European Private Equity Outlook 2021: Optimism prevails

European Private Equity Outlook 2021: Optimism prevails

March 25, 2021

Technology, software, pharma & healthcare are the most attractive sectors for PE investments

"It is now apparent that digitalization is becoming more relevant to value creation."
Portrait of Christof Huth
Senior Partner
Munich Office, Central Europe

Despite the ongoing coronavirus pandemic, optimism is growing in the private equity industry. Four out of five experts expect an increase in M&A transactions involving private equity (PE) in 2021. More than a third estimate that the rates of increase will be in the double digits. Digitization and add-on acquisitions are the most relevant for value enhancement. These are the findings of Roland Berger's "European Private Equity Outlook 2021", for which around 2,500 private equity (PE) experts in Europe were surveyed.

Confidence in the PE industry is surprisingly high this year: while in previous years just under one third of the PE professionals surveyed expected an increase in M&A transactions with PE involvement, this year the figure is 80 percent. Taking the Covid-19 pandemic into consideration, which has not yet been overcome, this is an indication of the industry's resilience to change in the economy.

The positive view is also reflected in the assessment of the overall economic situation: 85 percent of the PE experts surveyed expect a positive economic development for 2021. The PE market should also benefit from this – above all Germany, for which an increase of around 5 percent compared to 2020 is forecast. Scandinavia and the Benelux countries follow. In each of these countries, M&A transactions with PE participation are expected to increase by around 3 percent. Significantly weaker growth is expected for the Southern and Eastern European countries and for the UK.

Digitalization and add-on acquisitions play a key role

When asked about the most important value creation measures, there have been some changes compared with the previous year: digitalization/Industry 4.0 now ranks first in portfolio management with an increase of five percentage points. This is closely followed by add-on acquisitions, which, together with new products and services, experienced the greatest increase in importance compared to 2020 with nine percentage points.

The relevance of the cycle resilience of portfolios, which was considered the most important value creation measure in 2020, is losing importance this year in the eyes of the PE experts. The positive assessment of the overall economic situation, and with it the perceived resilience towards Covid-19 impact, has also experienced a big drop. The biggest losses in the value creation measures – with a decrease of eleven percentage points – relate to working capital optimization and investment efficiency.

Positive outlook - the PE industry expects growth in M&A transactions in 2021.
Positive outlook - the PE industry expects growth in M&A transactions in 2021.

Technology and health remain most important sectors

The most attractive sectors for PE investments remain technology, software & media (89 percent), pharmaceuticals & healthcare (83 percent) and business-related services & logistics (71 percent). A look at the past two years reveals a constant picture here. In 2019 and 2020, these sectors again ranked unchallenged in the top three places. Technology, software & media have since received the greatest increase in importance of almost 20 percent. This shows the advancing importance of digitalization, which has received a further boost from Covid-19. By contrast, the automotive and construction industries are of less interest to the PE experts, now ranking at the bottom.

There is also great optimism within the PE sector when asked about the general market opportunities for 2021: almost two-thirds of the experts (65 percent) rate these as better than in 2020 (22 percent). The most popular targets continue to be family businesses. More than half of the respondents consider a majority stake in such businesses to be desirable. Secondary buyouts are now closely followed in second place, which underlines the increased importance of this segment for the PE industry.

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