Dino Polska IPO could revive public exit route for PE in CEE

In early March, Polish private equity firm Enterprise Investors said it intended to float Poland-based supermarket chain Dino Polska on the Warsaw Stock Exchange in the coming months.

The IPO – which could value Dino at up to PLN 1.6bn – will be the first private-equity-backed flotation in central and eastern Europe in 2017, and put the region's tally on par with last year, when just one single public market listing was registered, according to unquote" data.

Volume has been in decline for IPOs of private-equity-backed companies in CEE since 2013, when the region hit a post-crisis peak of six flotations – in both 2012 and 2013 – down from an all-time high of nine in 2006. Despite buoyant global stock markets, IPO volume has dropped every year since 2013.

When we speak to LPs, they are definitely concerned with the overall exit pace in the region. That has an impact on investor appetite" – Kaido Veske, Livonia Partners

Recent years have seen efforts to improve smaller bourses in the region, with the European Bank for Reconstruction and Development leading an endeavour to link Bulgarian, Croatian and Macedonian stock exchanges. The project, which aimed to improve the region's public market financing option, became operational in 2016 as SEE Link, which allowed trading for nearly 400 stocks worth a combined $30bn across the three markets.

Historically, the London, Vienna and Frankfurt stock exchanges have also supported a portion of listings of CEE-based assets. However, the non-local markets are an unviable option for all but the largest companies. Vienna, Frankfurt and London are more expensive options than the local exchanges, especially for companies smaller than €250m. More importantly, in the 1990s – before local CEE capital markets had developed – the discount that western public market investors applied to CEE assets was quite significant, and non-local markets are still viewed as a less attractive option for the region's vendors as a result.

All about exits
While public markets have never been a cornerstone exit route for private equity investors in CEE, improving the viability of an IPO track will be an important step for a region that has matured substantially in recent years, albeit one that some claim still has a sketchy exit record.

Co-founder and partner at Baltic GP Livonia Partners, Kaido Veske told unquote" at the CEE M&A and Private Equity Forum in October: "When we speak to LPs, they are definitely concerned with the overall exit pace in the region. That has an impact on investor appetite."

"If you look at the overall data, we shouldn't be that much behind western Europe [on exit pace] – but we are," he says. Veske believes this lag is in part because the regional strategic players coming from outside of Europe, which have traditionally been a strong option as potential acquirers for private equity assets, require more courting to take an interest in CEE companies than they have before. "[International trade buyers] don't necessarily need to be in the region, and if your price expectation is too high, they don't have any pressure to buy and you will be stuck."

With track records being key to attracting LP commitments for future funds, CEE private equity houses need all exit routes available to them in order to continue attracting capital to a region that has fallen somewhat out of favour in recent years.

The public markets are a great stage to show potential fund investors the ability of private equity firms to build companies that perform and generate value in the long term, in a more accessible way than when an asset is merged into the structure of a corporate buyer. While local CEE bourses do face challenges in becoming as viable an exit route as their European equivalents, they are functional in their current form and able to support IPOs of high quality assets.

"IPO activity in CEE slowed down significantly [in the past three years], but the capital markets are established and working," says one CEE private equity deal-maker, who asked to remain anonymous. "If the appetite for IPOs comes back, it's great news in terms of the exit options available to the private equity community in CEE."

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