European buyout industry continues deploying capital via buy-and-build amid broader market slowdown

Europe’s private equity industry continued to focus on supporting its portfolio companies through buy-and-build acquisitions throughout 2023, according to the full-year data on bolt-on transactions from CMBOR, the Centre for Private Equity and MBO Research based at Nottingham University Business School and supported by Equistone Partners Europe. 

• The 766 acquisitions made by private equity portfolio companies in 2023 represents the third-highest full-year figure on record
• Ongoing post-pandemic pattern shows that sponsor-backed companies are increasingly engaging in acquisitions at reduced valuations
• This resilient performance contrasts sharply with the broader European buyout market, which experienced a notable slowdown over the course of the year

The 766 acquisitions made by private equity portfolio companies in 2023 represent the third-highest figure on record. While there was a notable drop-off in deal volume between H1 (444 acquisitions) and H2 (322 acquisitions), this still ranks as the third-highest H2 figure on record. The cumulative value of these deals (€5bn) has fallen compared to the record values seen post-Covid (2022, €9bn; 2021, €8.1bn), with completed deal values comparable with previous pre-pandemic years, such as 2019 (€4bn) and 2018 (€4.2bn). This fall may partly reflect the ongoing dip in valuations seen in the market as it adjusts to the broader economic downturn. 

The trend was reflected in Equistone’s activity, with the firm supporting 31 bolt-on acquisitions: 18 completed in the first six months of the year and 13 in the latter. This successful buy-and-build strategy is a reflection of Equistone's focus on value creation, which has seen the firm work closely with management teams to consolidate market position and build attractive companies by expanding its portfolio companies’ geographic presence and product offering. The impact of this strategy was borne out in Equistone’s robust exit activity in 2023, with the firm generating c. €2bn in exit proceeds across six exits, with half of these involving portfolio companies which had been significantly bolstered by bolt-on deals.  

“Last year we saw a clear trend of PE firms putting a greater focus into supporting portfolio companies with strategic buy-and-build acquisitions, in a market where new platform investments were much harder to find. Buy-and-build is an effective mechanism to accelerate growth, realise operational synergies, and ultimately create value even in a market facing economic headwinds,” said Christiian Marriott, Head of Investor Relations at Equistone. 

The relatively robust performance of bolt-on acquisitions is in stark contrast to the European buyout market, which has dropped markedly in 2023, with the pendulum swinging back from the record activity levels seen in the aftermath of the post-COVID period. European private equity deal volume (637 buyouts) and aggregate value (€67 billion) in 2023 represented the lowest cumulative value and volume of completed deals since 2013, the first time in six years that value hasn’t surpassed the €100 billion threshold, according to provisional full-year data (up to 14th December) from CMBOR.

“The data has once again underlined the resilience of the European buy-and-build market in the current environment," added Professor Kevin Amess, Director of CMBOR at Nottingham University Business School. "It also shows the sophistication of the private equity market, highlighting the different avenues into which firms can put their capital and attention to grow their portfolios even during economic difficulties.”