PitchBook News - Growing antitrust risk for PE

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The Research Pitch

October 21, 2023

Sneak peek: We'll give a wide release on Monday to our new research on how traditional financial institutions are leveraging digital assets and blockchain, despite the crypto bear market. Weekend readers get early access.

Emerging Tech Talk: On Monday, we'll discuss enterprise e-commerce trends and what to expect next year with commercetools' co-founder and CEO, Dirk Hoerig. To join us for the free event, register here.

The state of US PE & VC: In case you missed them, we released our flagship US PE and VC reports last week—a combined 78 pages of data and analysis to help you understand the trends of Q3 and what's to come in 2024:

Should dealmakers be worried about increased antitrust risk?

Antitrust sentiments have been on the rise, with seemingly more criticisms and challenges against major mergers & acquisitions popping up in the headlines in recent years.

Aggressive stances taken by the US Federal Trade Commission and Department of Justice, as well as new antitrust guidelines, have thrust antitrust risk to the forefront of concerns for investors.

Among the recently proposed guidelines are lowered thresholds at which mergers would be deemed presumptively anticompetitive and broader types of transactions subject to review.

The draft guidelines also call out roll-ups—a popular investment strategy used by PE firms to consolidate smaller companies to create market share—as a type of M&A regulators will take a closer look at.

Add-ons and roll-ups may see increasing regulatory scrutiny.

While a single deal may not raise concerns, regulators will examine the deal in its series of follow-on acquisitions to evaluate the cumulative impact on the market. The changes would enable the FTC to launch more frequent and robust investigations into PE deals.

The agencies' increased efforts to challenge mergers can have a dampening effect on M&A activity. There is the overall risk that certain deals will not be able to cross the finish line if stronger antitrust enforcement is able to strike down more M&A proposals.

A risk that more dealmakers are certain to face is that deal processes will cost more or take longer to clear.

At the same time, many market participants point to the regulators' losses in court as a sign that M&A can forge ahead. Some dealmakers are encouraged by the blows to increased antitrust scrutiny and the courts' willingness to accept deal concessions to move forward.

For more analysis, download the free research: Increased Antitrust Scrutiny and Complexity for M&A

Feel free to reach out with any questions or feedback, or if you would like to discuss the research.

Best,

Jinny Choi
Analyst, Private Equity

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Is a recovery coming in Europe's private markets?

As we progress through the second half of the year, sentiment across European private markets seems to follow a more-of-the-same mentality.

Macro continues to drive wider market activity, with interest rate regimes adopting a higher-for-longer approach as inflation remains sticky.

Eyes are ever towards a recovery. Are we there yet? While stakeholders try to call the bottom of the correction, signs for optimism emerged during Q3, as seen in our European Venture Report and European PE Breakdown.

But central bank policymakers expect a slower descent toward inflation targets, meaning the unprecedented shift in rates over the last few years may be a new normal for a while. As 2023 comes to a close, data points to evidence that we are not out of the woods yet, as trends echo that of previous quarters but some green shoots emerge.

What has stayed the same?

Private equity as an asset class continues to outperform venture capital regarding trends in activity and fund returns. While still declining versus the previous year, PE deal value in the first nine months of 2023 showed more resilience than venture markets.

Exits are also broadly flat compared to 2022, where in venture they are significantly lower and remain the weakest area of the private capital ecosystem in Europe. Venture exit activity is also showing little sign of recovery.

What's looking up?

While venture deal value continues to be nearly 50% lower YoY, quarterly trends are showing signs of recovery. Deal value has increased sequentially since Q1, which could be evidence that we are past trough levels of activity.

Are we confident in this being sustained? Not so much. As noted above, a clearer outlook for macro and interest rates will be needed before fundamental factors drive a sustained recovery.

Other data points in private equity may look strong, but we note are skewed by outliers, proving that underlying conditions in markets remain tough.

PE fundraising appears strong, being the only category across both asset classes on track to exceed 2022 levels. However, excluding the top three megafunds, it paces below last year (albeit is still better than VC fundraising).

Beneath surface-level numbers, skeletal drivers of market activity therefore still seem weak. Going into next year, it remains to be seen how various green shoots grow into a more meaningful recovery.

For more data and analysis, read our free European Venture Report and European PE Breakdown.

Best,

Navina Rajan
Senior Analyst, EMEA Private Capital

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Industry & Tech Research

Foodtech deals have started trending upward, with VC activity during Q2 rising 13% on a quarterly basis.

Our annual Foodtech Overview covers the latest trends and provides updates on all the key industry segments across this flavorful frontier:

read a free preview

Thematic Research

SWOT Analysis for Cloud Gaming Startups

When the UK's Competition and Markets Authority halted Microsoft's purchase of Activision Blizzard, the agency cited concerns about a monopoly in cloud gaming.

With the deal now closed, our latest analyst note provides an updated analysis of the sector.

A lot of VC money is going into cloud gaming.

VC investment has only gone up, with investors betting on infrastructure to enable new ways to play video games.

But in the age of streaming, will cloud gaming catch on or will it wither amid consumer apathy?

read the free research

Takeaways From the 2023 HLTH Conference

At HLTH 2023, a healthcare innovation-focused conference, many attendees were focused on one firm's attempt to bridge the VC and PE asset classes. 

The big moment came when General Catalyst announced its bold plan to acquire a health system. Our conference recap features the industry's live reaction to the news combined with our analysis. 

We also cover the areas of healthcare that could be the first to experience transformative AI-powered workflows:

read the free research

Themes From the SOSV Climate Tech Summit

Regulation and policy remain key areas of discussion in the climate tech space.

This year's SOSV Climate Tech Summit was a pulse check on the big hurdles for industry founders, such as how to sustain fundraising momentum and source talent.

Our recap covers the hot topics at the online conference and lists out some of the buzziest climate tech startups:

read the free research

Webinars & Events

Q3 PitchBook-NVCA Venture Monitor Webinar

Underwhelming post-IPO performance for a high-profile group of formerly VC-backed companies has dampened hopes of an exits resurgence this year.

And an increasingly investor-friendly market is expected to further slow dealmaking across the VC lifecycle.

On Nov. 9, our panel of professionals from the NVCA, Dentons, J.P. Morgan, and Insperity, will discuss key findings from the Q3 PitchBook-NVCA Venture Monitor:

Register here

In the News

Our insights and data featured in the press:

US PE-owned companies refinanced about $51.7 billion of leveraged loans this year through September, compared with about $16 billion in all of last year. [WSJ]

AI funding soars to $17.9 billion in Q3 while the rest of tech slumps. [Bloomberg]

European PE deal volumes show a market in limbo. [Real Deals]

Will seed deals ever stop getting more expensive? [TechCrunch+]

If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team.

ICYMI

More of our recent research:

Market updates

Thematic research

Tech research & public comp sheets

Credit research

Coming next week (subject to change)

Global M&A Report
IPO and S-1 Observer

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PitchBook News - Growing antitrust risk for PE

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