Resilient Romania attracting PE

CEE-focused private equity firm Mid Europa Partners announced the opening of a new regional office in Romania in September. The office in Bucharest will be Mid Europa's fourth location, alongside bases in London, Warsaw and Istanbul. It will be led by Mid Europa principal Berke Biricik, who joined the firm in 2013 and will now lead its Romanian activities.

"Having a local presence facilitates a more regular and consistent dialogue with market participants, and allows for a more holistic view of the market, both in the context of sourcing deals and portfolio management," Biricik tells Unquote. "It also supports a more hands-on approach to the origination of add-on acquisitions by the portfolio companies."

Enterprise Investors' country director for Romania, Serban Roman, agrees with this sentiment, but stressed that the importance of boots on the ground depends on the deal size one targets: "We believe a local presence is less important in large, competitive deals. And these large deals are rare, making such a presence even less necessary. The best example is our exit from Profi: there was high competition for the asset, yet none of the shortlisted bidders had a local presence." Enterprise eventually sold the asset to Mid Europa, making an estimated 7x its original investment on a €533m sale.

"However, for smaller deals, and especially for proprietary deals, understanding the local business environment and building a relationship with entrepreneurs is the key to success," says Roman. "This can take months or even years, and does require a presence in the country." Enterprise looks at equity investments in the €20-75m range.

PE investment across all brackets has picked up in Romania this year, rebounding from a six-year low of just five deals in 2018 to nine already in 2019. "We see an increased dealflow, and several recent transactions have involved PE players," says Roman. "Unless there is significant macro deterioration, deal activity will most likely increase."

Biricik stresses that Mid Europa is not dependent on increased dealflow to justify the move: "We do not expect to see a sudden change in trends. But Mid Europa continues to actively look for new opportunities in the country."

"We are a regional fund, and so we have a full-time duty to scan the entire region for interesting deals," says Enterprise's Roman. "Romania is no exception, and, since our first investment in the country in 1999, we have deployed more than €200m here. We have excellent profile in the country and we are keen to invest more."

Macro environment
Mid Europa co-managing partner Matthew Strassberg said in a statement that the GP had increased its activity in the country in response to the long-term re-rating of the investment climate in Romania. Roman also comments on the macro picture: "A clear opportunity stems from the strong growth that has been delivered by the country for many years now – the country has proved quite resilient, with only three years of economic decline in almost three decades," he says.

This environment has benefited PE by motivating business owners to sell, says Roman: "Several companies have flourished in this growing environment and reached the necessary scale for a PE investment, and a number of entrepreneurs have sought to exit their businesses, creating interesting dealflow." However, as Unquote has observed across eastern Europe, this does create some difficulties for PE. "On the other hand, the lack of fiscal/legislative predictability and sellers' relatively high price expectations are often barriers to executing deals," says Roman.

On the question of what the future holds for PE in Romania, Biricik is understandably upbeat: "We continue to see significant opportunity in sectors that benefit from growing disposable incomes and purchasing power of consumers," he says. "Further opportunities exist in the enabling infrastructures and technologies, such as e-commerce, logistics and financial services technology."

Serban, on the other hand, is more reserved: "It is difficult to comment on what other PE funds will do. And let's face it, history shows that larger/global funds opened offices in our region in good times, but when things get difficult such major funds can easily decide to withdraw and refocus in other parts of the globe." 

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• Topics
• CEE
• Investments
• Fundraising
• Romania
• Mid Europa Partners
• Enterprise Investors
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