LONDON -- Outgunned by Chinese and Middle Eastern competitors and lacking the breadth of service of their U.S. rivals, European private equity firms are focusing on specific industries to compete on their home turf.
Private equity fund managers, gathering in Berlin on Monday for their largest annual conference, will weigh the potential threat of deep pocketed buyers from developing economies in Asia and the Middle East.
This group, which includes China's property and entertainment giant Dalian Wanda Group Co. and sovereign wealth funds from Singapore, Qatar, Kuwait and Abu Dhabi, has become a recurrent feature of European auctions where it can beat local investors on price.
"This is a new development," said Hugh Langmuir, a managing partner at European private equity firm Cinven. "So far the incidents have been limited but it's on a watching brief."
London-based Cinven has turned the trend to its advantage by using its Hong Kong office to grow assets across Asia and negotiate rich exits such as the 900 million pound ($1.4 billion) sale of British restaurant chain Pizza Express to Chinese private equity firm Hony Capital last year.
For those firms seeking an exit from a business, like in Cinven's example, widening the pool of possible buyers has made the process more competitive and secured a higher price.
"Having a global team and expertise in helping companies expand into new markets are strong differentiators," said Luca Bassi, a managing director at Boston-based buyout fund Bain Capital.
No room for generalists
While some of the major U.S. funds such as Blackstone and KKR have diversified their investments across several asset classes, providing anything from alternative asset management, real estate and hedge fund solutions, European firms have been reluctant to tackle new business areas.
Many of them believe that specialization is the way forward.
In Europe where smaller to middle market deals worth between 500 million and 2 billion euros have become the mainstay of the industry, specialization is even more compelling as blockbuster deals have been harder to execute.