Real Deals | Finding Opportunities Amid Uncertainty

Sep 2023

Originally posted by Real Deals on September 1, 2023.

European deal activity in the first half of 2023 has been slower, but activity in the second half of the year may increase due to several factors as outlined in a recent Lincoln International perspective.

Phil McCreanor, Managing Director and co-head of Europe at Lincoln, commented, “There are many drivers motivating this group at the moment. We see many owner managers coming to a certain age, so for them there’s a real time issue involved in bringing about an exit. There’s also the potential change in government and what that could mean for capital gains tax, which adds another element of timing pressure.”

Once companies have decided to sell, they are more likely to go through with the transaction given that they have mentally gone down that path.

While the current market has caused a slowdown in all private equity activity with some sectors seeing more of an impact, there continues to be a strong demand for high-quality assets. These assets still get premium valuations and receive significant interest from buyers. There are also some signs that macro pressures are easing, which indicates a more positive outlook for the second half of the year.

Phil added, “In the UK, we haven’t had quite the same spike in interest rates as the U.S., which caused liquidity issues. Furthermore, we are seeing a softening of inflation – there is still structural inflation but the underlying fundamentals tell us that we are close to or near to the bottom of the cycle. Once people start feeling as though we’ve reached an appropriate level, you tend to find that activity levels creep up.”

Private equity firms will also be motivated to close deals in order to deliver liquidity to their limited partners.

“In markets like this, you tend to find larger funds coming down into the mid-market to take advantage of the conditions. We have seen the larger investment banks coming down but we haven’t seen the large-cap funds coming down towards smaller transactions,” Phil commented.

View the original article for additional insights.