It’s good to be small in Europe

The lure of higher prospective returns has attracted investors to private equity. But are they looking in the right places? US large buyouts dominate, both in terms of investor flows and media coverage, but prices are intimidatingly high as a result. Better opportunities can be found in small buyouts and in Europe in particular. This market is less well-known but that is precisely its attraction. Less competition among buyers and superior alpha generating potential are the consequence.

The global private equity market

The global private equity market is worth almost $3 trillion and is growing year-on-year (figure 1). Even the financial crisis barely dented its expansion. Geographically however, most assets are invested in North America (figure 2) and on a sector basis, most focus on the large cap buyout market. The European private equity market is notably smaller and within Europe, the small cap buyout market is smaller still (figure 3). This reflects a number of circumstances and leads to some particularly interesting consequences from an investment perspective, as we set out in this note.

Figure 1: Global private equity assets have soared, $bn














Figure 2: North America dominates fundraising activity, annual split of funds raised


Figure 3: European small buyout fundraising activity is more limited and less cyclical than large buyouts, $bn