Investing in Europe is a priority for just 4% of mid-market private equity firms, although almost 50% would consider it, according to a recent survey by Grant Thornton Corporate Finance.
A lack of interest in overseas investment was cited (39% of sample) as the main barrier preventing VCs from raising funds in Europe, followed by restrictions in their fund requirements (32% of sample).
Commonly cited obstacles of red tape and language or cultural barriers accounted for just 13% and 4% of hurdles respectively. A lack of perceived returns (2% of sample) and internal resources (9%) were not major concerns for the majority of VCs.
Germany would be the most likely country to attract the attention of private equity investors (24% of sample) if they were to invest in Europe. France and the Netherlands were also singled out a potential targets by 15% of VCs, while a further 7% mentioned Spain. On a broader level, 13% of VCs said they would consider investing anywhere in Western Europe.
In terms of sector focus, 13% of VCs said if they were considering investing in Europe, healthcare would be their main target. This was followed by 12% of respondents citing business services and industrial products, 9% financial services and 6% computer activities.
Mat Bhagrath, partner at Grant Thornton Corporate Finance, says: “The UK has the most advanced private equity market in Europe, and, when confidence in the domestic market is riding high, it is not altogether surprising that VCs are content to focus their attention on home grown deals.”
But he adds that over the years there have been a number of British private equity houses broadening their horizons and successfully opening offices in countries such as Germany or France. And given that almost half of mid-market VCs would hypothetically consider investing in Europe, this may spark a number venturing outside the UK in the future, especially if the UK market starts to dry up.