As we move towards the end of the second quarter of 2015, many have wondered whether this year will be able to live up to the bumper year of 2014 in terms of cross-border private equity activity. Despite volatile commodity prices and an unsteady European market, a recent survey conducted by integrated communications firm RR Donnelley revealed that most private equity executives believe cross-border private equity activity will increase over the next 12 months.
In regards to industry drivers, the executives polled expect to see significant cross-border private equity activity in the energy mining & utilities sector, as a result of firms capitalizing on the fluctuating prices. Other sectors expected to see movement include the consumer goods sector and the pharma, medical & biotech industries, due largely to increasing global demand for those products. The executives also agree that the bulk of this activity will be seen in the North American Market. The survey does suggest, however, a growing presence for cross-border private equity in the Asia-Pacific market and emerging markets in general.
The state of the European market has made a clear impact on the executives’ forecasts, with 60% of poll respondents believing that European issues will have the greatest impact on cross-border private equity activity. But while a struggling European market might scare off some, it is clear from the survey that many executives, 24% of those polled, see an opportunity in Europe with respect to distressed asset turnaround. However, this strategy is not without its risks, as highlighted by the European head of Warburg, Joseph Schull, in a recent Financial Times article. Schull fears that a combination of rock-bottom interest rates with no more room to decline and competition from venture capitalist start-ups may have the effect of shaking the foundations of the leverage buyout and slow-growth model.
Despite a good start to the year in terms of deal frequency and volume (saving the near 20% fall over the month of April), there is still little optimism that the market will be able to facilitate any multi-billion dollar deals in the near future, with most executives expecting individual deal volumes in the USD $100M-$500M range. However, the RR Donnelley survey suggests that market confidence is indeed on the rise and stipulates that significant growth in the mid-market may in fact serve to achieve the same or greater levels of total buyout volumes as we saw in the years preceding the financial crisis.