As economies across Europe started to escape their multi-year slump, private equity and venture capital funders began to see opportunities for investment. It turns out that their optimism was well placed.
In a 2016 New York Times interview, PE firm General Atlantic’s CEO, Bill E. Ford, said that there was already starting to be a “real turning of the tide” in terms of the investment environment, with a significant valuation reset in the public markets.
“That’s likely to follow through to the private markets,” Ford said. “I think we’re in the early stages of the private market revaluation. It will take on the order of six to 12 months to take hold.”
It looks like Ford was right.
According to a recent Financial Times article, in 2016, private equity fundraising across Europe hit its highest level since 2008, with a whopping €74.5 billion (about $89 billion U.S.) raised—a 37 percent year-on-year increase. PE investment in European companies is also strong: €53.7 billion (more than $64 billion U.S.) were invested last year. Nearly 6,000 companies across the continent benefited from those investments.
“This data demonstrates high investor confidence in European private equity, in an otherwise low-yield global investment environment,” said Michael Collins, Chief Executive of Invest Europe. “All European economies are now growing and investors value the proven ability of European fund managers to find attractive investment opportunities across sectors and geographies.”
Invest Europe isn’t the only group seeing the benefits of investing in Europe.
According to Graham Elton of Bain Insights, private equity investments in developed Europe have performed as well as, or better than, those in the U.S. The most recent five-year net internal rate of return for PE investments was 12.5 percent in developed Europe versus 11.6 percent for the U.S.
Elton said that even if on the surface Europe appears less attractive than the U.S. due to structural challenges inherent in the EU and economic issues like high unemployment rates in some nations, the region still offers great potential.
“Western Europe has more large-scale companies per unit of GDP than many other parts of the world,” Elton wrote. “Most of its countries rank relatively high on indexes measuring attractive conditions for investment.”
As hedge funds lose their appeal and U.S. and European investors look for profits in an environment with record low interest rates, PE firms like General Atlantic are finding Europe an attractive investment environment.
“Over 40 percent of capital raised by European private equity last year came from investors outside of Europe,” said Collins, “while a third of investments made into companies were cross-border.”
Not only that, but European markets have long offered an advantage to investors who have local knowledge and relationships cultivated through a local presence.
That may be one reason why General Atlantic recently hired former AXA CEO Henri de Castries to help advise it on European investment opportunities.
“With a distinguished career leading one of Europe’s most prominent financial institutions, Henri’s wealth of experience as a global business leader will be an important and valuable addition to both General Atlantic and our global portfolio companies,” Ford said.
All in all, it looks like European companies are becoming an increasingly attractive investment opportunity for the private equity and venture capital sectors.