European private equity groups look beyond EU for deals

European private equity groups are directing twice as much cash at deals outside the EU than at local assets, as they weigh the risks brought about by Brexit and the relative political instability in Europe’s biggest economies.

Private equity dealmaking outside Europe reached €22.2bn in the second quarter of the year compared with €10bn for EU deals during the same period, according to S&P Global Market Intelligence.

In April and May, €17.6bn was dedicated to deals beyond the groups’ home markets compared with just €5.8bn in the same period in 2016.

Private equity groups are under pressure to deploy record sums of capital, with the total amount of unspent cash surpassing levels seen in the lead-up to the financial crisis. So-called dry powder stands at a record $918bn, according to Preqin, the data provider.

Buyout groups’ focus has shifted from Europe, however, because of uncertainty surrounding how the arrangements put in place after Britain leaves the EU will affect future dealmaking, say observers.

Silvina Aldeco-Martinez, an analyst at S&P Global Market Intelligence, said the focus on markets outside Europe was a result of private equity looking to become more diversified as groups seek to invest in high-value assets.

“Private equity investors have seen very attractive opportunities outside Europe and they went full-on into China and Australia,” said Ms Aldeco-Martinez. “European deals sizes have been getting smaller and buyout groups have been looking for big-ticket deals elsewhere.”

The average private equity deal size in Europe stood at €13.4m, whereas in Asia-Pacific the figure was €1.3bn. The acquisition of Endeavour Energy by Qatar Investment Authority for €8bn was a sizeable deal in the region.

Klaus Hessberger, co-head of financial sponsors at JPMorgan Chase, said more private equity groups were increasingly adopting a global strategy. “This is linked to the fundraising cycle,” he added.

“As European funds have done most of their fundraising in the past 18 months, they are increasingly more diversified and they have global mandates.”

In December, for instance, Warburg Pincus closed a $2bn China fund, While BC Partners, Permira and Cinven have targeted regions outside Europe with funds investing in industries from healthcare to financial services.