ARTICLE / REPORT
May 2023
Read time: 2 min
The Private Markets Update highlights developments in the European private markets, covering the issues that matter to investors in alternative assets. Touching on themes as diverse as predictions for fintech, transatlantic restructuring trends and aligning price expectations in the German Mittelstand, we review what we learned from markets shifts in 2022 and share predictions for 2023 and beyond.
We have crunched the numbers to bring you the “10 Trends to Track.” This is our pick of last year’s themes that tell the story of where the market is today and where it might be going. As the private markets prove more adaptable, confident and robust than their publicly traded contemporaries, we believe the following trends will tell the story of the year ahead, and these data points should be high on the agenda of all market participants.
A recent MergerMarket survey of deal-doing executives globally found that more than three-fifths of respondents expect overall levels of M&A activity to increase in 2023, rising to four-fifths in respect of midmarket transactions (deals up to US$2 billion).
This optimism is welcome as we move into 2023, but is clearly not a consensus view, as other surveys and commentators expect 2023 to continue to present a difficult deal environment.
By Aymen Mahmoud, Samantha R. Koplik, Jun Won Kim
Looking back on 2022 shows the delayed impacts of COVID did not singularly drive inflation rises. Interest rates, raw material costs arising out of conflict in Ukraine and broader geopolitical instability were meaningful contributors, as was the flux in UK politics and fiscal policy. Alongside these was the impact of a fatigued M&A market, where 2021 was so remarkable as to have, perhaps, overworked the M&A engine, with some refinements and repairs required.
By Todd A. Solomon, Brittany T. Esser
EU and UK managers often wish to market their funds to US investors, seeing the US market as an attractive place to raise capital and a means of diversifying their investor bases by opening up relationships with different limited partners. Where the EU or UK manager is part of a global asset management group that can be particularly the case: EU and UK-based teams may wish to take advantage of the reach of their organisations into the US as an additional source of capital and the US-based clients of those global asset managers may want to access European fund strategies as a way of diversifying their own portfolios and opening up new relationships.
By Aymen Mahmoud, Mark Fennessy, Felicia Gerber Perlman, David J. Levine
Much of what we saw in 2022 was arguably predictable based on prior markers: the roots for the economic slowdown in the second half can be seen clearly as we look back to the pandemic, though they clearly needed some help. COVID led to stimulus and other palliative measures that were predicted to drive inflation and increased taxes that might negatively impact the Economy. At the same time, the world cruised through an extended period of easing across various economies.
Small and mid-sized German companies, known collectively as the Mittelstand, constitute the backbone of the German economy.
For private equity, the German Mittelstand has been a playing field of promising targets for decades. Investors from all over the world value the deal opportunities on offer and yet, outside of a few hot sectors, there is a mismatch in pricing expectations between seller founders or family owners and potential PE buyers.
When the UK’s National Security and Investment Act came into force in January 2022, many feared sponsors might be put off bidding for UK assets and deals would start being blocked for political reasons rather than on genuine national security grounds.
Over a year in, this fear has proved ill-founded and the new laws have thrown up few real surprises, with the UK government apparently acting judiciously and proportionately to protect national security.
FinTech in 2022 was buffeted by a cyclical sectoral downturn combined with a souring macro-economic environment. In part, the sector was a victim of its own success. After flying high as one of the most heavily invested-in sectors for the past several years, it was only natural that values would come back down to reality and align with historical norms.
The UK remains on a fast track to implement the Pillar 2 Global Anti-Base Erosion (GloBE) rules, developed by the Organisation for Economic Co-operation and Development (OECD), into domestic law. The impact of the GloBE rules is significant. The International Monetary Fund estimates that Pillar 2 will raise global corporate tax revenues by 5.7%, while the UK government estimates that Pillar 2 could raise £2.2 billion a year by 2027-28.
