Private equity faces an exit problem in Europe as bigger deals beckon

By Emma-Victoria Farr and Andres Gonzalez

LONDON (Reuters) – Private equity funds in Europe, even though flush with cash, are thinking twice about buying businesses that could be difficult to sell and carefully working through their exit plans before making more acquisitions, bankers and investors said.

In one example, Brookfield walked away from making a binding offer for Spanish waste disposal firm Urbaser due to concerns over exit options, one source familiar with its strategy said. One reason was that it could eventually be too big to sell on, the person said.

A Brookfield spokesperson declined to comment. Urbaser owner Platinum Equity did not respond to a request for comment.

“In the last cycle, funds have done very well on the entry, very well on the execution, but the exit, that has been more difficult,” said Nestor Paz-Galindo, UBS head of EMEA global banking and global co-head of M&A.

Big transactions will still take place in Europe, Paz-Galindo said, but are likely to be the preserve of fewer funds.

Bankers told Reuters they expect 2025 will see private equity funds under pressure to not only deploy record levels of unspent capital, but also to sell assets that they have been owning for longer than they have traditionally.

In Europe, the resale of companies from one financial investor to the next is proving difficult, and auctions of private equity-backed companies have seen fewer bidders, bankers and investors said, with sale processes also taking longer.

“There is concern that some assets are just simply too big, and we’re seeing sponsors consider divesting divisions or stakes to reduce the size,” Stephen Pick, Barclays’ head of M&A in EMEA, said of how some firms are attempting to secure an exit.

Meanwhile, the U.S. private equity market has been more active and is poised to see some larger deals in 2025 as financial sponsors face increasing pressure to return liquidity to their limited partners.

A regulatory environment anticipated to be more business-friendly under the second administration of President-elect Donald Trump is also expected to drive a surge in larger transactions, bankers and lawyers said.

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Total deal values involving financial sponsors in Europe, Middle East and Africa (EMEA) so far this year have reached $297 billion, up 23% on 2023 but still far off the peak of $509 billion in 2021, Dealogic data shows.

The value of shares sold on the public markets by all investors, including private equity, were only $146 billion so far this year across the region, down from $294 billion in 2021, Dealogic data provided by JP Morgan shows.

Selling on to another private equity owner is challenging, because, “many of the value drivers that private equity uses have already been realized,” said Tibor Kossa, Goldman Sachs co-head of investment banking for Germany and Austria.

Still the pressure is on to return cash to investors.

“Private equity exits have obviously not been suspended, just postponed … so we expect more to come, as the pressure by investors in private equity funds for capital returns continues to increase,” said Christopher Droege, head of M&A for Germany and Austria at Goldman Sachs.

“There is a large backlog of companies that have been owned by funds for a comparatively long period,” Droege added.

Bain and Cinven are working on the IPO of German drugmaker Stada, which could be valued at around 10 billion euros ($10.50 billion), after talks over a sale to rival financial sponsor firm GTCR stalled, sources close to the matter said.

An M&A solution could still be a fallback option, one of the people said.

Bain, Cinven and GTCR declined to comment.

There are still deals happening, such as the sale by Switzerland’s Partners Group of German metering firm Techem for 6.7 billion euros to U.S. asset manager TPG and co-investor GIC.

“There are a significant number of large portfolio companies that rely on IPOs for an exit, given there is currently no M&A market for them given their size,” said Paz-Galindo, adding that equity capital markets remained an exit route for these.

Although there have only been a handful of big IPO exits this year, there are signs equity capital markets have been recovering gradually and bankers say that the window is opening, allowing private equity firms to consider share sales again.

By the end of the third quarter, only 9% of total private capital exits were IPOs, data from Preqin shows, up from 7% in 2023, which was the lowest level since 2008.

(Reporting by Andres Gonzalez and Emma-Victoria Farr; Additional reporting by Echo Wang; Editing by Anousha Sakoui and Alexander Smith)