European PE Market Slows Amid Geopolitical Headwinds in Q1 2025

What's New: 

According to PitchBook's Q1 2025 European PE Breakdown, investor sentiment has become more cautious following a strong 2024, with Q1 deal value dropping 24.6% QoQ and deal count lagging by 17.7% QoQ as geopolitical tensions with the US and political instability in France and Germany created market uncertainty.

Why It Matters: The shifting landscape suggests early impacts from Trump's trade policies, with tariffs affecting PE portfolio companies and potentially reshaping certain industries. This has pushed sponsors toward smaller add-on deals while large megadeals and take-privates have declined significantly.

Big Picture Drivers:

• Tariffs are proving disruptive, with the US implementing a 25% tariff on imported vehicles, a 20% base tariff on EU goods, plus varying tariffs for Switzerland (37%), Norway (15%), and UK (10%).

• Regional shifts show the Nordics and DACH regions demonstrating higher resilience in both deal and exit activity, gaining market share as UK activity weakens.

• Exit backlog continues growing with European PE-backed companies' median holding time increasing to 3.4 years, up from 2.4 years in 2019.

• Danish Compromise becoming permanent EU law may accelerate financial services M&A by allowing banks to acquire insurance assets without incurring high capital charges.

• Fundraising rebound for middle-market funds, which represented over 40% of total capital raised, reversing a three-year decline.

By The Numbers:

• €23.7B raised across 22 European PE funds in Q1 2025

• €29B raised by Ardian for the largest-ever secondaries fund

• 2.6x investment-to-exit ratio, up from 2.3x in 2024

• 38.7% of Q1 deal value was in add-on buyouts, up 8% from 2024

• €1.8B raised by Thoma Bravo for its first European-dedicated fund

Key Trends to Watch:

• The IPO market remains stalled despite expectations of a 2025 return, with several companies postponing public offerings amid market volatility.

• Healthcare exits are surging, increasing sector share from 6.2% to 9.6% of total exit count and doubling its share of exit value.

• Growth equity fundraising is returning to favor, capturing over 25% of capital raised in Q1 after falling out of favor during high interest rate periods.

• French fundraising dominance continues, with six new funds closed in Q1, representing a quarter of all European funds.

The Wrap: 

Despite economic headwinds, European PE continues to show adaptability, with middle-market funds staging a comeback, the Nordics and DACH regions demonstrating resilience, and Europe now home to both the largest-ever buyout fund (CVC Capital Partners Fund IX) and largest-ever secondaries fund (Ardian).