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​A recent survey (May 2023) of over 1000 European Private Equity professionals conducted by Altus Partners gave a perspective on the current sentiment surrounding private equity valuations, portfolio activity and recruitment in the European private equity market.

Against the backdrop of a decrease in the European Private Equity deal count, how would the private equity professionals describe the trend in company valuations?

Participants were asked to articulate the current trend in company valuations, set against the backdrop of a decrease in the Private Equity deal count in the region. The survey results illuminated an undercurrent of cautiousness that increasingly dominates the investment landscape in private equity.

Out of the 1321 private equity respondents, a significant majority (62%) perceive that private equity valuations have dropped. This sentiment mirrors a broader market feeling of softening or a recalibration from a previously bullish market characterised by high private equity valuations. The changing dynamics in the private equity market could be a reaction to the decline in the deal count, which could be instigated by multiple macroeconomic influences such as geopolitical tensions, regulatory changes, or economic ambiguity. The recent Pitchbooks Europe report corroborates this analysis, with growth equity deals accounting for just 17.2% of deal count in Q1 2023 as already-high valuations and more expensive debt cause managers to turn away from multiple expansion strategies.

Conversely, just over 20% of private equity respondents believe valuations have retained consistency despite declining deal count. This suggests that the drop in the deal count doesn't necessarily signal a bearish private equity market but could indicate a more selective investment approach. Investors might focus on strategies such as buy-and-build, over multiple platform acquisitions.

Interestingly, a small group of private equity professionals (6%) believe that the valuations have risen, despite the decrease in the deal count. This signals that some investors are still identifying ample opportunities in the current private equity landscape, indicative of resilience or growth within specific sectors or niches, such as Healthcare or some aspects of Tech.

Overall, the predominant sentiment suggests that the European private equity landscape is undergoing some recalibration. Market participants in private equity are leaning towards a perception of diminishing company valuations, though some maintain a more stable or even optimistic perspective.

What are the biggest challenges within your fund or private equity-backed portfolio company?

To better understand the complexities in the private equity landscape, our survey also inquired about the most pressing challenges within private equity funds or portfolio companies. The responses were varied, reflecting the multifaceted challenges encountered in different aspects of private equity investments.

The data revealed that 'exit strategy timing' emerged as a common concern among the participants, with 17% of respondents indicating this as a significant challenge. The complexity of executing successful and timely exits has increased due to fluctuating market conditions, increased competition for high-value exit opportunities, and the evolving nature of the private equity market. In light of the decreased deal count and value reported in Q1 2023, private equity firms will likely focus more on securing a profitable exit strategy.

Industry and market volatility was another significant challenge identified by the participants, with 11% of respondents highlighting this issue. This reflects the uncertainty and unpredictable changes that geopolitical events, regulatory changes, and macroeconomic situations can exert on deal structures, valuations, and the overall profitability of private equity investments. This element of unpredictability necessitates a dynamic and adaptive approach to investing in the private equity landscape.

Deal origination and sourcing were also highlighted as notable challenges by respondents. With a decrease in the number of deals in the market, identifying and securing high-potential deals has become more competitive, necessitating a more proactive and innovative approach to deal sourcing. In response to the challenge of deal origination and sourcing, many private equity firms are embracing technological advancements to gain a competitive edge. The rise of data analytics and artificial intelligence (AI) is now playing a significant role in reshaping the methods by which these firms approach to deal sourcing.

Considering the current challenging market conditions, how has it influenced your career plans?

Given the challenging market conditions, career planning in private equity has become increasingly complex. The survey shows that 32% of private equity professionals are actively considering a job move driven by market uncertainties and the resulting challenges. This demonstrates the considerable impact that market conditions have on career decision-making processes. For these individuals, the challenges in the private equity landscape have sparked the impetus for change, potentially seeking opportunities in different sectors or exploring new roles within the industry that offer stability or promise better returns.

However, an almost equal percentage of respondents (29%) indicated that their career plans in private equity remain unchanged despite the challenging market environment. This dichotomy reveals the divergent sentiments among private equity professionals. It highlights how challenging market conditions can polarise career intentions, prompting some professionals to consider job mobility while causing others to double down on their existing paths.

Moreover, these divergent career plans within the private equity sector underscore the sector's dynamic nature and the broader implications of market shifts. Market conditions affect investment decisions and the career paths of the individuals who navigate this industry daily. The ripple effects of these market shifts can be far-reaching, influencing both the investment strategies at a macro level and the individual career trajectories at a micro level.

As the European private equity landscape continues to evolve, it will be essential to watch how these career intentions manifest themselves within the broader context of the market. Will those seeking a job change find greener pastures, or will those who stay the course see their resilience pay off? Only time will tell, but one thing is certain: the private equity sector will continue to be a dynamic and challenging landscape that keeps its professionals on their toes.

Insights and advice:

As we navigate these intriguing times in the private equity landscape, informed insights and expert guidance become more crucial than ever. For comprehensive analyses of the European Private Equity Market and bespoke advisory on career development and leadership strategies within the sector, we invite you to contact us.

At Altus Partners, we are dedicated to providing you with the most relevant industry updates and tailored advice to help you navigate the market complexities and make the right decisions for your career. Leveraging our deep industry knowledge and experience, we can guide you through the current challenges and prepare you for the opportunities ahead.

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