CEE deals, LP interest on the rise

Kimberly Romaine
07 April 2011

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The market in Central & Eastern Europe is picking up, with more deals expected and more LPs ready to back them.

These are some of the findings from the Unquote"/Equus Sentiment Survey conducted last month.

Family-owned businesses will form the most common source of deals this year, according to 54.5% of respondents, with secondary buyouts favoured by nearly a third. The deals that do get done will be expensive, with 55% of pollsters expecting an EBITDA multiple of 7x or more (see graph).

This means the region no longer lags Western Europe much, since Standard & Poor's LCD puts deal multiples at the 9x mark. The handful of deals seen in the region thus far affirm this sentiment, with two of four large buyouts in double-digit multiples, and at least one other above 7x.

Trade sales will continue to dominate exit activity, with nearly 60% of respondents naming that as the most likely exit route for the year. This reflects the trend seen at the end of last year, when Mid Europa Partners exited two deals to trade buyers; the Aster exit saw the buyer beat off competition from other private equity firms, including EQT. A sombre 4.8% suggested insolvency will be the most common fate of investee companies.

A staggering 62% of respondents expect LP appetite for CEE to stay the same or rise this year, with nearly 5% expecting a ‘significant' rise (see graph).

This is either optimism or a good sign for the industry, since most of the major players are preparing PPMs now, including Enterprise Investors, Abris and Mid Europa. Just over 95% of respondents feel the shift in power to LPs will be sustained, with just under 5% feeling the pendulum will swing back in favour of GPs. Funds of funds are expected to be the most active investors this year, followed closely by pension funds. Innova's fundraising for its latest vehicle echoes this, with over half its 25-strong investor base funds of funds. Family offices, once the GP's largest investor base, accounted for just four.

Unquote" is Europe's longest-running private equity publication. Equus is a private equity communications specialist.