An anticipated surge in corporate carveouts as a share of overall European PE deal value has yet to materialize amid lackluster valuations and rising capital costs.
PitchBook's 2023 European Private Capital Outlook: H1 Follow-Up shows that, despite a prediction in December that carveouts would account for over 15% of PE deal value, they made up only 10.3% of total deal value in Europe as of May 31.
Last year, PitchBook analysts predicted an uptick in carveouts as more cash-strapped companies shed non-core assets to raise capital. This is particularly prevalent in the tech sector where financial strain has caused mass layoffs.
However, parent companies of potential targets are less likely to sell if they feel their business units are undervalued in the current economic environment. Meanwhile, PE firms that are already dealing with rising capital costs caused by interest rate hikes are increasingly uninterested in corporate carveouts due to the length and complex deal negotiations they can entail.
Instead, parent companies can opt to restructure or reduce headcount rather than put whole subsidiaries on the market.
While carveout activity as a share of overall PE deal value is not as high as expected, it still remains higher than last year. In the first five months of this year, carveouts accounted for 10.3% of PE deal value and 8.2% of deal volume. In 2022, they represented 8.8% of deal value and 7.4% of deal volume.
Read more: 2023 European Private Capital Outlook: H1 Follow-Up
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This article originally appeared on PitchBook News