Private equity investment in CEE falls 35% to €2.77bn

Private equity investment in CEE falls 35% to €2.77bn
The investment total was 12% below the five-year average because of the decline in big transactions. / bne IntelliNews
By bne IntelliNews June 28, 2023

Private equity investment in Central and Eastern Europe (CEE) fell in 2022 by 35% from 2021’s record influx to €2.77bn as uncertainty caused by Russia’s invasion of Ukraine blighted sentiment and higher interest rates raised funding costs.

The investment total was 12% below the five-year average because of the decline in big transactions, according to a report published last week by private equity association Invest Europe and Gide Loyrette Nouel, which compiled the figures. The report includes Central and Southeastern Europe plus Ukraine.

The number of investments was also down 18% to 590 companies, hit by a shortage of seed transactions, though the total overall number was above the five-year average.

The trend is broadly consistent with figures from law firm CMS and information platform EMIS in January that showed that deal values were at their lowest level in five years. The data indicates that many private equity firms are still sitting on their hands despite holding a lot of dry powder.

Venture capital investment was the standout performer, hitting a record high of €821m in 2022, a 13% increase on the previous record of 2021, with 451 companies receiving funding.

Buyouts fell 60% from 2021’s peak to $688mn but a record number of 64 transactions were completed. Growth transactions fell 32% to €1.23bn, with 76 transactions.

In terms of sectors, information and communication technology (ICT) remained the largest sector at 32% of total value and 52% of transactions by number. Energy and environment ranked second with 18% of the total CEE investment value. Consumer goods and services, traditionally important for the CEE region, ranked third with 13% of the total CEE investment value.

In terms of countries, Czechia had one fifth of the region’s total investment value, overtaking Poland, as did Estonia, with 17%. Estonia received Europe’s biggest total of private equity investment in relation to GDP. Poland and Croatia each had 16% of the region’s total investment value.

Hungary again had the largest amount of transactions at 184 (31% of the region’s total), but this figure is distorted by the state’s support for venture capital funds, which has had decidedly mixed results in terms of successful start-up companies.

Exits totalled €771million, measured at historical investment cost, a year-on-year decrease of 40% and the lowest figure in the last five years. A total of 121 companies were divested, a 34% decrease from a record 2021.

Trade sale was the most common exit route by value and number, with €386mn in trade sale exits, half the total, across 52 companies, 43% of the total. There were just two exits by public listings.

Total fundraising declined 11% from 2021 levels to €1.62bn, with 35 funds active. Venture capital funds represented 44%, growth funds 23% and buyout funds 21%.

The biggest source was government agencies, which  provided 33% of the funds raised, though the total raised was down 21%.

Private individuals and family offices represented 23% of total fundraising in 2022, up from 14% the previous year, which Invest Europe said was an important sign of the development of the region’s investor base.

CEE-based investors contributed 29% of total CEE fundraising in 2022,down from 48% in 2021, and remained focused on venture capital (50% of the total value). In absolute terms, CEE-located LPs invested €471 million, mostly driven by private individuals and family offices (58% of the total) and government agencies (13%).  Investors from Poland, the Baltics and the Czech Republic dominated.

Non-CEE European investors remaining the leading geographic source of CEE funds in 2022, increasing 17% to €782 million. They represented 48% of the total capital raised, up from 37% in 2021 and above the previous five-year average of 31%.

Funding from investors outside Europe increased in 2022 in absolute amounts, but remained low compared to other sources, reaching 10% of the 2022 total compared to 7% in 2021.