boots private in 2007.
There is also talk of bidding interest of up to 4 billion
euros ($5.3 billion) for French catering company Elior, banking
But these deals, if ever completed, are the exception rather
than the norm. Concern about Europe's political and financial
situation has discouraged large-scale dealmaking.
"Clearly the size of the bank problem is much larger in
Europe and there hasn't been a central agency like the Fed. As
much as the ECB has tried its best, it's like herding cats,"
Leon Black, Founder of Apollo Global Management told delegates.
"The politics is so much more difficult. So, overall the
view from the U.S. is that Europe seems to be more of a mess."
Funds have had few investment opportunities as a result of a
depressed M&A market over the past few years.
According to Thomson Reuters data, private equity firms
raised $308 billion in new funds in 2012, down from $525 billion
raised at the height of the buyout boom in 2007. Some $59.6
billion came from Europe in 2012, a fraction of the $94.5
billion in 2007.
Many buyout firms have taken advantage of buoyant debt
markets to "amend and extend" - borrow through their portfolio
companies and return money to their private equity fund
investors through dividends.
"Ironically, cheap credit, fiscal easing and liquidity have
deferred the restructuring of failed businesses," Lord Mark
Malloch-Brown, Chairman Europe, Middle East and Africa at FTI
Consulting, told Reuters.
"Funds are sitting on bank lines that are allowing them not
to restructure," he added.
"The very large PE transactions from the 2006/07 period have
not done so well. Therefore, some investors are not inclined to
give them more money for big deals," Daniel Flaig from Capvis
Ultimately, the question of whether any deals get done in
Europe could all come down to price.
"Prices are very high, even higher than they are in the
U.S.," said Black.
"If you look at the U.S. multiples for deals, they are about
9 times EBITDA (earnings before interest, tax, depreciation and
amortisation), in Europe they average an even higher 9.5 times,
and the average growth rate in Europe is negative."