Private equity firms in Europe, despite being flush with cash, are becoming more cautious in their acquisition strategies as they carefully assess their exit plans. This shift is driven by difficulties in selling assets and a slow exit market.
One notable case is Brookfield’s decision to back away from a binding offer for the Spanish waste disposal company Urbaser, citing concerns about the future exit options. Sources revealed that Urbaser might eventually be too large to sell easily, contributing to Brookfield’s hesitation.
Nestor Paz-Galindo, UBS’s head of EMEA global banking and M&A co-head, highlighted that while private equity funds excelled at entry and execution, exits have become more challenging in the current market cycle.
In 2025, funds are expected to face mounting pressure to deploy record levels of unspent capital and begin selling assets that have been held for longer periods than usual. While large transactions are still anticipated, they are expected to be concentrated among fewer funds.
European private equity-backed companies are facing difficulties in reselling to other investors, with fewer bidders and slower auction processes. According to Stephen Pick of Barclays, some private equity sponsors are considering breaking up their assets into smaller divisions or stakes to make them more sellable.
In contrast, the U.S. private equity market remains active, with larger deals expected in 2025, particularly as a more business-friendly regulatory environment under President-elect Donald Trump could further fuel deal-making.
Private equity funds in Europe have faced a challenging year with deal values totaling $297 billion, an increase of 23% compared to 2023, but still far from the $509 billion peak in 2021. The value of shares sold on public markets has also dropped significantly, which compounds the challenge of finding exits for large private equity-backed companies.
The backlog of companies held by private equity for extended periods is growing. Christopher Droege of Goldman Sachs pointed out that private equity exits have not been suspended but rather postponed, with increasing pressure from investors for capital returns.
Some high-profile deals are still in progress, including Bain and Cinven’s attempt to list German drugmaker Stada, and Partners Group’s sale of Techem to U.S. asset manager TPG.
Despite the overall slowdown in M&A activity, equity capital markets are gradually recovering, offering an avenue for private equity firms to consider IPOs as an exit route. By the end of the third quarter, 9% of private equity exits were IPOs, a slight increase from the previous year, signaling a potential resurgence in public market exits.
