Strong finish to the year for faltering emerging market

Kimberly Romaine
09 January 2014

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A turbulent year for CEE private equity is ending on a high. Kimberly Romaine reports

At the tail-end of last year, Mid Europa had around €600m of commitments for a rolling first close of its latest vehicle. The fund launched earlier this year with a hard-cap of €1.25bn, though this has been reduced to €850m, unquote" understands.

The news is excellent not just for Mid Europa but also the region in general, given the mixed fortune it seems to have had in 2013. Abris's €450m follow-on vehicle announced in April was testament to the region's allure - but just weeks later CEE heavyweight Enterprise Investors closed its Poland-focused fund on €314m - more than half the amount it accrued for its predecessor - making some wonder whether LPs truly remained convinced of the region's merits. Advent's announcement that it would not raise another dedicated fund further stoked the pessimists' fire.

New blood
Mercifully, a strong couple of months in terms of exit activity has put CEE back on the map. KKR made its first foray into the region with the €1bn purchase of Serbian pay-tv provider SBB Telemach, offering incumbent backers Mid Europa a hefty 3x blended return for its six-year investment. Liberty Global, Providence and Cinven also bid for the business, showcasing the international allure the region has for certain assets.

The SBB Telemach announcement marked Europe's seventh largest deal at the time of writing, and CEE's second major exit of the year: earlier in 2013 the same GP completed the sale of Lux-Med to international trade buyer Bupa for €400m.

Hot on the heels of the Telemach exit, a consortium of backers led by Columbia Capital Partners and MC Partners, and including Bessemer, Oak Investment Partners, Innova Capital and HarbourVest, sold telecommunications company GTS Central Europe to Deutsche Telekom in a €546m deal. The exit marks the end of a five-year stewardship of the business by private equity.

Poles apart
Most recently, Montagu Private Equity monetised its first investment in CEE when it sold Polish broadcasting infrastructure provider Emitel to Alinda Capital Partners, a US infrastructure investment company. The sale was unexpectedly quick - a two-year turnaround will have been very beneficial for Montagu's IRR, but is just half the time the GP initially suggested they'd hold the business for, with a Montagu partner suggesting a four- to seven-year holding period focusing on industry consolidation had been the strategy.

The business was purchased by Montagu for PLN 1.7bn from Polish telecoms company Telekomunikacja Polska Group in early 2011, then marking the largest private equity deal in Poland. The deal featured co-investment from Innova Capital, Value4Capital and the European Bank for Reconstruction and Development (EBRD). Since then, Emitel has made two add-on acquisitions.

Other good news came at the end of 2013 from the region's mid-market: in November, Horizon Capital and East Capital sold Ukrainian retail lending bank Platinum to a consortium of investment funds and financial investors, including the European Infrastructure Investment Company. Horizon reaped a 3.2x money multiple on the divestment while East Capital reported a 28.5% IRR.

Around the same time, unquote" reported on a €60m first close by 21 Concordia, a newcomer to the region. The firm announced it would set up a team in CEE in 2011 and went on to attract commitments from the European Investment Fund (EIF), EBRD and the Polish Growth Fund-of-Funds (PGFF) - an initiative backed by Bank Gospodarstwa Krajowego (BGK) and EIF.

A couple of months ago long-standing venture and growth capital backer 3TS held an interim close, which at more than €100m already dwarfs its 2007 €40m predecessor. Finally, BaltCap is nearing a first close on half (or more) of its €100m target.

And advisory firms continue to look to the region, with law firm CMS, long regarded in the region as a trustworthy partner on a deal, opening an office in Istanbul. The office will be led by CMS partners Döne Yalçin and John Fitzpatrick.