How private capital is reshaping Europe’s investment landscape

John Kolz, Global Co-Head, Equity Capital Markets, Paul Betts, Managing Director, M&A, Europe and Beatrix Pratte-Ness, Associate, M&A, Europe, explore key themes shaping private placement transactions across Europe, and the interplay between private and public markets and M&A activity.

By John Kolz, Paul Betts & Beatrix Pratte-Ness
| 14 min read

Key Points

  • Private markets showed resilience in 2023, offering companies innovative strategies to raise capital and bridge valuation gaps caused by market corrections.
  • The bar for a successful capital raise is higher. Companies with clear roadmaps, offtake contracts and strong commercial agreements are favoured.
  • In Europe, the Technology sector took the lead in deploying capital, reflecting similar trends seen in the United States.
  • Corporates and strategic investors play key roles in private placement transactions, validating the equity story to attract capital as lead investors or followers.


View audio transcript

With companies across Europe remaining private longer, private placements have become a key funding source for crucial growth stages. What are the main trends in the region’s private markets?

Beatrix Pratte-Ness: European private placement deals peaked in 2021, then returned to pre-pandemic levels as capital costs rose and exit markets remained open, albeit subdued. In 2023, transaction value and volume were similar to 2019 and 2020, showing the resilience of private markets. The first quarter of 2024 saw capital deployment on par with the previous year.

To bridge valuation gaps, tools like unpriced capital raises, hybrid capital solutions, and earn-outs have been used, especially as valuations contracted due to broader market corrections. Despite these conditions, global private credit markets expanded in total assets and committed capital last year. Equity investors are now adopting structured strategies typically limited to credit funds, offering downside protection while retaining equity upside.

With companies staying private longer, the search for liquidity has also spurred growth and innovation in secondary markets for private company shares in 2023.

How have these themes shaped transaction dynamics and what advice would you give companies potentially looking to raise capital in 2024?

Paul Betts: Companies with clear roadmaps and strong commercial agreements are favoured. High quality companies continue to attract high valuations. These firms are industry leaders with sustainable unit economics and robust defenses. For valuations, it’s advisable for companies to leave room for future capital influx rather than inflate early valuations, which could deter future investors.

Due diligence processes have also extended, making upfront preparation crucial for efficient execution, reducing management burden, and minimizing closing adjustments. Consistent market messaging and meeting set milestones are key for a successful capital raise.

Investors are willing to accept ramp-up risk, but are more cautious about technology risk. Securing offtake contracts from reputable firms validates the equity narrative and encourages both equity investors and lenders to invest. The initial capital to bridge this gap is the challenging part. We’re well-equipped to guide companies through this process.

In terms of capital deployment, which industries have been the most active in Europe’s Private Capital markets?

Beatrix Pratte-Ness: In 2023, the Technology sector took the lead in capital deployment across Europe, aligning with trends in the United States. During the same period, Technology and Healthcare secured a slightly larger market share in Europe, spanning from 2021 to 2022. Elsewhere, Private Markets are also experiencing a surge in capital investment within the Energy Transition and Climate Tech sectors here in Europe. At RBC, our robust global Energy Transition franchise, coupled with expertise in Infrastructure and Renewables, strongly positions us to support clients in the private markets, enabling investment across the intricacies of Energy Transition and the Battery Value Chain.

How are you seeing M&A activity intersect with the private markets?

Paul Betts: In terms of investor exit options, Europe’s M&A markets remain challenging but are showing signs of resurgence. European M&A dollar volume is up year to date, relative to the equivalent period in 2023.

An uptick in the M&A market activity will help create more liquidity opportunities for investors and could act as a tailwind in the private capital markets. Companies may also seek to raise capital to fund inorganic growth or run dual-track M&A and private capital raise processes, increasing competitive tension and broadening their strategic alternatives.

We are also seeing corporates and strategic investors play key roles in private placement transactions, validating the equity story and technologies, helping attract financial capital as lead investors or followers. They are also deploying cheques in private companies while anchoring themselves for future commercial partnerships, or potential M&A discussions.

The key is to run a dual track process aimed at securing a strategic as a lead investor and crowding in capital from financial investors. As a result, it’s becoming increasingly import to provide product support from both M&A and private placements to retain as much flexibility as is possible when launching a process.

How do private markets interplay into core equity capital markets?

John Kolz: A lot of the themes we have discussed are similar and are spilling over into equity markets. Companies are staying private longer, using private capital raises to expand and prepare for the public markets, ensuring they have optionality to make the transition when market receptivity and valuations are favourable for them.

Market receptivity is returning. Volumes are up around 8-9% globally. The bar for deals is higher, but there is also a broader appetite across sectors, and a general view that investors are ready to be stock pickers again. That always benefits the IPO market, in particular, and to a lesser extent the follow-on markets, which have been dominated by private equity selling down positions they have held for some time. As always, the private markets are closely intertwined with the pulse of the equity capital markets landscape.

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