CEE exit pace rebounds on strong macro

Central and eastern European private equity and venture capital firms saw a return to selling form in the first six months of 2016, after a sluggish first half of 2015. The region managed 21 exits in the H1 2016, compared with just 12 in H1 2015, rebounding to the levels seen during 2012-2014.

Aggregate exit deal value surpassed €1.2bn in the first six months of 2016, driven mainly by Actera's €733m trade sale of Turkish cinema operator Mars Entertainment and the €210m secondary buyout of Baltic TV and broadband operator Starman Group from East Capital.

Drilling down into geographies, the region's largest and most developed private equity market, Poland, continued to lead with six exits completed in H1, followed by Estonia with four. Lithuania also had a strong start to the year with three exits, though LitCapital's sale of its minority stake in struggling container manufacturer Putoksnis was a financial write-off for the GP.

If the volatility seen in the immediate wake of Brexit continues, there will no doubt be some slowdown in central and eastern European exits" – Shawn Atkinson, Orrick

While a buyer has not yet been found, Polish GP Enterprise Investors said in May it was exploring options for an exit of Romanian discount retailer Profi, in what market sources suggest could be a deal valued at around €500m. The firm has made a number of strong exits in H1 and one source close to the matter said Enterprise is preparing to begin fundraising for a new vehicle later in the year.

The Profi deal is an example of the strong pipeline for exits in the region affirmed by sources in the local buyout market, in light of a solid macroeconomic backdrop for most of 2016. "On a macro level, the regional outlook for CEE has been good in the first half of the year," says Shawn Atkinson, partner at law firm Orrick.

"Transactions have to be considered on a case-by-case basis, but overall the exit market in the region has generally been better than in years prior, and portfolios a year staler," says Atkinson, adding the caveat that "the landscape has changed substantially" in the wake of the UK's decision on 23 June to leave the European Union.

Bre-verberations
Since the referendum, the prospect of the UK's exit from the EU has so far caused a lot of volatility across global financial markets and seriously devalued the pound against both the euro and US dollar.

Though it remains too early to tell the effects Brexit will have on European dealflow in the near-term, it is unlikely CEE will escape unscathed if there is a broad macroeconomic impact on the continent.

"If the volatility seen in the immediate wake of Brexit continues, there will no doubt be some slowdown in central and eastern European exits," says Atkinson. "However, we will have to wait and see what the extent of a potential slowdown will be, but if it does hit the European economy, I don't think anyone will be immune, including CEE."

CEE has been developing a better market for local LPs in recent years, as local GPs raise increasing amounts of money from regional pools of institutional capital

The forecast impacts of Brexit on the global economy vary substantially, from little spill-over outside the UK, to a financial regression of a magnitude similar to the 2008 financial crisis, which would bring back unwelcome memories for GPs in CEE. The bullish approach to the region taken by LPs in the years before the crisis transmuted into disappointment when investments turned sour, eventually scaring off a good chunk of the institutional capital available to GPs looking to invest in the region.

CEE has been developing a better market for local LPs in recent years, as local GPs raise increasing amounts of money from regional pools of institutional capital, but European investors continue to be an important source of commitments for private equity in the region.

While investors may be proceeding with slightly more caution than in the beginning of June, business will likely continue more or less as usual in CEE for the time being. "Two new, larger deals came to market the day after the referendum result, so it seems things will keep ticking over," Atkinson says.

Further reading

• Industry

CEE private equity confidence rebounds

• 08 Jun 2016

• LPs

Brexit could boost secondaries market, says Idinvest’s Bavière

• 30 Jun 2016

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