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EMEA Private Equity Market Snapshot
Essential tools for strategic decisions December 2019│Issue 23
• Global GPs’ Activity into EMEA Slows as Another Brexit Extension is Confirmed
• UK’s “Going Private” Deals Taking Off
• PE Investments in European Communication Services Targets on Course to Reach a Decade High
• Feature Article: Private Equity Leveraging ESG to Create Value
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EMEA Private Equity Market Snapshot
Editor’s Note
Welcome to the 23rd issue of the EMEA Private Equity Market Snapshot (PEMS), a quarterly publication focusing on the Private Equity (PE) market in Europe, the Middle East and Africa (EMEA) from S&P Global Market Intelligence.
This issue addresses the overall decline in capital deployed and number of deals felt across EMEA, in spite of some surprising gains among the Financials and Healthcare sectors. After discussing the factors playing into this trend, we take a deeper dive into the number of PE-backed Public to Private buyout deals on the horizon in the UK.
From there, we take a broader view of the Communication Services sector and look at the implications of its record-setting upwards trajectory over the past five years. We close with a feature article examining the way investors are increasingly perceiving Environmental, Social and Governance as an investment opportunity to be seized, as opposed to an investment risk to be managed.
We look forward to receiving feedback and suggestions on regions or sectors of interest for future analysis. To subscribe or comment on the complimentary EMEA PEMS, please email [email protected].
Authors
Ilja Hauerhof
Senior Manager, Product & Market Development EMEA
S&P Global Market Intelligence
Rubie Pearl Corales
Associate, Product & Market Development
S&P Global Market Intelligence
Ewa Skornas
Associate, Investments Data
S&P Global Market Intelligence
Madeleine Farman
Senior Editor
S&P Global Market Intelligence
If you would like to read previous issues of this report, please visit
www.spglobal.com/marketintelligence/emea-pems-archive
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EMEA Private Equity Market Snapshot
Global GPs’ Activity into EMEA Slows as Another Brexit Extension is Confirmed
One month after the end of the third quarter, the European Union (EU) and the United Kingdom (UK) have agreed on yet another Brexit extension, giving the UK until January 31, 2020 to exit the EU. Given the uncertainty surrounding Brexit right up until this latest agreement was
reached, it is not surprising that global General Partners’ (GPs’) investments into the Europe, Middle East and Africa (EMEA) region tumbled in Q3 2019.
Aggregate capital deployed into EMEA fell almost 40% between Q3 2018 and Q3 2019, decreasing from €25.2bn to €15.5bn. Deal count also fell 12% over the same period. Additionally, fewer large deals – those valued at €1.0bn or more – were produced, from five deals with a total value of €13.7bn1 in the same period last year to only three deals with a total value of €3.6bn this year.2 Factoring in an economic slowdown in China, problems in South America and the threat of an escalating US/China trade war, the drop is likely reflective of a more challenging macro environment in general in 2019.
The UK and the Nordics were the hardest hit regions in Q3 2019. The volume of investments flowing through the UK in the quarter plummeted by 42% year-over year, from €7.2bn to €4.2bn, with deal count also falling by 12% from 278 to 245. Similarly, Nordics targets 1 Q3 2018 global entry investments into EMEA-based targets in the €1.0bn+ plus bracket: Upfield Foods, ZPG Limited, Pret A Manger (Europe) Ltd, TIP Trailer Services Management B.V., and Ammeraal Beltech Holding B.V.
2 Q3 2019 global entry investments into EMEA-based targets in the €1.0bn+ plus bracket: Howden Group Ltd., Forgital Italy S.p.A., and Luminor Group AB.
also suffered a drop, with both received capital and deal count falling by 24% year-over-year, from €2.4bn to €1.8bn, and 121 deals to 75 deals, respectively. Benelux targets experienced the biggest reduction in deployed capital, receiving only €1.7bn in the quarter compared to €9.7bn in the previous year; though it’s important to note that 75% of the Q3 2018 value was attributable to a single deal that saw KKR & Co. L.P. acquire the Spreads Business (Upfield Foods) from Unilever PLC for €6.8bn.3
The Financials and Healthcare sectors attracted significant attention from global GPs during the quarter, as deal value materially grew in spite of the overall
decline in investments across EMEA region. Aggregate capital deployed in the Financials sector increased more than two-fold, from only €0.8bn in Q3 2018 to €2.0bn in Q3 2019, notwithstanding a 33% reduction in the number of deals. Surprisingly, capital invested in Healthcare rose by 62%, jumping from €1.4bn in Q3 2018 to €2.2bn in Q3 2019. This trend suggests that Private Equity’s (PE’s) focus at this point in the cycle is on industries that are non-cyclical in nature, such as Healthcare, certain areas of Technology and Business Services.4 On the other hand, a single, large deal involving the acquisition by The
3 KKR & Co. L.P. (NYSE:KKR) completed the acquisition of Spreads Business from Unilever PLC (LSE:ULVR) on July 2, 2018 (As of 30/09/19). S&P Capital IQ Platform. Retrieved from https://www.capitaliq.com/CIQDotNet/Transactions/TransactionDetail.aspx?transactionId=546954145&companyId=546954102
4 “Global Private Equity 2019: The Year Ahead.” (As of 20/02/19). Private Equity Wire. Retrieved from https://www.privateequitywire.co.uk/special/global-private-equity-2019-year-ahead
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Carlyle Group of Forgital Italy S.p.A. for €1.0bn5 paved the way for the meteoric rise in capital deployed to the Materials sector, which
jumped from €0.2bn to a high of €1.7bn.
With a hard Brexit still on the line in Q3, the value of PE exits also dwindled. Global GPs’ aggregate capital realized from
EMEA based targets fell by 42% from €32.8bn to €18.8bn, and deal count was reduced by 23% from 297 to 219. The drop is likely connected to the decline in large deal divestments, with only three large deals during the quarter with a total value of €7.4bn, 6 a significant dive from the nine large deals with a total value of €18.0bn7 in the same period last year. A decline in capital realized was evident across all regions in EMEA, but most pronounced in Return on Equity targets, which were left with aggregate capital realized of only €1.0bn compared to €5.4bn in the previous year.
EMEA-based GPs’ Activity Weakens Globally
During the quarter, EMEA-based GPs’ investment activity also showed signs of slowdown, as capital deployed fell by 35%
5 Carlyle Europe Partners V and Carlyle Partners VII, L.P. funds of The Carlyle Group L.P. (NasdaqGS:CG) completed the acquisition of Forgital Italy S.p.A. from Fondo Italiano di Investimento fund of Neuberger Berman AIFM Limited, Asset Management Arm and Spezzapria family on September 11, 2019. (As of 30/09/19). S&P Capital IQ Platform. Retrieved from https://www.capitaliq.com/CIQDotNet/Transactions/TransactionDetail.aspx?transactionId=616267921&companyId=5722303
6 Q3 2019 global exit investments into EMEA-based targets in the €1.0bn+ plus bracket: BTG International Ltd., Global Switch Holdings Limited, and Parques Reunidos Servicios Centrales, S.A.
from €31.9bn to only €20.0bn in Q3 2019. Both cross-border and local targets felt the impact of the weakening investments, with the percentage decline reaching double digits. EMEA-based GPs’ investments into cross-border targets dipped by 39% to €10.8bn across 339 deals, compared to €17.7bn across 318 deals in the same period last year. Similarly, investments into local targets were down 30% falling from €14.2bn across 1,058 deals in the same period last year to €9.9bn across 942 deals this year.
Among cross-border targets, Asian targets were hit the hardest with a 77% decline in capital received and ended this quarter with aggregate investments of €1.9bn across 74 deals compared to €8.4bn across 54 deals in the same period last year. Even removing the single,
large deal in Q3 2018 involving the acquisition of Sydney Motorway Corporation Pty Limited for €5.8bn, 8 aggregate capital invested in Asian targets would still be down 30%. In the same way, UK targets also suffered a 66% dip in capital received from EMEA-based GPs, from €6.2bn across 240 deals to only €2.1bn across 215 deals. Additionally, there were no deals in the €1bn plus range.
7 Q3 2018 global exit investments into EMEA-based targets in the €1.0bn+ plus bracket: Sky Betting and Gaming, OOO Stroygazconsulting, Direct Energie Société Anonyme, Ufinet Telecom, S.A.U., iZettle AB, Pret A Manger (Europe) Ltd, SIG Combibloc Group AG, TIP Trailer Services Management B.V., and Ammeraal Beltech Holding B.V.
8 Transurban Group (ASX:TCL), Canada Pension Plan Investment Board, AustralianSuper Pty Ltd and Tawreed Investments Ltd. completed the acquisition of 51% stake in Westconnex from the Government of New South Wales on September 27, 2018. (As of 30/09/19). S&P Capital IQ Platform. Retrieved from
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EMEA-based GPs continued to invest heavily in the Information Technology (IT) sector, putting in €5.5bn of new money across 463 deals during the quarter, similar to last year. The Healthcare sector, on the other hand, has only started to attract interest, as aggregate capital grew by 15% from €3.0bn to €3.5bn in Q3 2019, despite a 7% decline in the number of deals. With no large deals executed during the quarter, the Industrials, Consumer Discretionary, and Communication Services sectors all suffered a decline in aggregate capital deployed, with the largest drop falling to the Industrials sector, with investments plunging by 80% from €9.4bn across 157 deals in Q3 2018 to €1.9bn across 139 deals in Q3 2019.
Divestiture activity of EMEA-based GPs also lessened, with a 55% reduction in aggregate capital realized when compared to the same
period last year. During the quarter, capital realized only totaled €18.5bn across 213 deals, versus €40.9bn across 274 deals in the previous year, though it should be
noted that a single exit deal in 2018 that saw Walmart acquire Flipkart Private for €13.5bn accounted for 33% of this value.9 Even removing this outlier transaction, however, aggregate capital realized would still be down 30%. From a sector view, the value realized from the Healthcare industry more than tripled, from €2.6bn across 22 deals to
https://www.capitaliq.com/CIQDotNet/Transactions/TransactionDetail.aspx?transactionId=579495878&companyId=285732216
9 Walmart Inc. (NYSE:WMT) completed the acquisition of 77% stake in Flipkart Private Limited from a group of sellers on August 18, 2018. (As of 30/09/19). S&P Capital IQ Platform. Retrieved from https://www.capitaliq.com/CIQDotNet/Transactions/TransactionDetail.aspx?transactionId=563483103&companyId=309452892
€6.2bn across 33 deals, even with 33% fewer total number of deals. The rise in total realized capital within Healthcare was largely boosted by a single, and the largest, deal of the quarter, which involved the acquisition of BTG International by Boston Scientific for €3.7bn.10
Shifting the focus onto the Venture Capital (VC) universe reveals just a 4% decline in global VC capital deployment in EMEA region, from €3.4bn in Q3 2018 to €3.3bn in Q3 2019 and fewer number of deals (562 versus 635 in the previous year). At 30%, IT received the highest allocation of capital from global VCs, standing €1.2bn across 252 deals. EMEA-based VC firms investments globally, on the other hand, grew incrementally at €6.7bn across 744 deals – a 3% growth – with the new money largely concentrated (57%) in North American targets. On a sector view, Healthcare stood side by side with IT, amassing €1.75bn of aggregate capital across 103 deals in Q3 2019 from €1.37bn across 108 deals the year prior.
UK’s “Going Private” Deals Taking Off
In line with the overall decline in deal volume across the EMEA region, PE investments in UK targets followed a similar trend in the first three quarters of 2019 as compared to the year prior, although the decline was a marginal 5.5%, from 843 to 796 closed transactions (Chart 1). Over the same period, the reported PE capital deployed into UK targets dropped 9% from £12.9bn to £11.8bn, resulting in the UK falling behind the Nordics (£12.9bn), who attracted more GP’s capital year-to-date. The latter will most likely be a short-term phenomenon as some big-
10 Boston Scientific Corporation (NYSE:BSX) completed the acquisition of BTG plc (LSE:BTG) from Woodford Investment Management Limited, Novo Holdings A/S, INVESCO Asset Management Limited and others on August 19, 2019. (As of 30/09/19). S&P Capital IQ Platform. Retrieved from https://www.capitaliq.com/CIQDotNet/Transactions/TransactionDetail.aspx?transactionId=591945718&companyId=127549
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ticket PE-backed Public to Private (P2P) buyout deals, worth a combined £8bn, are awaiting regulatory approval and would easily propel the UK back to the top. Thoma Bravo sees an “attractive opportunity to increase its exposure to the large and growing cyber security market” 11 by acquiring the Sophos Group plc (LSE:SOPH), a deal that values the firm in the range of £3.12bn, with an Implied Enterprise Value (EV)/Last Twelve Months (LTM) Earnings Before Interest Tax Depreciation and Amortization (EBITDA) multiple of 46.7x.12 Furthermore, the US PE firm Advent International Corporation already received the “green light” from investors but is awaiting the British government’s decision on its acquisition of the UK Aerospace and Defense company Cobham plc (LSE:COB) in a deal worth £4.5bn and an Implied EV/LTM EBITDA multiple of 15.4x.13
11 “UK Security giant Sophos heading for £3.1bn acquisition.” (As of 31/10/2019). NS Tech. Retrieved from https://tech.newstatesman.com/security/sophos-thoma-bravo-acquisition
12 Sophos Group plc (LSE:SOPH). (As of 31/10/2019). S&P Capital IQ Platform. Retrieved from https://www.capitaliq.com/ciqdotnet/Transactions/transactionDetail.aspx?transactionId=640450270&companyId=159951597
Data as of 30/09/19. Source: S&P Global Market Intelligence. For illustrative purposes only.
It is somewhat not surprising to see a slight uptick in the P2P activities targeting UK-based firms, but it is worth highlighting the significant increase in deal value. One factor that has potentially played a key role is the weakening British Pound. The GBP/USD rate fell to a historical low of $1.1885 in August this year as a result of the prolonged political debate around Brexit. Additionally, there is a strong appetite among institutional investors for private markets, as evidenced by record levels of global PE fundraising activity. The significant amount of “dry powder” in the market, as well as the low interest environment, are all possible factors driving the attention of foreign PE players to UK public
13 Cobham plc (LSE:COB). (As of 31/10/2019). S&P Capital IQ Platform. Retrieved from https://www.capitaliq.com/ciqdotnet/Transactions/transactionDetail.aspx?transactionId=640450270&companyId=159951597
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assets. 14 According to S&P Capital IQ data, if the above mentioned deals pass through the regulatory hurdles, the total amount of PE-backed “Going Private” deals could reach levels not seen since 2011; even more remarkably, the total deal value for those deals in 2019YTD would top the total amount paid across all PE-backed P2P UK deals over the past nine years (Chart 2).
14 “Private markets come of age.” (As of 31/10/2019). McKinsey & Company. Retrieved from https://www.mckinsey.com/~/media/McKinsey/Industries/Private%20Equity%20and%20Principal%20Inves
Data as of 30/10/19. Source: S&P Global Market Intelligence. For illustrative purposes only.
tors/Our%20Insights/Private%20markets%20come%20of%20age/Private-markets-come-of-age-McKinsey-Global-Private-Markets-Review-2019-vF.ashx
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EMEA Private Equity Market Snapshot
A recent study published by the Thinking Ahead Institute15 observed a significant shift within the public and private markets and highlights some key implications as a result of the changing dynamics. First, the average number of Initial Public Offerings per year across major markets, like the US and the UK, has dramatically declined in the last decade as compared to the period between 1980 and 2000. Secondly, the number of firms listed on the US equity market dropped by 50%, to just 4000 firms today, compared to the peak in the late 1990s. A key driver of the reduced number of firms is the overall perception of public markets as being increasingly impatient and short-term focused. Finally, there is an abundance of private capital, enabling private companies to access new capital outside public markets. In today’s ecosystem, companies that do go public are more likely to be more mature and come with a significant price tag attached to them. Given their long investment horizon, PE firms are taking advantage of the above developments, and it is not surprising that institutional investors are ramping up their exposure to private markets as a way to access fast-growing, innovative companies.
15 The evolving role of public and private markets (As of 31/10/2019), Thinking Ahead Institute Retrieved from https://www.thinkingaheadinstitute.org/-/media/TAI/Pdf/Research-Ideas/a_public/Private-Equity.pdf
16 As per the Global Industry Classification Standard (GICS) Communication Services sector comprises Telecommunication Services and Media & Entertainment Industry Group. (As of 30/9/2019). S&P Capital Global Market Intelligence. Retrieved from https://www.spglobal.com/marketintelligence/en/documents/112727-gics-mapbook_2018_v3_letter_digitalspreads.pdf
17 Mega deal is considered to be €1bn or more in value.
PE Investments in European Communication Services Targets16 on Course to Reach a Record High in a Decade
Over the last five years, the Communication Services sector in EMEA has attracted relatively stable funding from global GPs when excluding mega deals.17 In our study period, from January 1, 2015 to September 30, 2019, the total amount invested into the sector hit €44.7bn across 2525 transactions. Put into context, the sector accounted for almost 10% of the share of aggregate PE capital deployed to the region over the study period. Though the number of deals was almost unchanged, this year’s investment value totaled €4.7bn as of September 30, 2019, a substantial drop on the astounding €11.2bn put to work during the same period in 2018 (Chart 3).
That said, three mega-deals worth more than €1bn helped to boost aggregate deal values in the first three quarters of 2018. They included a €3.5b acquisition of Irish Telecom Air Limited,18 a €2.8 acquisition of UK-based ZPG Limited,19 and a €1.1bn investment in Imagina Media Audiovisual S.L. by Orient Hontai Capital.20 By comparison, there was only one mega deal on average in each year between 2014 and 2017.
18 Eir Limited. (As of 30/9/2019). S&P Capital IQ Platform. Retrieved from https://www.capitaliq.com/CIQDotNet/Transactions/TransactionDetail.aspx?transactionId=547205239&companyId=47125283
19 ZPG Limited. (As of 30/9/2019). S&P Capital IQ Platform. Retrieved from https://www.capitaliq.com/CIQDotNet/Transactions/TransactionDetail.aspx?transctionId=564134278&companyId=10255072
20 IMAGINA MEDIA AUDIOVISUAL, S.L. (As of 30/9/2019). S&P Capital IQ Platform. Retrieved from https://www.capitaliq.com/CIQDotNet/Transactions/TransactionDetail.aspx?transactionId=540994879&companyId=7023697
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Data as of 30/09/19. Source: S&P Global Market Intelligence. For illustrative purposes only.
Within the broader Communication Services sector, some of the sub-industries appear more attractive to GPs, shaping the overall composition of entry deals. The Interactive Media and Services industry has by far dominated the Communication Services landscape, both in terms of deal volume and deal count. The industry attracted €11.4bn (1526 deals), which amounts to a 25% share of aggregate deal values and 60% of the deal count over the study period. S&P Global Market Intelligence fundamentals data for the last five years shows that EMEA-based private companies operating in the Interactive
21 Plimsoll Productions Ltd. (As of 30/9/2019). S&P Capital IQ Platform. Retrieved from https://www.capitaliq.com/ciqdotnet/Transactions/TransactionSummary.aspx?CompanyId=328485466&transactionViewType=1
Media and Services segment are consistently outperforming their Media & Entertainment peers, with an average EBITDA margin of 18.5% and an average net profit margin of 14.5%, which likely explains the strong deal-making activity into the segment.
Movies & Entertainment and Integrated Telecommunication Services round up the top three most invested sub-industries, contributing 16% and 15% of the share of money invested, respectively. Interestingly, the largest growth deal into the Movies & Entertainment sub-industry recorded so far this year was a €86m investment into Plimsoll Productions Ltd. by LDC (Managers) Ltd.21
As more broadcasters and media tech companies launch their own streaming services, content is increasingly seen as a differentiating factor in winning over viewers. As a result, programming budgets are skyrocketing, likely leading to increased PE interest in the TV production segment. According to S&P Global Market intelligence, over the course of five years, over-the-top (OTT) video subscription in the UK grew by a 106.4% Compound Annual Growth Rate (CAGR) against a 3.4% multichannel equivalent, which makes the UK one of the most developed OTT video markets in Europe, 22 though other European countries are following suit. For example, the streaming video market in Germany increased threefold from 2015, reaching €14.6m in 2018. All this comes against the backdrop of stagnating multichannel customer growth in Europe. Between 2019 and 2028 the number of multichannel subscribers in Western Europe is projected to increase by a CAGR of 0.4% (Chart 4), and by a CAGR of 1.3% for
22 S&P Global Market Intelligence (As of 30/9/2019). Retrieved from https://platform.marketintelligence.spglobal.com/web/client?auth=inherit#news/article?id=53064635&KeyProductLinkType=24
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Eastern Europe (Chart 5). At the opposite end is the Middle East and Africa, with a CAGR of 7%, the highest among other regions.23
Data as of 30/09/19. Source: S&P Global Market Intelligence. For illustrative purposes only.
23 S&P Global Market Intelligence (As of 30/9/2019). Retrieved from https://platform.marketintelligence.spglobal.com/web/client?auth=inherit&overridecdc=1&#industry/GlobalMultichannelRank
Data as of 30/09/19. Source: S&P Global Market Intelligence. For illustrative purposes only.
Regional Domination – Spotlight for the UK
The UK proved to be an unquestionable destination for investments into Communication Services. The country amassed almost €12bn, equivalent to the combined capital invested into France, Germany, Spain and Sweden over the last five years, with strong funding from local investors. Single buyer deals data reveals that in three quarters
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of completed transactions, money came from UK-based investors. While deal count in the first three quarters of 2019 was on par with the four-year average over the same period in 2018, deal value amounted to €588mm, a drop of 65% from 2016 (€1.6bn) and way below the mark of the unprecedented €4.2bn registered in 2018. Yet the collapse in invested capital in 2019 versus the previous period appears not to be constrained to UK, but Europe wide. An exception is France, where money deployed to Communication Services targets (€2.2bn) has already surpassed the previous years’ full figure. Notably, a €1.8bn acquisition of SFR FTTH led by a consortium of Allianz Capital Partners, OMERS Infrastructure and AXA IM – Real Assets drove up investment value.24
Despite the falling deal count, PE players are willing to splash capital when the right opportunity arises, driving up the M&A valuation. The average Implied EV/EBITDA increased from 11.3x in 2015 to 12.5x in 2018.
Although 2019 got off to a slow start for PE investments into the Communications sector, as the year draws to a close, deal volume is on course to surpass the previous year’s level and even reach a decade high. There is a further €15bn to be injected into the sector if all announced deals are to close. Indeed, in the UK, deal value is set to soar by €5bn once the Inmarsat Plc transaction25 receives regulatory approvals from competition authorities, showing that despite global political and economic uncertainties, the Communications sector in EMEA remains quite resilient.
24 SFR FTTH. (As of 30/9/ 2019). S&P Capital IQ Platform. Retrieved from https://www.capitaliq.com/CIQDotNet/BusinessRel/investors.aspx?companyId=584271941
FEATURE ARTICLE
PE Leveraging ESG to Create Value
PE has shifted its view of Environmental, Social and Governance (ESG) factors to a means through which it can add value, rather than simply a way to mitigate risk.
In some cases, assets in which a firm might consider investing have implemented ESG strategies to the highest degree, and, as such, a firm may deem there is no room for further improvement. At the other end of the spectrum, some assets are too risky for firms to considering improving. Between these two poles lies a gray area, which has come further into the spotlight as consumers grow increasingly more ethically aware.
For instance, a potential investment may not have a strong ESG track record and therefore would raise red flags during due diligence, but that also could translate into an opportunity for the investor in terms of raising its ESG score and winning support from conscientious consumers.
Cornelia Gomez, ESG director at PAI Partners, notes that investing in businesses that have areas where they can improve on ESG is precisely where PE owners can have an impact: "We will have a lot of levers to improve them, to push them towards certifications, labeling, and more transparency, more traceability."
Firms with PE strategies are searching for ways to make improvements. The head of ESG at one large U.S.-headquartered alternative asset manager, which manages billions of dollars in assets, said the firm looks to advance ESG best practices across sectors
25 Inmarsat Plc (LSE:ISAT). (As of 30/9/2019). S&P Capital IQ Platform. Retrieved from https://www.capitaliq.com/CIQDotNet/Transactions/TransactionDetail.aspx?transactionId=606921695&companyId=3574059
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without taking unnecessary risks. It sees opportunities in companies that need investments to reach best practice standards, particularly around safety and any type of environmental emission improvements. Investments in companies that are more difficult to manage can also create returns for investors. Where investments are more difficult to manage, "we feel that our investors are being appropriately rewarded for managing risks that somebody's got to manage," they said.
Moving Past the Negative
At one time, it took convincing to get those in the industry to see the possible benefits of ESG. Some 10 years ago, Principles for Responsible Investment (PRI), the United Nations-supported organization that aims to help investors incorporate ESG, had only a handful of PE members. Natasha Buckley, a senior manager at PRI, said her organization had "quite difficult conversations" convincing Limited and General Partners that ESG "is not about sacrificing returns. This does not breach of your fiduciary duty."
Initially, market participants commonly associated ESG with investment restrictions that Limited Partners (LPs) required of their GPs, said Buckley. But investment restrictions are not necessarily tied to ESG. Rather, they may take into account the avoidance of bad publicity, or sectors LPs already have strong market exposure to, PE industry sources said. Common examples are assets involved with tobacco, pornography, gambling or certain types of weapons.
Although these sorts of restrictions are still in place for many LPs, they are not looking to lengthen the list and limit the investments their managers can make. Some managers have found that a push to take a
more sustainable or more socially aware approach to a tricky industry can also lead to investment ideas that can mitigate some of the negatives.
Investment firm EQT AB's head of sustainability, Therése Lennehag, recalled having a conversation with an LP about a tobacco restriction, and the same day her firm announced it had agreed to invest in Fertin Pharma, a producer of medicated chewing gum primarily targeting those looking to quit smoking.
"Sometimes we've been trying to take a different view on that negative screen," Lennehag said. She added that firms can find ways to make a positive difference when they look to do more than just avoid certain industries.
ESG Part of Overall Process
Many in the industry note that it's important to distinguish ESG from restriction-based investing. ESG is about integrating related factors into the due diligence process "irrespective of whether or not we move forward on a deal" and across the ownership of an asset, said Blackstone Group Inc.'s global head of ESG, Alison Fenton-Willock.
Today, ESG is incorporated into the due diligence carried out by LPs, and some are pushing PE firms for further information. The increased awareness has changed how the industry views ESG, said Buckley, whose firm now has some 400 GPs as members. "It's gone from being a marketing discussion or an investor relations discussion to be more about operational value creation," Buckley said.
For illustrative purposes only. Source: S&P Global Market Intelligence. As of June 31, 2019
EMEA-Based Targets
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Number and aggregate deal value (€bn) of PE entry transactions by industry
Q3 2018 vs. Q3 2019
Q3 2018 Aggregate Deal Value Q3 2019 Aggregate Deal Value Q3 2018 Deal Count Q3 2019 Deal Count
0
10
20
30
40
50
60
0
2
4
6
8
10
12
14
16
Number and aggregate deal value (€bn) of PE exit transactions by region
Q3 2018 vs. Q3 2019
Q3 2018 Aggregate Deal Value Q3 2019 Aggregate Deal Value Q3 2018 Deal Count Q3 2019 Deal Count
For illustrative purposes only. Source: S&P Global Market Intelligence. As of June 31, 2019
15
EMEA Private Equity Market Snapshot – Data Pack
0
20
40
60
80
100
120
140
0
500
1000
1500
2000
2500
3000
Number and aggregate deal value (€m) of VC entry transactions by region
Q3 2018 vs. Q3 2019
Q3 2018 Aggregate Deal Value Q3 2019 Aggregate Deal Value Q3 2018 Deal Count Q3 2019 Deal Count
0
50
100
150
200
250
300
350
0
200
400
600
800
1000
1200
1400
Number and aggregate deal value (€m) of VC transactions by industry ¹
Q3 2018 vs. Q3 2019
Q3 2018 Aggregate Deal Value Q3 2019 Aggregate Deal Value Q3 2018 Deal Count Q3 2019 Deal Count
0
50
100
150
200
250
300
350
400
0200400600800
100012001400160018002000
Number and aggregate deal value (€m) of VC entry transactions by industry
Q3 2018 vs. Q3 2019
Q3 2018 Aggregate Deal Value Q3 2019 Aggregate Deal Value Q3 2018 Deal Count Q3 2019 Deal Count
0
20
40
60
80
100
120
140
160
0
100
200
300
400
500
600
700
800
900
1000
Africa BeNeLux France Germany MiddleEast
Nordics RoE SouthernEurope
UK
Number and aggregate deal value (€m) of VC transactions by region
Q3 2018 vs. Q3 2019
Q3 2018 Aggregate Deal Value Q3 2019 Aggregate Deal Value Q3 2018 Deal Count Q3 2019 Deal Count
VC EMEA-Based Targets
VC EMEA-Based GPs
Data Pack
Multiples Table EMEA
16
For illustrative purposes only. Source: S&P Global Market Intelligence. As of June 31, 2019
EMEA Private Equity Market Snapshot – Data Pack
• Multiples highlighted in bold & italics represent the sector average over a 2 year time horizon in order to provide a more comprehensive sector average• Colour legend can be defined as "RED" representing the lowest multiple and "GREEN" representing the highest multiple observed across industry sectors,
deal structures and multiple types during the period mentioned.
Footnotes
1. The exit transaction aggregates have been calculated after removing the following deal to avoid overestimating the trend: Walmart Inc. (NYSE:WMT) completed theacquisition of 77% stake in Flipkart Private Limited for 13.5bn EUR from a group of sellers on August 18, 2018. Retrieved fromhttps://www.capitaliq.com/CIQDotNet/Transactions/TransactionDetail.aspx?transactionId=563483103&companyId=309452892
Implied Enterprise Value/EBITDA EMEA PE exits 01/07/2018 - 30/09/2019 EMEA all M&A 01/07/2018 - 30/09/2019
Communication Services 16.1 12.3Consumer Discretionary 12.0 11.0Consumer Staples 6.3 11.9Energy 8.2 8.6Financials 13.1 10.7Health Care 13.5 13.5Industrials 11.6 9.5Information Technology 12.9 12.6Materials 10.3 9.1Real Estate 33.4 22.3Utilities 12.3 11.0
Implied Equity Value/LTM Net Income EMEA PE exits 01/07/2018 - 30/09/2019 EMEA all M&A 01/07/2018 - 30/09/2019
Communication Services 34.0 27.5Consumer Discretionary 20.5 17.8Consumer Staples 7.0 15.7Energy 15.4 17.1Financials 21.6 15.0Health Care 28.3 20.4Industrials 14.7 14.3Information Technology 32.8 20.2Materials 8.4 15.5Real Estate 7.4 12.5Utilities 36.9 24.4
EMEA Private Equity Market Snapshot – Contact us
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