The green transformation of the economy is indispensable. However, it remains a hurdle in terms of financial resources. We believe that private equity, which currently manages around €800 billion of assets in Europe, can act as a catalyst for green transformation and play an important role in transforming grey into green businesses. Find out what real and perceived hurdles remain, as well as strategies to counter them.
European Private Equity Outlook 2024: Positive momentum in the air
Our annual survey expects more favorable market conditions for the private equity sector
After a stagnant 2023 for the private equity sector, the tide is expected to turn in 2024. According to our latest European Private Equity Outlook, 65% of industry experts anticipate an increase in M&A transactions with private equity (PE) involvement in 2024.
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"We see a significant change in sentiment compared to 2023 with anticipated higher volumes of M&A transactions involving private equity."
The Outlook is the 15th consecutive publication in a series launched by Roland Berger in 2010.
In view of the expected normalization of interest rates and the ongoing recovery of most major European economies, the prospects are largely positive. The postponement of many portfolio company exits by PE in 2023 is also likely to boost M&A transactions in 2024 as investors expect more favorable market conditions.
Nevertheless, respondents to the 2024 Outlook see some regional variation in this trend. The DACH region (Germany, Austria, Switzerland) can expect the strongest growth, they say, followed by France and the Nordic region (Norway, Sweden, Finland and Denmark). While things don’t look quite as good for Central & Eastern Europe, more than half of respondents still expect deal activity to develop positively.
Little change in the most promising sectors
As in the previous three years, technology, software & digital solutions, and pharma & healthcare are the sectors set to yield the most M&A deals with PE involvement. These industries are of particular interest to PE due to their fundamental growth characteristics, resilience, and scalability. Automotive and building & construction continue to show the least potential.
There is also little expected change in the development of PE transaction size classes. According to the outlook, small- and mid-cap segments are the most promising for 2024 as they are less reliant on large amounts of debt financing, with expectations for larger capital classes being more conservative. Debt financing is predicted to develop positively for infrastructure and the small- and mid-cap asset classes.
"The transformative power of AI in private equity is not just in its ability to analyze data, but in its capacity to unveil hidden opportunities, optimize decision-making, and enhance operational efficiency."
Shifts in key targets and the PE value chain
Much like last year, just over 70% of respondents believe valuation multiples are overvalued or slightly overvalued. The number of experts seeing valuations as fairly valued has decreased slightly.
A closer look at valuations by industry shows that almost half of respondents expect valuations for technology, software & digital solutions to increase in 2024. This is followed by pharma & healthcare (40%) and infrastructure (30%). A majority of respondents see a decline in the consumer goods & retail, automotive, and construction sectors.
Majority investments are the most important targets, followed by secondary buyouts, which have seen a huge increase compared to 2023 after many PE exits were postponed. The relative attractiveness of public-to-private transactions is set to decrease significantly.
A further major shift compared to 2023 is expected in the PE value chain, with much greater focus on the development of portfolio companies. The focus on fundraising will decline significantly, according to the respondents.
Lastly, innovation and sustainability will continue to make an impression on the PE sector. Respondents expect AI to be the most important measure for portfolio management and value creation, followed by digitalization and data analytics, and ESG factors.
For further details on the most important trends in the European Private Equity sector, download the full version of the European Private Equity Outlook 2024.
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