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Q1 European PE breakdown 2025

Executive Search
Tracey Alper our consultant managing the role
Author: Tracey Alper

Geopolitical uncertainty slows deal making

After a successful year of deals in 2024, investors have become more cautious in early 2025 due to geopolitical tensions. In the first quarter, the value of deals fell by 24.6% and the number of deals by 17.7%. Political instability in France and Germany, along with uncertain policies from US President Donald Trump, particularly trade tariffs, have made investors hesitant. The US has imposed a 25% tariff on imported vehicles and other tariffs on Europe, affecting industries like manufacturing and retail. This could reshape industries and impact private equity portfolios.
Despite this, there are opportunities for investment, particularly in industries like healthcare and software services, which are less affected by tariffs. Europe also faces challenges like energy shortages and underinvestment in technology. The UK is addressing these issues with its National Wealth Fund, focusing on economic growth and clean energy.
Trade tariffs could lead to inflation, posing macroeconomic challenges. Europe went through a period of high inflation, mainly due to COVID-19 and the Russia-Ukraine war, which led to two years of tighter money policies. The European Central Bank is easing monetary policy, reducing interest rates to lower borrowing costs. However, future tariffs and inflation threaten this recovery, and investors must carefully consider these factors in their strategies.
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Investors are cautious and deals are small

In the first quarter of 2025, companies were careful about making big deals, resulting in only 11 very large deals. The biggest one was Bain Capital's €4 billion purchase of Apleona from PAI Partners. Instead of pursuing large transactions, companies preferred smaller add-on deals to grow their existing businesses, a practice called buy-and-build. In Q1, these smaller add-on deals made up 38.7% of all deal values, an increase from the end of 2024. Medium-sized deals, valued between €25 million and €100 million, showed significant growth, making up 30.7% of the total number of deals. An example is TMF Group's €98 million acquisition of EWM Global. Growth equity deals, which involve taking a smaller ownership stake rather than control, also saw a 15.5% increase, totalling €13 billion in Q1. 

Despite the market's volatility, the economic environment had been improving by the end of 2024, which helped in completing deals that started in the previous year. Notably, the app Playtomic raised €65 million to expand to the US. This cautious approach to deal making reflects adjustments in response to market conditions.

Take-privates cool down

In the first quarter of this year, there was a clear slowdown in the number of companies in Europe being taken private, with only seven such deals happening, totalling less than €1 billion in value. When stock markets perform well, it's generally more expensive for someone to buy a public company and take it private. Typically, private equity firms also need to offer a 25% to 40% premium above the market value to convince shareholders to sell. 

Since the European stock markets have been doing well since November 2024, fewer companies have been taken private. However, there are always some undervalued stocks that may still be involved in these deals. Additionally, due to recent tariffs from the US, public markets have been decreasing, which might lead to more take-private deals in 2025 if stock prices remain low. For example, in Q1, Alliance Pharma was taken private by its largest shareholder, who paid a 44% higher price than the market, but this was still much lower than its highest value in 2022.

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Lower market share for UK & Ireland, higher for the Nordics and DACH regions

The UK and Ireland have seen a significant drop in business deals, reaching the lowest levels since the COVID-19 outbreak in 2020. The value of these deals has also decreased to a low not seen in two years. Rachel Reeves, the Chancellor of the Exchequer, addressed these challenges in March by introducing the Spring Statement, which proposed changes to welfare, public sector efficiency, and housing planning. However, there was no new information about the government's future plans for the carried interest tax, which is set to rise from 28% to 32% in April 2025.

Despite these challenges, the UK still makes up over 20% of Europe's private equity activities. Other regions, like DACH and Nordic, have experienced growth compared to the first quarter of 2024, showing stronger deal values. The Nordic region has managed to stay strong even with market fluctuations, largely due to Norway’s independent central banks, which have not yet started to lower interest rates. A significant deal in the Nordics was the sale of Danish company Airteam to Swedish firm Nalka Invest for €1.6 billion.
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Middle-market fundraising posts a strong Q1

In early 2024, European private equity (PE) firms successfully raised a total of €23.7 billion across 22 funds in just the first quarter. This was particularly notable for middle-market funds, which accounted for over 40% of this fundraising effort. Despite a three-year decline, 2025 is predicted to be a turning point for these middle-market funds, supported by follow-on funds from prominent firms like CVC Capital Partners and Oakley Capital.
In recent years, European fundraising has predominantly been driven by large funds exceeding €5 billion, termed "megafunds". However, there's a positive shift towards a more balanced market where middle-market funds play a significant role, essential for the industry's growth. 
Furthermore, Thoma Bravo, a major US PE firm specialising in software buyouts, made significant strides in targeting Europe. They closed their first fund dedicated specifically to Europe, raising €1.8 billion, and set up a London office, indicating a strong commitment to the European market. This move contrasts with traditionally higher valuations in the US, marking a strategic focus on the comparatively undervalued European market. 
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At Marks Sattin Executive Search, we work with a wide range of investor-led and privately-owned businesses across all sectors and locations. With over 30 years of experience, we have helped a number of organisations find their next CFO. If you would like to speak to us about hiring a CFO for your portfolio or your owner-managed business, please don’t hesitate to submit a brief.
24/04/25

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