CEE toasts bumper Q3

The past quarter saw global heavyweight KKR entering CEE with the €1bn buyout of Serbian pay-TV business SBB/Telemach, offering a lucrative exit for incumbent backer Mid Europa Partners. The GP reaped a 3x blended multiple for its seven-year stewardship of the business, which attracted interest from a number of other private equity firms.

A hat-trick of fund announcements highlights renewed institutional interest in the region. By the end of October, €1bn had been raised by three GPs, while Mid Europa was due to announce a first close on nearly half that sum towards its next fund. More recently, it was revealed that Baltcap is nearing a first close on its new fund, believed to be between €50-60m, for its €100m target. 

And perhaps as crucial as the done deals and fund announcements is what has been lacking across all of Europe for the past two years: confidence. Mercifully, there are signs this is picking up and at its highest level for two years, according to the Deloitte CEE Private Equity Confidence Survey, released in October.

Good news coming from the region make up for an ebbing tide of 18 months

More than two fifths of respondents expect an improvement in economic conditions in the region, up from just one tenth in the previous survey. Another survey, by CMS, suggests CEE and the Nordic countries are the most optimistic regions in Europe as regards M&A activity expectations over the next year. Even more encouraging is that respondents from CEE and Germany were the most optimistic regarding access to financing in the next year.

As regards private equity, there is a clear shift in focus from defensive portfolio management to fresh deal-doing, with 60% of respondents in the Deloitte survey expecting to focus more on that over the coming six months, nearly a doubling of the previous survey.

Choppy waters
While this is encouraging, private equity in CEE is far from smooth sailing. Recall, for example, regional heavyweight Advent's announcement earlier this year that it will no longer raise a dedicated fund for CEE.

The region remains woefully underserved by home-grown institutions, with next to no domestic backers in funds. This may change, with the Polish government announcing its intention to renationalise the state pension to boost its coffers. This has created a wave of international scepticism with regards to the country's investment merits.

However, the changes may, in fact, put wind in the sail of the region's asset class: by deregulating the (admittedly small) proportion of pension money that remains private (individuals will have the opportunity to opt out), the funds may, in time, be directed into private equity.

This would be welcome news, however small the impact. This is because fundraising, much like in western Europe, remains difficult. Enterprise Investors raised €314m for its latest vehicle – an impressive sum, though it is less than half the GP's predecessor. And Mid Europa Partners, CEE's largest fund with €1.5bn raised last time, is now reputedly seeking €800m for its latest – a fifth smaller than the target published on EBRD's website earlier this year. There are some stand-out successes: namely, 3TS's recent interim close, which at more than €100m already dwarfs its 2007 €40m predecessor; and Abris, which raised €450m for its second vehicle.

Next year should see a number of mid-market fund managers launch their vehicles, testing these barometers' abilities to forecast the temperature of investors. It will be the first time key-men have to navigate through AIFMD-compliant fund structures. This, combined with unpredictable behaviour of erstwhile reliable investors, may mean funds are not only smaller but perhaps structured differently to their predecessors, as is the emerging trend in western Europe.

 

Enjoyed reading this article? View the LIVE version at the unquote" CEE Private Equity Forum 2014 - this year taking place in Warsaw on 8 April. For full agenda and registration information visit: ceepeforum.com

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• Topics
• CEE
• Funds
• Buyouts
• KKR
• Mid Europa Partners
• Baltcap Management Ltd
• Deloitte
• Advent International
• Enterprise Investors
• EBRD
• Abris Capital Partners
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