On the fast track east

Austria is far from a hotbed of private equity activity; in fact, it ranks last in the DACH region: In 2006, private equity transactions accounted for just 0.06% of Austrian GDP, making it less than half of Germany's proportion and less than a quarter of Switzerland's. But even these neighbours lag far behind the European average, which stands at 0.6%.

Part of the problem is that domestic banks provide low-cost debt. This means the financing gap for companies is less, especially compared with countries such as Germany, where financing from banks is harder to come by.

Another influential factor is legislation: The Government has failed so far to provide an efficient framework for the industry, with MiFiG-neu strongly criticised by the industry. While new models are being discussed, they are unlikely to benefit Austria as a location for private equity in the short term.

Despite the comparatively stagnant situation in Austria, the country has seen a substantial increase in funds raised. According to AVCO, fundraising reached an all-time high of EUR279m in 2006. Investments also increased from EUR143m in 2005 to EUR158m in 2006. In addition to increases in fundraising and investments, the private equity model seems to become more entrenched in the market, as even smaller corporations are now aware of private equity as a financing option. The future appears to be bright - bright enough for increased activity in the private equity industry.

Since the end of 2007, Austrian-based funds have been more active. A recent example is that of Buy_Out Central Europe, which achieved a EUR150m final close a month earlier than expected. The fund has already completed its first deal with Tiroler Rohren - und Metallwerke and Buderus Giesserei Wetzlar. Lead Equities II has also held a first closing on EUR47m, and Capnova Equity Investors GmbH has launched a fund aiming to reach EUR100m.

Looking east

Local players see this challenge as providing opportunity as well. As companies look east for expansion, there is an opportunity for private equity. Pekka Maki of 3TS Capital Partners, the CEE regional fund manager which set up shop in Vienna in late 2006, states: "If companies are looking not only for financing, but for a partner to take their business to a new level, such as expansion into Eastern Europe, it is private equity that can provide this partnership."

The advisory infrastructure to facilitate this is already in place with long-established networks and contacts. "Both German and international players see Austria as a stepping stone for activities in the CEE region and they can work with the same organisations that they would work with for other European deals," says Dr Phillip Dubsky of DLA Piper Weiss-Tessbach. Austrian private equity players have long benefited from the 'close to home advantage' that their geographical proximity and established links to CEE provide.

"The Czech Republic and Slovakia are markets we are focusing on especially. These countries have the industrial development to provide attractive targets for buyouts and that's exactly why we firmly enhance our deal making capabilities on the spot," states Thomas Jud of Austrian firm INVEST EQUITY, which has recently closed the first genuine Austrian private equity deal in the Czech Republic by acquiring SMCG company Roltechnik. Hungary is also seen as interesting, with Bulgaria and Romania perceived to be lacking in infrastructure and overall development as of yet. Certain larger Eastern markets such as Poland and most of the former Yugoslavia have also already drawn interest from international players, while competition is less severe in others.

Its proximity to Eastern Europe means the Austrian market benefits from EU expansion, with a significant part of the dealflow coming from Austrian companies that do deals in Eastern Europe. The M&A market, which was traditionally slow in highly-fragmented Austria, has recently gained momentum, which is especially good news for later stage specialists that get involved in carve-outs. Austrian companies appear more willing than ever to sell subsidiaries during restructuring.

The quest for deals from the east leads established funds in the region to push ever further east, with countries such as Turkey or Ukraine becoming more than blips on the radar. More focus is also on Serbia and Croatia, with Serbia's recent turmoil however, potentially damaging the country's attractiveness to foreign investors from Austria and elsewhere.

However, many players have understood that the eastern countries are very different, with factors such as consumer confidence and legislation playing major roles. "Essentially, most private equity players do not have any real local presence in any of the CEE markets and thus have to decide which two to three countries they will focus on," says Maki.

With the strong development of many countries in the CEE region, the availability of advisers, infrastructure and local partners, the CEE region may just be what Austrian private equity needs to catch up with other European regions.

NEW FACES

More funds and people are active in the region now. At the end of 2007, DZ Equity Partners opened an office in Vienna. The firm holds stakes in a number of Austrian companies, and has most recently acquired 26% of Electrovac Group from Bank Austria Private-Equity Fonds UBF.

ESCAPING THE CRUNCH

An unforeseen advantage emerged during the second half of 2007: Austria weathered the storms of the credit crunch relatively unscathed, with few banks having to write off bad debt. Thus the market turbulences that plagued most other countries have not reduced the availability of financing.

Austrian banks that were strongly focused on expansion into the CEE region have reaped huge profits during the boom in the credit business. Hence, they have given money more freely for acquisitions.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Investments
• DACH
• Industrials