BY Fraser Tennant
European private equity (PE)- and venture capital (VC)-backed companies are growing rapidly and significantly outperforming privately owned firms, according to a new report by Gain.pro.
In its 2023 ‘Finding Growth in Europe: A Private Equity Perspective’, it is revealed that over the past decade, PE- and VC-backed companies achieved growth rates of 10 to 12 percent – double that of privately owned companies at 5 percent.
Among the key takeaways from the report, PE- and VC-backed companies are more active in buy-and-build than their privately-owned counterparts. An active buy-and-build strategy is applied by 28 percent of PE- and VC-backed companies, meaning they acquire at least one company per year. This compares to only 12 percent for privately owned companies.
In terms of organic growth rates, the report notes that the technology, media and telecommunications (TMT) sector is performing best, showing an average organic growth rate of 8 to 10 percent. TMT is followed by the financial services and science & health sectors. The report also showcases that there are plenty of growth opportunities in the lower-growth industrials, materials & energy and consumer sectors.
“With high-interest rates here to stay, growth is only going to get tougher,” said Sid Jain, head of insights at Gain.pro. “But what we see in the data is that PE-held businesses continue to demonstrate resilience. It is clear that even in today’s lacklustre macro-environment, investors can expect significant opportunities within the European PE landscape.”
According to the report, European investors need to be more vigilant to find growth opportunities, seeking out multiple arbitrage opportunities that do not rely on overall market multiples, but more on buy-and-build and operational improvements.
Mr Jain concluded: “The next decade will be challenging for PE investors, but those who work hard and use smart data-driven sourcing strategies will be well-positioned to succeed.”
Report: Finding Growth in Europe: A Private Equity Perspective: 2023 Edition