Q&A with Phillip Dubsky, partner at DLA Piper

How would you describe the current state of Austrian private equity?
In a nutshell it is a very mixed bag at the moment. For a while now, we’ve been waiting for an improvement in the legal framework for Austrian funds, but there seems to be a lack of political will to actually tackle the issues, especially as politicians are putting out fires elsewhere at the moment: looking to stimulate the economy and dealing with the problems in the banking sector. We have expected an increase in secondaries transactions, but these have not materialised due to the continuing issue with pricing. We do expect to have reached the bottom, and the recent Constantia buyout saw a very competitive process, although taking a rather long time.

Has the industry undergone any significant changes since last year?
There have certainly been changes, but few improvements. 2008 and 2009 have been vacuum years – very little has happened, either on the deal side or on the regulation side.

Most importantly, the banks, which made up 60% of LPs in Austria, are effectively gone. Meanwhile, Austrian companies demand private equity investments, while investors have been busy with due diligence processes both for new investments and for their own portfolios. We now expect some of these processes to lead to actual investments.

2008 and 2009 have been vacuum years - very little has happened, either on the deal side or on the regulation side

On the legal side, there is some insecurity about how the AIFM directive will affect the industry in Austria. Private equity regulation is still lacking and has been for a long time, which, paradoxically, puts Austrian funds at a disadvantage. Most Austria-based firms have resigned to using Luxembourg-based SICAR and SICAV vehicles to invest.

How is Austrian venture faring?
The venture space has certainly become a victim of the crisis. Venture activiy in Austria in on a downward trend and has been subdued for a long time. If this negative trend continues it will pose an issue in the long-term. Currently, more and more venture players are participating in expansion rounds, while the Austrian government is attempting to support the sector, most notably in the biotech sector.

What expectations do you have for 2010?
The industry is poised to embark on new deals, but I think there is still a rocky road ahead – private equity-backed companies are potentially better off than other businesses, which might find it difficult to re-finance their debt this year or even the next. This may produce an increase in dealflow as more company owners consider taking private equity on board to weather what is ahead.

 

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