Private equity investments into central Europe last year hit their highest level since the financial crisis on the back of a sustained economic upswing in the region. Investors piled into central Europe in the years before the financial crisis, betting that several states’ accession to the EU would drive economic growth — but then stepped back after the 2008-09 market crash. However, after hitting a nadir in 2013, private equity investment in the region began recovering and in 2016 reached €1.6bn.
That is the highest level since 2009, although it is still some way short of the 2008 peak of €2.5bn, according to a study by Invest Europe, the industry body for European private equity firms. “I think that what is driving the interest is the good macroeconomic data coming out of the region, as well as the fact that there have been a series of successful exits with the proceeds flowing back to investors,” said Robert Manz, chairman of the CEE task force at Invest Europe, and managing partner of Enterprise Investors. “We expect 2017 to be even stronger than last year as there are a couple of big fund managers in the market raising money.” Fundraising activity in the region reached €621m in 2016, up 62 per cent from 2015, but still far below the 2007 peak of €4.03bn. The bulk of the capital raised — 58 per cent — came from non-CEE European investors.
Central Europe’s economies have grown rapidly over the past couple of years due to a favourable mix of strong domestic demand, rising exports and record-low interest rates. Data released last week showed that Romania grew 5.7 per cent year on year in the second quarter, the fastest rate in the EU, while Poland, the Czech Republic, Hungary and Slovakia also notched up rapid growth. Alongside the strong economic figures, a number of deals by buyout groups have caught the attention of investors, such as CVC’s €1bn purchase of Polish convenience store chain Zabka this year, and the $3.25bn acquisition of Allegro, the Polish ecommerce platform, by a private equity consortium in 2016. “We’re definitely seeing more activity.
There are a few new funds that have come to the region, and on the venture capital side there has been a lot of activity following the entrance of the European Investment Fund as a Limited Partner,” said Kinga Stanislawska, founder and managing partner of Experior Venture Fund. Almost half the private equity investment recorded by Invest Europe — €725m — went into Poland, the largest market in the region. The Czech Republic attracted €168m, Lithuania €156m and Romania €147m. The most targeted groups were consumer goods companies, a sector that has benefited as falling unemployment and rising wages have pushed up household spending in several central European countries. The second most targeted sector was energy.