Europe’s private equity market has long been in the shadow of America’s. But while US private equity remains the largest pool globally, the market on the other side of the pond has been maturing fast. European private equity acquisitions jumped by 35% last year to €595bn, according to EY’s Luxembourg PE Pulse. The industry is also consolidating, with the number of managers raising cash now half of what it was just a few years ago.
Funds in Europe have also been shooting for larger deals. The value of European US$1bn+ buyout deals rose at twice the pace of the rest of the world, according to Dealogic data. The US$133bn of these bumper transactions in 2024 represented a 78% increase on 2023, compared with a global rise of 29%.
‘The growth curve looks very steep for private equity in 2025’
As buyouts increase, so does the demand for advisory services. Private equity (PE) firms rely on consultants, accountants and legal professionals to assess acquisition targets, navigate regulatory complexities and structure deals efficiently. But increasingly PE funds have viewed professional services firms as appealing targets in their own right. Most recently European PE firm Inflexion bought a minority stake in the accountancy and advisory firm Baker Tilly Netherlands.
Maintain momentum
So can European private market funds maintain their recent momentum? What will their continued success mean for advisory firms? And could the increasingly intimate relationship between PE and advisory aggravate conflicts of interests?
‘The growth curve looks likely to be very steep for private equity in 2025,’ says Steve Roberts, PE leader for Germany and EMEA at PwC Germany. ‘This is partly because the decline in interest rates is making leverage cheaper again, which helps boost returns. But after a period of more challenging conditions after the pandemic – with elevated inflation and higher interest rates – firms have been holding onto companies for longer than previously to avoid settling for a lower price. This puts pressure on PE managers to return capital to investors through exits in order to raise new funds.’
Advisory firms have become ever closer partners with private equity
The growth has not just been in private equity, but also in funds providing private credit for financing infrastructure projects, according to Laurent Capolaghi, PE leader for EY in Luxembourg, a country which has around US$3 trillion of private market assets under management – second only to the US. The increasing activity of such funds is providing ever more business to advisory firms, which have become ever closer partners.
‘These services fall into four main buckets,’ Capolaghi explains. ‘First, there is due diligence on private market deals, starting with assurance and audit of the financial information of the targets. It is important for banks providing leverage to have independent verification. It also includes certifying critical non-financial data, notably ESG, an area that is becoming ever more important.
‘Second, there is ensuring tax compliance at the level of the fund, the target company and investors. Third, advisers can provide the back-office functions for private market funds, allowing them to focus investing.
‘And finally, there is the consulting function, helping a private market firm identify potential targets and improve their operations after a deal.’ This has become ever more crucial as the returns from leverage alone have diminished due to higher borrowing costs.
Strong demand
Roberts says the versatility of advisory firms helps explain why demand for their services didn’t dry up, even in lean years for deals. ‘For example, since private market firms often didn’t expect to hold companies for so long, we have had a lot of refinancing work as debt terms expired and needed to be rolled over,’ he explains. ‘With business valuations under pressure, funds have had to work harder to realise value from the companies in their portfolios. Often there were also carve-outs of non-core assets to advise on.’
And if deal volumes continue to pick up, the call for advisory services looks set to increase further, offering more opportunities for financial professionals, Roberts adds. ‘The advisory firms didn’t really cut back on staffing, since everyone was waiting for the rebound,’ he says. ‘There should be an even stronger market in this area for people with core financial skills, including accounting qualifications such as ACCA. But technical skills, including in deploying AI, will also be increasingly valuable.’
Conflicts of interests look set to be intensified by firms’ entanglements
Capolaghi agrees. ‘Along with the core financial and analytical skills, firms will want people who can evolve along with the technology,’ he says.
However, the entanglement between private market funds and advisory firms also throws up challenges, especially when the former take ownership stakes in the latter. The private equity investment in Baker Tilly Netherlands is no isolated phenomenon. Late last year UK-based partners at accountancy firm Grant Thornton sold a majority stake to PE firm Cinven. ‘The appeal is clear given that professional services and advisory firms often have stable and recurring cashflows and stable client relationships,’ Roberts says.
Conflict risk
Of course, conflicts of interests look set to be intensified by such entanglements, especially if professional services firms provide due diligence services while they are backed by PE investors with stakes in corporate clients. ‘But professional services firms have been through this many times,’ Roberts says, ‘so there is a lot of institutional experience of managing in advance any potential issues that could arise, including the perception of conflicts.’
Private market assets under management in the US remains more than twice the level in Europe, according to EY data. But the European market is ‘narrowing the gap’, says Capolaghi. And that presents a huge opportunity for the advisory firms and financial professionals in general.
