Private equity investment in Central and Eastern Europe (excluding Russia) rose to €1.6bn last year, the highest figure since 2009, while fundraising for investing in the region soared 62% to €621mn, according to the annual report by the sector organisation Invest Europe and French law firm Gide.
“Private equity activity in Central and Eastern Europe was strong in all key areas last year — investments, divestments and fundraising — demonstrating a vibrant market with robust interest from GPs [managers] and LPs [investors],” said Robert Manz, managing partner at Poland’s Enterprise Investors.
Investment and fundraising have picked up as funds search for better yields in the strongly growing CEE markets, particularly Poland, which represented 35% of exits by value and 45% of investments (even though investments there slipped 11% to €725mn). The other standout countries in 2016 were the Czech Republic, Lithuania, Romania and Hungary, in that order.
Consumer-facing companies remained the top investment choice, as funds focused on companies benefiting from rising wages and falling unemployment across the region.
Investment this year appears to be continuing the strong trend since the 2013 low, with a flurry of major deals in the Polish consumer sector, including the acquisition of online auction company Allegro and retailer Zabka, and the flotation of retailer Dino.
Looking at the figures in detail, in 2016 investments edged up to €1.6bn from €1.58bn in 2015, but without the help of the mega deals that boosted 2015’s figures. Buyout investments were stable at €1.2bn, representing 75% of investments by value, while growth investments rose 16% to €285mn, and venture capital investments were stable at €100mn. The most popular sectors were consumer goods (23% by value), ICT (22%) and biotech (15%).
Despite the rise in investment, however, it still remained small as a percentage of GDP at 0.12%, compared with 0.33% for the rest of Europe.
Dedicated fundraising for CEE was still way down on 2014’s bumper €1.48bn, but grew faster than in Europe as a whole as larger European and US buyout funds returned to the market, according to Invest Europe. European funds outside CEE returned to lead in fundraising, tripling to €363mn, representing 58% by value. Funds outside Europe (mainly from the US) soared nine times to €133mn, representing 21%. Local fundraising sunk back to historic lows, making up just 5% of funds raised.
Buyout fundraising grew almost five times to €445mn, representing 72% of funds raised, while venture capital fundraising fell by 28% to just €102mn, representing 16%. Fund of funds rose to represent 27% of funds raised, pension funds made up 16%, government and international financial institutions fell to 15%, while academic funds rose to 14%.
Exits (at historical cost) fell 19% to €1bn but the number of exits rose to an all-time high of 112 because of the growth of venture capital exits. Record secondary exits (sales to another private equity fund) became the top exit method, rising to 46% by historical value, ahead of trade sales at 31%. ICT exits amounted to €348mn by historical cost, representing one third of the total, followed by transport (€214mn), consumer companies (€160mn) and energy and the environment (€118mn).