European Private Equity Deals Rise as Companies Focus on Strengthening Core Businesses

Private equity investors are attracted to opportunities in Europe as dealmaking in the region intensifies, says Michael Bruun, global co-head of Private Equity in Goldman Sachs Asset Management.

Dealmaking is on the rise across the region for several reasons. Many European companies are eager to shed non-core businesses while others are keen to consolidate assets in their industries, Bruun says. A number of enterprises want to scale up to develop artificial intelligence (AI) capabilities. Still others want to tune up their operations to expand globally.

At the same time, investors are attracted to the value in European companies relative to pricier counterparts in the US. Bruun points out that with the cost of capital dropping in Europe, private equity investors may reap richer rewards.

The upshot is a jump in private equity activity. “It’s not one single factor but a confluence of factors, and they are all moving in a direction that is conducive to deals,” says Bruun. We spoke with Bruun about the trends creating opportunities for private equity investors in Europe, which sectors are in focus, and the impact on the market from a stronger euro currency.

What is making European private equity deals more attractive to global investors?

Europe has underlying economic growth and stability. In addition, you’re seeing valuations in Europe that are lower than in the US market. Of course there are reasons for this, including that the US has the deepest capital markets globally and the exit environment is more favourable. But investors who are experienced at building high intrinsic value businesses in Europe and know how to sell them to strategic buyers are looking at the opportunity and saying, “I can get some of the same deal characteristics that I might get in the US, but at a lower price point.”

Some of these companies have great growth opportunities outside the region, including in the US. So, it’s a Goldilocks scenario: You can get global growth exposure but at a European discount.

Which sectors are experiencing high levels of dealmaking in Europe?

We see opportunities across a number of sectors, including financial services, technology, business services, and healthcare. Financial services is a very interesting sector. There is a need for individuals to diversify and manage their savings and to be introduced to more product choice, including alternatives. So, we are seeing interesting growth opportunities and consolidation around wealth services, but also in areas like insurance.

Then there is another big power lane: the healthcare market. Governments and individuals are dealing with rising healthcare costs while still demanding innovation and we see multiple opportunities to support companies in this field.

Of course, AI is acting as an important catalyst for growth and deal formation across Europe and we see great opportunities around data, AI implementation and services related to the roll out and maintenance of both data and energy infrastructure.

What else is driving the increase in European private equity activity?

The conditions for dealmaking are better this year than in 2024 for several reasons. On the supply side, there are a lot of unsold assets held by private equity funds that need to generate an appropriate level of realized returns.

You also have a number of corporates which, given the levels of uncertainty and their focus on value creation, want to dispose of non-core assets. So, we are seeing nice supply-side dynamics that are conducive for deals.

On the demand side, we still see a good amount of capital being raised and an impetus to deploy capital. It’s not one single factor but a confluence of factors, and they are all moving in a direction that is conducive to deals.

How are falling interest rates affecting the deal picture?

We’re seeing a better environment from an equity-return perspective. Credit spreads have come down and in Europe the overall cost of corporate debt is now lower than it was 24 months ago. This makes new deals more attractive and should leave companies with more room to invest for growth. In an otherwise stable valuation environment, that should bode well for private equity.

This ultimately means that buyers and sellers, demand and supply, are now more balanced, and we can get more transactions done.

Are there other distinctions?

There is a lot of fragmentation in European industries. This provides an opportunity for private equity players to create platforms and start consolidating markets. They can build bigger and better companies with enough revenue and earnings growth to support research and development investments in innovations such as AI.

Is the drive to add AI capacity a catalyst for dealmaking?

The push to increase investing levels on the most important capabilities and to future-proof companies is becoming a driver for consolidation. There are companies that are not big enough, and they are concerned they will be left behind.

We see tremendous growth around the application of AI and with companies that assist other companies in bringing AI into their toolboxes. These tools are often being used to generate incremental revenue growth and deliver a better customer experience. AI also helps with efficiency gains.

Does private equity help European companies expand their global businesses?

Absolutely.  There are a multitude of ways that private equity owners can add value to their portfolio companies, but tapping into their networks when a company wants to expand to a new market can be amongst the most valuable, whether that’s introducing them to customers and potential hires or helping them to understand regulation. For European companies, accessing the US market is often a major goal and something we regularly partner with them on. The same is true for our US portfolio companies who want to sell to Europe, by the way.

To stay competitive, focus and consolidation are definitely elements that are important. Large companies are facing this issue: Can they support a multitude of business areas and regions, or should they be more focused and go deeper on one vertical? An important role of private equity is to bring companies across borders and spur organic and M&A-driven growth.   

Are divestments, or carve-outs, picking up in Europe?

We have seen an uptick in the overall volume of carve-outs this year, and we have been a participant in this trend by coming in, carving out a subsidiary of a larger corporate, and adding much more focus to that business. This is a real opportunity to drive growth beyond what a company may be able to do with its own strategy. And then we can start prioritizing mergers and acquisitions options on behalf of that carved-out business.

In addition to carve-outs, what other types of deals are picking up momentum in Europe?

There is a lot of what we call secondary transactions. This has a lot to do with the prolongation of the period for private equity investments. It used to be that companies were held for around four years. That number is now closer to six years. And there is a need for realized returns.  So, you’re seeing sponsors willing to transact at valuation levels that are now more attractive for the incoming investors and this has led to good amount of deal-formation.

There are also companies listed on public exchanges that are beyond the scope of large public asset managers. They feel a little lost and are looking for a new value-add shareholder, a new partner, that can come in with a network and value-acceleration capabilities and really be that strong partner to facilitate growth.

Is the euro’s strength relative to the US dollar a factor for global investors eyeing Europe’s private equity market?

First of all, you have to accept that not all of Europe uses the euro. You get exposure to more currencies than euros. That being said, we are certainly seeing interest from investors wanting to diversify their currency exposure through their allocations. The European private equity market is attractive because it allows you to diversify away from what has historically been a US dollar-dominated private market.

So yes, we certainly see an uptick in interest in having more euro-denominated private market exposure.

This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.