The European small-cap buy-out market offers strong opportunities for investors in 2025, according to managing partner at Access Capital Partners, Philippe Poggioli.
"The small buyout space in Europe offers a vast pool of investment opportunities, with around 450 established and emerging fund managers raising funds typically below €500 million.
"This market accounts for approximately 90 per cent of all buy-out deal volume in Europe, allowing us to be highly selective when deploying capital," says Mr Poggioli.
Opportunities in this space have been mostly in sectors underpinned by major long-term trends such as IT and digitalisation, healthcare, and essential business services, which Mr Poggioli says offer strong resilience and significant growth opportunities.
“An example of a successful investment in our fund portfolio is a Dutch healthcare-focused secure communication software vendor, which through multiple add-on acquisitions, became a pan-European market leader.
“Today, the company is the market leader in electronic administration registration and online healthcare prescription. During the holding period, the fund manager guided the company’s management team in an ambitious growth strategy including an active buy-and-build strategy. The company has grown from €25 million in revenue and €8 million in EBITDA in 2018, to €71 million in revenue and €30 million EBITDA in 2024,” he says.
Mr Poggioli emphasises the resilience of the small-cap buy-out segment as supporting investor returns.
"Unlike larger buy-out transactions, which often involve significant leverage, smaller buy-outs adopt a more conservative approach to deal structuring, often with modest debt packages. This makes financing more accessible, with fewer risks linked to interest-rate fluctuations, enabling fund managers to continue deploying capital when the debt markets are tight and minimise leverage risk."
Looking ahead, Mr Poggioli remains optimistic about the prospects for small-cap buy-outs in Europe and the potential for outperformance compared to larger buy-outs.
"This outperformance stems from managers' access to a wider investment opportunity set, lower valuations at entry, more levers for value creation, and potential for higher EBITDA multiple expansion upon exit.
“The exit environment for small-cap buy-outs also remains favourable as they tend to have a wider range of exit options than their larger counterparts.
“Larger buy-out funds have been longstanding buyers of small private equity-owned companies, either as new investments or as add-on acquisitions to existing platforms.
"For instance, in 2024, we exited a UK-based provider of public cloud migration and IT services, generating a 3.5x gross money multiple and returning approximately €32 million. The company grew revenues fivefold, expanding its product and service proposition across the Microsoft stack and successfully completing four add-on acquisitions," says Mr Poggioli.
However, careful manager selection by investors is required.
"With around 450 managers in the small and mid-cap space, the dispersion of returns is higher than among larger funds. Investors need to apply a disciplined and rigorous due diligence process to generate superior performance," he says.
