[Edaily Marketin YunJi Kim Reporter] The European mergers and acquisitions (M&A) market is undergoing a restructuring centered on large-scale carve-outs (transactions in which a large corporation spins off and sells a specific business unit or subsidiary). Compared to the past when liquidity was abundant, the burden of raising funds has increased, prompting European companies to divest non-core businesses, while private equity (PEF) firms are viewing this as a new investment opportunity. Although the number of deals is growing at a slower pace than last year, analysts note that the size of individual transactions is increasing, suggesting that activity is concentrated on large business units rather than reflecting an overall market recovery.

According to global market research firm PitchBook on the 27th, the total value of carve-out transactions initiated by private equity fund managers in Europe from the beginning of this year through July 23 amounted to 41.8 billion euros (approximately 69.8407 trillion won). If the current pace continues through the end of the year, the annual transaction volume is projected to reach 74.8 billion euros (approximately 125 trillion won). This would mark the third-largest volume on record, following 2019 (85.3 billion euros) and 2024 (79.5 billion euros).

In fact, in the current market environment, carve-outs are a viable investment strategy for private equity firms. This is because, as acquisition financing costs rise, it has become difficult to turn a profit using traditional buyout methods that rely on leverage. This explains why these firms are focusing on increasing enterprise value by acquiring non-core business units within large corporations, spinning them off into independent entities, and optimizing their cost structures and sales networks.

This trend is particularly pronounced in Europe. European companies are continuing to sell non-core assets to secure cash and reduce debt, while reinvesting the proceeds into their core businesses.

In particular, carve-outs are spreading beyond consumer goods to the healthcare and automotive industries in Europe. A prime example is the recent decision by Swiss food company Nestlé to transfer a 50% stake in its bottled water and premium beverage business to the U.S. private equity firm Platinum Equity. The two parties plan to spin off the business into a 50-50 joint venture and operate it as an independent company headquartered in Paris, France. Through this transaction, Nestlé will secure approximately 3 billion euros in cash, while the new company will incorporate more than 30 brands, including Perrier, San Pellegrino, Aqua Pana, and Nestlé Pure Life.

A similar transaction took place last April. Global private equity firm TPG acquired Optum UK, a British healthcare IT business, from UnitedHealth Group for approximately 1.5 billion euros. EMIS, Optum UK’s core asset, provides electronic health record systems to the UK’s National Health Service (NHS) and primary care providers.

Apollo Global Management also signed an agreement that same month to acquire the interior division of French auto parts manufacturer Faurecia. Faurecia’s interior division supplies instrument panels, door panels, and center consoles to automakers. Through this sale, Faurecia plans to reduce its net debt by more than 1 billion euros and focus its investments on core businesses such as automotive electronics and eco-friendly technologies.

Some analysts note that the increase in carve-out transaction values in Europe should not be interpreted as a “broad recovery of the European M&A market.” According to PitchBook, the number of European private equity carve-out deals this year stood at 417 as of the 23rd, a relatively slow pace of growth compared to last year’s total of 818 deals. Rather than a broad increase in small and medium-sized deals, the overall transaction value has risen as capital has concentrated on large business units divested by major corporations.

However, given the ongoing pressure on major European corporations to improve their financial structures, observers predict that large business units will continue to be put up for sale in the second half of this year. PitchBook noted, “While carve-outs serve as a means for companies to secure cash and focus resources on core businesses, for private equity firms, they represent a high-risk investment that requires transforming an organization that has relied on its parent company into an independent entity,” adding, “The success of these investments will be determined not by the size of the deal, but by the ability to improve operations following the acquisition.”