Deals involving Europe’s private equity firms transferring assets among themselves have fallen by more than 50 percent to €16.8 billion, year on year, as rising interest rates and a gloomy economic outlook have dimmed what the Financial Times called “buyout game of pass-the-parcel.”
In this year’s first quarter, the value of deals among the companies dropped to its lowest since 2020’s second quarter, data service PitchBook reported.
Sellers apparently have been unable to find buyers willing to pay a satisfactory price, the FT said.
“It’s a very tough time to exit anything and sponsor-to-sponsor deals are the most acutely impacted,” Hugh MacArthur, Bain & Co’s private equity chief, told the FT.
“You have the macro uncertainty and debt costs a lot more, so unless you are willing to ignore that then it is very difficult to get these deals done,” he noted.
Until 2022, low yields on conventional investments led institutional investors to funnel money into private equity firms that then were under pressure to deploy them.
Because debt was cheap, companies could trade assets at low cost with little risk. In 2021, €173 billion worth of deals were done among Europe’s buyout firms.
Some companies changed hands four or five times, with their value climbing with each sale, the FT noted, citing one analyst who likened the practice to a Ponzi scheme.
TREND FORECAST: Now sellers are unwilling to sell at lowered prices and buyers are unwilling to pay today’s higher interest rates amid a risky economic future.
Plain and simple, the numbers don’t add up to bring in profit since the valuations were artificially inflated during the cheap money scheme years and the phony economic exuberance during the COVID War that pushed M&As to record highs.