US firms such as Blackstone, Carlyle and KKR are driving forces at the upper end of the European buyouts business. Pressure to put capital to work means a US drive into the middle market is a possibility, too.
“I am aware of other middle-market funds in the late stages of planning their own European presence,” said Darren Redmayne of Close Brothers Corporate Finance. “As one US private equity GP told me: ‘There just aren’t enough good deals in America for us all’.”
Look at the supply side, however, and the balance shifts in Europe’s favour. Europe has a large number of family-owned companies and a strong corporate divestiture market. “Large, diversified conglomerates have been out of favour longer in the US than Europe, providing fertile ground for non-core corporate orphans to support, grow and exit,” Redmayne added.
US firms tend to be more differentiated than their European counterparts because they are part of a more mature market. This could help the newcomers to corner latent deal flow. But European firms also have a strong advantage through their networks and local contacts.
Conditions in the European debt markets might also encourage US migration. The European market is more fragmented and competitive, leading to lower spreads and equity contributions. The number of senior lenders in the US has undergone consolidation and the top three lenders control about two-thirds of the market.
If the US firms do move, it will lead to competition in fundraising. In addition to US firms looking to raise euro funds, many European funds are due back next year.