Over the last year, we have seen European private equity (PE) activity returning to the levels experienced during the onset of the Covid pandemic. However, the key influencing factors this time around have been high inflation, rising interest rates and a fundamental pricing correction in the listed markets, particularly within the technology sector which had been an increasingly active area for deals.

The combination of these factors has led to increased caution and a mismatch in buyer and seller expectations. Indeed, Q1 of this year has shown further declines across all segments of the private equity space, with growth deals exhibiting the most dramatic fall of 55% by volume.

However, public markets have shown a recovery since Q4 last year with many feeling an inflection point had been reached in early May. Investors are also starting to speak more optimistically about the future with anecdotal evidence of a recovery in deal activity starting to come through.  

The venture capital market in Europe was the first to weaken last year, and in Q1 2023 saw the smallest decline across both volume and value of any PE strategy. It is possible, therefore, that early stage deal activity is acting as the pathfinder for the wider market, with a potential recovery to follow in the latter half of 2023. There may be light at the end of the tunnel.

Key findings include:

• Overall European PE: European PE volume totalled 344 deals, 43% below the previous quarter’s 599 transactions and the lowest point in five years, including the nadir reached during the pandemic in Q2 2020. PE value dropped even further than volume, by 55% quarter-on-quarter to just EUR 24.1bn worth of deals, also a five-year low.
• Buyouts: Buyout volume fell by 27% on the previous quarter in Q1 2023 to 162 deals, almost exactly matching the Q2 2020 pandemic low of 167. Value halved during the same period to EUR 19.6bn – the only metric across all PE strategies that is above the pandemic low. 
• Growth capital: Growth capital showed the weakest relative performance in Q1 2023, with volume falling by 55% on the previous quarter to 157 deals. Deal value was especially subdued, slumping by a full 70% to EUR 3.9bn from EUR 13.2bn in Q4 2022. 
• Early-stage: Early-stage deals had the shallowest decline in volume, slipping by 17% on the previous quarter to 25 funding rounds, a five-year low. VC deal value was almost flat on the previous three-month period at EUR 536m, down only 3% quarter-on-quarter, another nadir not reached in the past five years.