CEE dealflow drops in H1 as exits soar

Dealmakers in the CEE region remained confident in the first half of 2018, somewhat belying the drop-off in buyout activity following an exceptionally busy 2017. According to Deloitte's recent Central Europe Private Equity Confidence Survey, investor confidence was buoyed by strong economic conditions, reflected in the 4.5% GDP growth recorded for central Europe in the first quarter of 2018.

However, there has been an uptick in the proportion of respondents expecting conditions to decline, making it the first time in two years that there has been an increase in economic uncertainty expressed in the survey. A fifth, or 21% of respondents, anticipated a worsening in the coming months, up from Deloitte's previous survey in which a 10th were pessimistic.

Data from Unquote shows that the region saw 16 buyouts completed in H1 2018 – down from 29 deals recorded in the same period last year and the lowest H1 figure since the 13 recorded in 2009. Previous years have seen more consistent buyout volumes, with 21 deals inked in H1 2016, 23 in H1 2015 and 22 in H1 2014.

Corporate interest is the biggest interest source for exits in the PE industry" – George Swirski, Abris Capital Partners

While investor confidence may be showing a few signs of slowing down, private equity houses that have recently raised funds are on the acquisition trail. One such example is Enterprise Investors (EI), which held a final close for its eighth flagship buyout fund on €498m – its largest vehicle raised since the global financial crisis – in the autumn last year. Commenting on the deployment of capital from Polish Enterprise VIII, Enterprise Investors president Jacek Siwicki says: "We are aiming to have at least €100m equity invested by end-2018."

According to EI, the tailwinds of consumer spending, which continue to be a main driver behind the region's economic growth, are also boosting private equity growth. So far, the GP has completed four investments in the first six months of 2018. These include the buyout transactions of Croatian food retailers Pan-Pek in March and Studenac in June. The deals were followed in July by the buyout of Poland-based fuel station operator Anwim, along with an expansion and growth capital deal for Polish insurance multi-agency Unilink.

Strong exit market
With local economies developing and integrating with western European counterparts, assets in the region have been attracting a wider range of buyers. On the exit front, CEE private equity houses witnessed a number of lucrative exits in 2016 and 2017, and momentum carried through into the first half of this year. "It was a uniquely successful year for us in 2017 – we sold 10 portfolio companies," says Siwicki.

The 30 exits seen in the first six months of 2018 marked the highest number of H1 divestments since 2006, when the region saw 32 exits, according to Unquote Data. It appears that while some sponsors such as EI and Abris – both of which are tapping newly raised funds – are focusing on deploying capital, others are more focused on divestments. BaltCap made five exits in the first half this year, while Czech GP Genesis sold POS Media in May – just over a year after backing the business – to Thai trade buyer DemoPower.

Of the 30 exits, 13 assets were sold to trade buyers, eight were secondary buyouts and four were IPOs. The outstanding number of trade sales highlights the appetite that foreign investors have for entering the regional PE market.

"Corporate interest is the biggest interest source for exits in the PE industry," says Abris partner George Swirski. "The general macro trend is a risk-off attitude, with global uncertainty affecting emerging public markets, so the number of IPOs are drifting down."

The private equity house is currently in exit discussions and has garnered interest from pan-European corporates, as well as financial buyers. If the first half of the year is anything to go by, the second half could see an ongoing slew of exits. This indicates that local private equity houses have successfully nurtured regional owner-managed business and grown them into the established businesses that foreign investors are seeking to invest in.

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