Your Dentons Europe Private Equity Trends Monitor - Fourth edition: May 2021
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Your Dentons Europe
Private Equity Trends Monitor
Fourth edition: May 2021
Your Dentons Europe • Private Equity Trends Monitor • 1Your Dentons Europe
Private Equity Trends Monitor
The Dentons’ Europe Private Equity team is We have asked our teams to respond
delighted to announce the launch of the fourth to the following four questions:
edition of our Private Equity Trends Monitor,
1. How has COVID-19 impacted deal flow
which provides you with an up-to-date overview
in the European private equity sector?
of the latest and anticipated trends across
the European private equity sector in the wake 2. Do any particular industries seem to
of the COVID-19 pandemic. be insulated from the adverse economic
effects of the pandemic?
Dentons’ Europe PE group continues to closely
follow the development of COVID-19 and its impact 3. Are downward economic protection clauses/
on PE deal activity. Our lawyers on the ground in measures (including MAC clauses) becoming
each of our core markets regularly monitor and more prevalent in transaction documents?
assess the situation and report on trends and 4. Are you seeing any distressed deals so far?
developments as the situation continues to evolve.
This is the first update of 2021. The team plans two more during the rest of the year.Country How has COVID-19 impacted deal Do any particular industries seem Are downward economic protection Are you seeing any distressed
flow in the European private equity to be insulated from the adverse clauses / measures (including MAC deals so far?
sector? economic effects of the pandemic? clauses) becoming more prevalent
in transaction documents?
Benelux In the Benelux, PE dealflow continues Given the tight housing market in inter alia We note that pre-pandemic PE terms It is said that somewhere in the second
to increase and is close to the level prior the Netherlands, online housing advertising are re-emerging, including acquisition quarter of 2021 we might see more
to COVID-19, especially deals with a platforms seem very interesting for PE financing. As noted earlier, we also bankruptcies. The number of bankruptcies is
value between €5 million – €50 million. funds. After the Spanish real estate platform continue to see a rise in earn-out still not rising, although a recent bankruptcy
There have also been a couple of Idealista was acquired by EQT last year, arrangements. Also, we see specific in the Netherlands that is feared to have
transactions at the top of the market with various PE funds are now expressing their COVID-19 clauses still being included in serious broader consequences within the
a value of over €1 bn (e.g. the sale of UNIT4, interest in acquiring Funda, a Dutch online transaction documentation (e.g. clauses leisure industry is the bankruptcy of Dutch
the sale of GE Capital Aviation Services housing advertising platform. preventing parties from backing out tour operator D-Reizen. The same is true for
and the acquisition of Philips’ domestic of a deal because of COVID-19 by Belgium, where the expected economic fallout
In Belgium, industries that continue to
appliances business). explicitly stating that COVID-19 was has not yet occurred due to the continued
be attractive targets for private equity
considered when entering into the application of government support measures.
investment during the pandemic continue
transaction documents).
to be those engaging in smart living, life On the other hand, positive news around
sciences, and industry 4.0. In deals without specific COVID-19 vaccines continue to give corporates and
wording, parties appear to continue entrepreneurs hopeful perspectives. With that
Sectors that did well during the first and
relying on MAC-clauses for the purposes perspective, businesses are slowly speaking
second wave continue to do well now, like
of mitigating any COVID-19 concerns. with their vendors and banks about their
the tech/medtech industry, renewable
energy, holiday parks and life sciences. future plans again.
Recently, Vivera, a meat replacement
market leader, was sold by PE. The deals
in the following months will determine
whether this will be a trend in the
food industry.
CEE PE and other deal flow has accelerated in Q1 Technology, FMCG, online and traditional In the mid-market segment, MAC clauses There have been some distressed deals,
2021, particularly in the mid-market segment. food retail and education are among the or other CPs protecting against significant but so far there has been more talk about
PE and founder-owned businesses that have sectors attracting the most interest. economic deterioration, and completion distressed deals than actual distressed deals.
been resilient during the pandemic are being account adjustments protecting against This may be a result of the legal systems in
Also, alternative energy and infrastructure
put up for sale. less significant economic deterioration, are CEE, which generally make it difficult for
continue to draw significant interest from
more prevalent than in pre-pandemic times. lenders to move quickly and effectively in
infrastructure funds and asset managers.
In the larger, competitive auction processes distressed situations.
or transactions involving global PE players,
as usual there are fewer downward
economic protections.
Your Dentons Europe • Private Equity Trends Monitor • 3Country How has COVID-19 impacted deal Do any particular industries seem Are downward economic protection Are you seeing any distressed
flow in the European private equity to be insulated from the adverse clauses / measures (including MAC deals so far?
sector? economic effects of the pandemic? clauses) becoming more prevalent
in transaction documents?
France The French PE market has remained very The sectors we have seen to be less Competitive PE deals are still based on Together with our restructuring team, we see
active in Q1 of 2021 and we see many highly affected include infrastructure, renewable locked box mechanisms, no conditional an increasing number of distressed deals and
competitive auction processes with high energies, telecoms and life sciences. prices and limited guarantees. Earn-out deals driven by debt renegotiation. We see
valuations / Ebitda multiples. The level of Infrastructure funds are increasingly structures are increasingly used in a lot of amicable bankruptcy proceedings
dry powder remains high, which should present. Life sciences is very active in transactions involving strategic players and set up to facilitate distressed deals. So far
positively affect deal flow in the next few all segments, with increased investments often cover fiscal year 2021 only, which the number of actual bankruptcies has been
months. Financial sponsors remain keen on in healthtech. shows the level of uncertainty. limited by French state protective measures
investing in sectors seen as resilient, notably and notably bank loans guaranteed by the
infrastructure and life sciences, including an French state.
increasing interest in the healthtech sector.
Germany M&A deal flow (involving by PE funds) The winners of the COVID-19 crisis still While valuations are starting to rise While a number of firms have applied for
is picking up again. There is a lot of dry seem to be the most attractive targets for (some PE professionals have already started insolvency protection – some of which
powder in the market and many PE funds PE. This includes services, software and complaining about exaggerated prices), were in distress even before the crisis –
are currently looking for opportunities. IT, pharma, healthcare and tech/medtech, uncertainties remain as regards future we have seen only few distressed deals
However, corporates have also resumed as well as trade and ecommerce. turnover. It is yet not clear how much involving PE (e.g. Cartesian Capital Group
their M&A activities, so PE funds are facing On the other end, targets in textiles, energy potential targets will remain affected by acquiring the insolvent Arlington Germany
increased competition. and automotive remain somewhat unattractive. the COVID-19 crisis. However, instead of automotive supplier).
New PE funds are closing following a period downward protection, the parties to a PE Some managers of PE portfolio companies
While IPO activities are on the rise globally
of virtual fundraising. Even though Germany transaction rather look at deal security. hope to buy out some of their competitors in
(including the use of SPACs), this has only
appears to be on the peak of the third This includes excessive use of MAC clauses. the course of 2021. But there is also a certain
lightly spurred the equity capital markets
COVID-19 wave, the PE industry seems to be The parties’ common ground rather seems fear that the number of insolvencies will
in Germany.
more and more back at normal, with various to be that risks may be shared by bridging surge in 2021, in particular if suspensions of
sources of acquisition finance available. valuation or financing gaps through vendor parts of the Insolvency Act are lifted again.
Valuations have increased and there is a loans or continued participation of the
stiffer price race in all segments of the PE sellers in the target.
industry (from small to large cap). While minority tickets were down in 2020,
The PE industry is now less concerned we also see a tendency for joint deals and
about COVID-19, but has to deal with minority investments – but it is not yet clear
increased compliance work (in addition that this will become a new fashion.
to AML, FDI and merger control rules,
the funds now have to deal with DAC6
reporting obligations) and a not-so-favorable
legislative environment in Germany.
This includes discussions on granting VAT
relief to PE funds for administrative services
provided to their portfolio companies –it
seems the legislator plans to grant such
relief only to certain types of VC funds, but
not to the PE industry.
4 • Your Dentons Europe • Private Equity Trends MonitorCountry How has COVID-19 impacted deal Do any particular industries seem Are downward economic protection Are you seeing any distressed
flow in the European private equity to be insulated from the adverse clauses / measures (including MAC deals so far?
sector? economic effects of the pandemic? clauses) becoming more prevalent
in transaction documents?
Italy Private equity activity in Italy is experiencing PE funds are particularly active in the food, Since the pandemic has been going on for So far the number of distressed deals has not
growth in the first quarter of 2021, as sport (e.g. sale of Inter football club and more than a year, it is now becoming harder increased to a substantial extent compared
some confidence is back in the market acquisition of a minority stake in Serie to qualify it as a MAC event. Rather than to pre-COVID-19 levels, although the general
after the challenges posed by COVID-19 A’s media rights) and healthcare sectors. leading to the inclusion of MAC clauses, feeling remains that they are very likely to
in 2020. On the one hand, some exit Other industries that seem less affected by the duration of the pandemic is postponing rise in the near future (in particular, for those
processes that were put on hold in 2020 the pandemic so far in the Italian market some deals, in sectors whose revenues have players operating in B2C retail sectors and/or
are now (re-)starting. On the other hand, are technology, media and telecoms been negatively affected by COVID-19. when certain protective measures adopted
however, valuation gaps between sellers’ (TMT), renewable energies/utilities and Vice versa, in sectors which have been by the Italian government, such as the ban of
and buyer’s expectations is still an issue in infrastructure assets. positively impacted by the COVID-19 dismissals, will cease to be effective).
some cases. In some sectors, consolidation outbreak (e.g. the diagnostic industry),
Within the real estate market, new
among operators has accelerated amidst battles among operators to acquire well
investment opportunities are being targeted
the pandemic, thus increasing the number performing targets have led to a sharp
in the logistics business as well as in the
of transactions. increase in valuations and multiples applied.
student housing and education industries.
Finally, as China is somewhat ahead
compared to Europe and the US in managing
the COVID-19 outbreak, we are seeing some
new interest from Chinese investors in the
Italian market.
Spain Activity levels are back to normal with Telecoms and technology have emerged as MAC clauses have not made their way to So far we see distressed deals only in hotels,
telecoms and energy & infrastructure the more resilient sectors and investors are transaction documents, although we have restaurants and tourism.
leading the charge. doubling-down on those industries. seen one in a recent major deal on the
In other sectors, there have been distressed
The only difference between Q2 2021 and retail sector.
deals for companies that have either been hit
the pre-COVID situation is that Real Estate We have also seen a proliferation of price- hard by COVID-19 and gone into insolvency, or
seems to be less active as a sector, arguably adjustment mechanisms (e.g. earn-outs), ones that have circumvented the crisis on their
due to the implantation of remote working particularly in small deals, that aim to own, with the support of state measures such
as a permanent change. protect investors addressing uncertainty as temporary redundancy (ERTE) and soft
in terms of valuation of target businesses. loans collateralized with state Bonds (ICO).
Turkey Traditional PE deal flow is still low; however, A number of industries continue to be MAC clauses including COVID-19 provisions There are a number of classic liquidation
we continue to see strong interest in gaming affected by the pandemic and are granted are decreasing in PE deals and private or restructuring transactions, in particular
and mobile app companies. The IPO market certain type protections. Amongst these equity firms are adjusting to the new reality. around the restructuring framework
is strong and we see private equity funds are the construction, tourism, agriculture, agreements signed by banks as part of
Earn-out and deferred payment structures
taking advantage of the strong IPO market automotive, logistics and hospitality a larger regulatory effort.
are prevalent in the market.
to exit. Strategic investors remain active industries. The healthcare industry is – not
but deals go at a slower pace. Despite this, surprisingly – more resilient. Other resilient
our team continues to see some activity, businesses include online shopping and
with three PE-related IPO deals taking gaming and renewable energy.
place within the first four months of 2021
and two deals closing in April in the mobile
technology software sector.
Your Dentons Europe • Private Equity Trends Monitor • 5Country How has COVID-19 impacted deal Do any particular industries seem Are downward economic protection Are you seeing any distressed
flow in the European private equity to be insulated from the adverse clauses / measures (including MAC deals so far?
sector? economic effects of the pandemic? clauses) becoming more prevalent
in transaction documents?
UK The UK PE sector has started 2021 in As expected, countercyclical or MAC or MAE clauses remain very Other than the administration of Greensill
buoyant mood. As the pandemic’s effects acyclical industries have proved more uncommon in private acquisitions in the Capital and restructurings and distressed
become less severe, most PE firms are resilient in withstanding the adverse UK. In the limited number of cases where sales of traditional retail businesses, hotels,
increasingly optimistic and shifting their economic effects of the pandemic and MACs are included in English law governed shopping centres and aviation businesses,
focus from downside protection and portfolio are therefore garnering attention from SPAs, buyers generally struggle to invoke we have not yet seen the significant
management to new investment opportunities. private capital. These sectors include them since they often contain carve-outs increase in the number of distressed deals
Taking advantage of surprisingly benign technology (including biotech, medtech for macroeconomic, industry-wide and in the UK that was widely expected as the
market conditions, they are engaging in and cybersecurity), pharmaceuticals force majeure events. Given the difficulties pandemic’s ill-effects endured.
a broad range of transactions, spanning and healthcare, consumer products, in obtaining and enforcing MAC or MAE
infrastructure (as long-life PE funds clauses, buyers often prefer to seek specific This is partly explained by unprecedented
traditional buyouts, strategic investments in fiscal and monetary support from the UK
listed companies, rescue financings, co- target infrastructure-like assets), energy contractual protections against the most
(primarily renewable energy, power, material risks affecting the target group government and the Bank of England and
investments, add-on acquisitions, non-core the ability of UK listed companies to deploy
asset disposals and acquisitions and late-stage cleantech and energy innovation and or business.
transition projects), and e-commerce over £26bn of fresh capital (the highest
venture and growth equity investments. The UK High Court recently considered amount raised since 2009) to repair their
and logistics.
With many PE investors expecting a ‘U-shaped’ issues concerning the construction of an MAE depleted balance sheets whilst weathering
or ‘V-shaped’ recovery, deal volume and Unsurprisingly, PE firms with investee clause in a sale and purchase agreement in the storm. However, the number of UK
value are expected to remain robust in 2021, companies in the real estate, leisure, Travelport Ltd and others v Wex Inc1. company insolvencies increased in March
although resilience, versatility and creativity hospitality, travel and retail sectors have for the third month in a row and the recent
will remain key to successful deal making. In reaching its decision, the High Court
been most affected by the impact of the termination of the CBILS and the BBLS
considered that:
TMT (particularly software), healthcare pandemic. Many UK businesses will likely are likely to lead to a further uptick in the
(including healthtech) and consumer sectors be impacted by the recent termination of i. there is no presumption that an MAC/ coming months. In Q1, we have continued to
attracted significant levels of investment in the Coronavirus Business Interruption Loan MAE clause should be narrowly see opportunistic plays and speculative bids
2020. These sectors are expected to remain Scheme (the “CBILS”) and the Bounce Back interpreted and its words should for targets, particularly those considered to
popular in 2021 and beyond as technological Loan Scheme (the “BBLS”) in the coming generally be given their natural and be in distress, debt-laden or undervalued.
innovation and disruption continues to drive months. Hopefully, the prompt vaccine ordinary meaning;
rollout, the extension of the Coronavirus Job In recent months, PE equity investors have
deal activity. ii. a buyer is required to discharge the reported seeing an increase in distressed
Retention Scheme until 30 September 2021,
Two interesting trends to emerge in 2020 burden of proof as to whether a MAC/ investment opportunities in Europe and
the gradual reopening of businesses and the
and Q1 of 2021 have been the rise of MAE has occurred or been suffered; have indicated greater willingness to
UK playing host to the G7 Summit and COP26
European SPAC IPOs as an alternative route pursue them. This may be explained by
later this year will help to temper some of the iii. a seller is required to establish whether
to public markets for PE and other private the fact that distressed and turnaround
economic headwinds. and to what extent a particular change
capital investors and the dramatic increase strategies have fallen back into favour
in sustainable or impact fundraising and or effect falls within a carve-out in order with LPs. An anticipated wave of corporate
investing, including ESG-linked financings. to prevent the buyer from invoking the insolvencies and defaults across Europe,
Both trends are expected to intensify as the MAC/MAE clause; and particularly among SMEs, is expected to
year unfolds. However, intervention from iv. where the seller establishes that a drive European distressed fundraising to a
regulatory authorities in the US and Europe particular change or effect does fall record level in 2021, which should also lead
could either boost or stymie the former, whilst within a carve-out, the buyer must prove to increased activity in distressed M&A.
new legislation designed to scale sustainable whether and to what extent an exception
investment and increasing adoption of to such carve-out is applicable.
international sustainability standards are likely
to add further impetus to the latter.
1 [2020] EWHC 2670 (Comm).
6 • Your Dentons Europe • Private Equity Trends MonitorAbout Dentons
204
Cincinnati
locations
Lexington
Louisville
Indianapolis Frankfurt
Jasper Dusseldorf Munich
Evansville Luxembourg Berlin
Chicago Amsterdam Prague
St. Louis Brussels Bratislava Taiyuan Hohhot
Ames Aberdeen Warsaw Xi’an Shijiazhuang
Des Moines Edinburgh St. Petersburg Ulaanbaatar Beijing
West Des Moines Toronto Glasgow Moscow
Kansas Yinchuan Tianjin
Edmonton Ottawa London
City Krasnodar Lanzhou Dalian
Calgary Montréal Dublin
Milton Keynes Tbilisi Shenyang
Vancouver Nur-Sultan
Changchun
Denver Paris Kyiv Almaty Harbin
Ogden, Salt Lake City, Lehi Boston Milan Jilin
Tashkent Urumqi
St. George Short Hills, New York Barcelona
Rome Istanbul Baku
Sacramento Harrisburg Madrid Xining Jinan
Washington, DC Budapest Seoul Qingdao
San Francisco New Orleans Pittsburgh Casablanca Beirut Zhengzhou
Dallas Bucharest Hefei
Oakland Atlanta Amman Wuhan Changzhou, Nanjing
Silicon Valley Houston The Shoals, Huntsville Cairo Lhasa Zhoushan
Los Angeles Miami Tuscaloosa, Birmingham Chengdu Ningbo
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Honolulu British Virgin Islands Dubai Hangzhou
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Hilo Jamaica Abu Shanghai
Phoenix Cayman St. Lucia Jeddah Guiyang
Monterrey Barbados Dhabi Suzhou
Islands Abuja Riyadh Nanning
Guyana Doha Sanya Wuxi
Mexico City Lagos
Trinidad and Tobago Kampala Haikou Taipei
Guatemala City Port Nairobi Kuala Lumpur Wenzhou
St. Vincent and the Harcourt
San Salvador Grenadines, Grenada Mombasa Singapore Fuzhou
Tegucigalpa Dar es Salaam Jakarta Xiamen
Antigua and Barbuda, Luanda Changsha Port Moresby
Managua St. Kitts and Nevis Harare Nanchang
Lusaka Huangshi
Liberia
Guangzhou
San José Zhuhai
Panama City Port Louis
Shenzhen
Quito Hong Kong
Lima Brisbane
Johannesburg
Medellín Perth
Cape Town
Bogotá Maputo Adelaide Sydney Auckland
Santiago Brasília Melbourne
La Paz São Paulo Wellington
Caracas Montevideo
Santa Cruz Buenos Aires
Locations in purple represent Dentons offices.
81
Locations in blue represent associate firms, offices and special alliances.
Locations in green represent approved combinations that have not yet been formalized.
countries
Locations in gray represent Brazil Strategic Alliance. April 2021
Your Dentons Europe • Private Equity Trends Monitor • 7Contacts Robert Bastian Paul Doris Piotr Dulewicz Jesus Duran Dogan Eymirlioglu Partner, Frankfurt Partner, London Partner, Warsaw Partner, Madrid Partner, Istanbul D +49 69 4500 12 210 D +44 20 7246 7561 D +48 22 24 25 660 D +34 91 43 22 905 D +90 212 329 30 77 robert.bastian@dentons.com paul.doris@dentons.com piotr.dulewicz@dentons.com jesus.duran@dentons.com deymirlioglu@baseak.com Olivia Guéguen Francesco Faggiano Jean-Luc Fisch Olivier Genevois Rob Irving Partner, Paris Partner, Milan Partner, Luxembourg Partner, Paris Partner, Budapest D +33 1 42 68 49 87 D +39 02 726 268 15 D +352 468 38 32 17 D +33 1 42 68 49 13 D +36 1 488 5245 olivia.gueguen@dentons.com pierfrancesco.faggiano@dentons.com jeanluc.fisch@dentons.com olivier.genevois@dentons.com rob.irving@dentons.com Volker Junghanns Kuif Klein Wassink Stephen Levy Yolande Meyvis Nicholas Plant Partner, Frankfurt Partner, Amsterdam Partner, London Partner, Brussels Partner, London D +49 69 45 00 12 230 D +31 20 795 31 12 D +44 20 7246 4826 D +32 2 552 29 31 D +44 20 7246 7081 volker.junghanns@dentons.com kuif.kleinwassink@dentons.com stephen.p.levy@dentons.com yolande.meyvis@dentons.com nicholas.plant@dentons.com Luca Pocobelli Namik Ramić Kaya Selehattin Petr Zákoucký Perry V. Zizzi Partner, Rome Partner, Luxembourg Partner, Istanbul Partner, Prague Partner, Bucharest D +39 06 809 120 11 D +352 46 83 83 221 D +90 212 329 30 93 D +420 236 082 280 D +40 21 312 4950 luca.pocobelli@dentons.com namik.ramic@dentons.com sekaya@baseak.com petr.zakoucky@dentons.com perry.zizzi@dentons.com
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