US PE houses spent $58 billion on European buyouts in 2014, a 43% increase on 2013 figures, according to Mergermarket.
US PE houses are becoming major players in the European buyout game. Much of this activity is attributable to the increasingly global focus of many larger PE houses, but also due to the fact that these US sponsors have built up sizeable war chests and have struggled to deploy this capital on their home turf.
Hotly contested auctions have become a feature of the US market and seller valuations have soared, thanks in part to bullish stock market performance and cheap debt. These trends have spurred extreme competition for quality assets in the US auction market – US sponsors face increasing difficulty to acquire attractive targets at a price that has the potential to lead to sufficient returns. Although similar features are evident in the European market, many US sponsors are looking to Europe to expand the field for quality assets.
Click here to view chart.
Further, many US PE firms have even created their own European funds. According to Preqin, the value of dry powder held by US PE houses that are focused on Europe increased by 31% from December 2013 to February 2015. US PE Sponsors Take on Europe Transactions involving PE houses from the US and Canada are becoming a characteristic of the European market, even for houses with no European presence. For example, in 2014 US PE house GCTR acquired Sweden-based Cision AB and, at the end of 2014 GTCR Canyon Holdings, the affiliate of GTCR that combined Cision and US-based Vocus, acquired UK-based Gorkana.
The growing enthusiasm amongst US PE sponsors for European investments will inevitably lead to even greater competition in the region. Although the political turmoil in Greece and the consequent uncertainty surrounding the Euro may temper some US enthusiasm, it is clear that established European PE houses are going to come up against their US equivalents on a far more regular basis.
US or global sponsors can be attractive for European management teams which are looking to expand their portfolio companies beyond Europe or which are looking to partner with a sponsor that has experience and relationships in the US capital markets. European sponsors, therefore, may need to work harder to position themselves as the preferred bidder. What will be interesting to see is whether the increasing activities of US sponsors in Europe will result in deal terms converging even further with US market norms.