Global capital eyes big ticket deals
The impact of private equity on deal-making could be seen in activity across the region. After Poland, which was the largest private equity market despite a drop from 99 to 74 deals, Russia became close second as it saw the number of private equity deals surge from 47 to 73. Turkey saw deal numbers rise to 45, while Romania saw an increase to 32 and Bulgaria saw deal numbers almost treble to 29. Hungary, Croatia and Serbia saw more deals than in 2020, while Czech Republic’s volume remained stable at 43.
Graham Conlon said: “It used to be rare to find a deal of a few hundred million euros or more, but there are increasing numbers of big ticket deals and we are seeing more in the EUR 1billion-plus range. Private equity is no longer just about local players because bigger players in London or elsewhere are starting to take the region much more seriously.”
Tamas Nagy at EBRD said: “These markets are developing and growing so that companies are becoming larger and that means they invite more interested investors. A few years ago if you wanted to deploy EUR 100m there were only a handful of companies you could buy, but fast forward to today and those opportunities are coming up much more frequently.”
The scope and ambition of dealmakers is illustrated by the fact that the entry point into the top 10 largest private equity related deals in 2021 was EUR 464m, following a pattern that has become firmly established in recent years. There were increased deal numbers across the three busiest sectors as Telecoms and IT, with 101 deals, overtook real estate and construction, with 83, as the hottest sector, followed by manufacturing with 56.
The region is becoming a prolific location for technology start-ups which play into its strengths in turning out well educated people capable of quickly building businesses that can compete on a global scale, as illustrated by the number of unicorns emanating from CEE.
Milan Kulich at Advent said: “We have witnessed an accelerated shift towards e-commerce exposed business models including customer facing platforms as well as fulfilment providers. In addition, digitalisation has become a must across sectors. At Advent, we invested significantly into internal and external resources to drive this development in our portfolio companies as well as recognising these value creation opportunities when reviewing new deals.”
In the early days of private equity in CEE, returns on investment were driven by turnarounds and modernising businesses, but there are now broader motivations behind deals as emerging Europe has become increasingly attractive to the private equity sector and attention that might previously been directed towards Asia is now being turned on the region.
Funds can still find companies that have a lower cost of doing business than further west and because they produce goods and services sold into the west they provided an opportunity to benefit from stable and healthy countries in the EU.
The long-awaited flood of succession-driven deals is finally starting to arrive, as founders from the first wave of private companies look at their next steps three decades on when they may find their children do not want to take over the business. However, other deal drivers are coming into play. According to Milan Kulich at Advent, turnarounds still have role, along with corporate carve outs and value creation opportunities and – more recently – opportunities to take minority stakes in high growth assets.
Success breeds success
Emerging Europe is increasingly offering private equity interesting targets thanks to the innovation of its entrepreneurs who have created a host of new businesses that are growing to a size where they are attractive to buyers and can contribute to deal flow.
The creation of unicorns and a pipeline of multi-million euro deals has helped focus attention on the region and means more global private equity funds are screening emerging Europe for opportunities, though those already operating on the ground are by no means a pushover. Healthy competition means private equity looks well placed to account for even more than the 20% of M&A deals it already underpins.
Tamas Nagy at EBRD, said private equity activity was nowhere near reaching a ceiling and added: “To my mind the opportunities for private equity are ever increasing. I believe that entrepreneurship is coming into its own. There are some great stories coming out and success breeds success.”