PE-backed firms surpass private companies in European growth

According to insights revealed in a new Gain.pro market report, on average European companies grew by 7% per year, including growth from mergers and acquisitions (M&A), over the last 5 years. Analysing revenue growth by ownership type, VC and PE-backed companies outperformed privately-owned companies by a factor of 2-4x.

Specifically, from 2013 to 2022, PE-backed companies achieved impressive growth rates of 10%-12% whereas privately owned companies lagged behind with a growth rate of 5%. This is one among the many key takeaways from Gain.pro’s private market intelligence platform which informed the “Finding growth in Europe” report.

Sid Jain, head of insights, Gain.pro said: With high-interest rates here to stay, growth is only going to get tougher. But what we see in the data is that private equity-held businesses continue to demonstrate resilience. It is clear that even in today’s lacklustre macro-environment, investors can expect significant opportunities within the European private equity landscape.”

 The Gain.pro data indicates that ‘buy-and-build’ remains an effective strategy to achieve rapid growth. Close to a third (32%) of all businesses on the platform grew by more than 10% organically, but taking into account M&A, 45% grew revenue by more than 10% in total. Buy-and-build is, therefore, clearly a large component of overall topline expansion across the pool of European companies.

The report reveals that PE-backed companies are more active in buy-and-build than their privately-owned counterparts. Almost half of the latter do not engage in buy-and-build, whereas this share is around 10% lower for PE-backed companies. An active buy-and-build strategy is applied by 28% of PE-backed companies, meaning they acquire at least one company per year. This compares to only 12% for privately owned companies.

Looking at organic growth rates, we note that TMT, showing an average organic growth rate of 8-10%, is performing best. It is followed by the financial services and science & health sectors.

The report also showcases that there are plenty of growth opportunities in lower-growth industrials, materials & energy and consumer sectors. It turns out that disregarding these three slower-growing sectors from an investment scope means excluding 33% of the fastest-growing companies (above 15% growth) that exist overall.

Reflecting on the overall findings, Jain continued: “Ultimately, we believe European investors need to be more vigilant to find growth opportunities. Investors should seek out multiple arbitrage opportunities that do not rely on overall market multiples, but more on   buy-and-build and operational improvements.

“Finally you should think beyond the hot verticals such as TMT, as growth can be found in a range of sectors even those performing less strongly. The next decade will be challenging for private equity investors, but those who work hard and use smart data-driven sourcing strategies will be well-positioned to succeed.”