CEE private equity investment activity highest since 2009

Private equity investment in central and eastern Europe has reached its highest level since 2009. This is the thrust of a new report from Invest Europe (formerly EVCA, European Private Equity & Venture Capital Association).

The €1.6bn recorded in 2016 slightly surpassed the 2015 result, it calculates. Invest Europe says this underlines the trend of increasing annual investment value in the region since the market touched bottom in 2013.

Investment activity in CEE countries represents, however, a mere 3% of the broader European total. Consumer goods and services was the most targeted sector, attracting 23% of investment. Information and communication technology was second with 22%.

Market vibrant

Invest Europe chairman Robert Manz, courtesy of Invest Europe

Robert Manz, managing partner at Poland’s Enterprise Investors and the chairman of Invest Europe’s Central and Eastern Europe Task Force, describes private equity activity in the region as strong in all key areas last year.

He sees a vibrant market with robust interest from general partners and limited partners. “The region’s fund managers are hard at work maximising buying and selling opportunities, while institutional investors are showing renewed appetite for the region,” he says.

As always, private equity investment activity in the region 2016 was concentrated in a few countries. Poland remained the leading country. It is home to almost a quarter of the companies receiving funding and accounted for 45% of the region’s total investment value.

Five account for 81%

Poland was followed by the Czech Republic, Lithuania, Romania and Hungary. Invest Europe says these five sovereign states combined accounted for 81% of total CEE investment and two-thirds of the investee companies which benefitted.

Buyout investments remained stable year-on-year at €1.2bn. Growth capital funding continued as the region’s second most important type of private equity investment at €285m, 16% up year-on-year.

Venture capital investments reached €100m, equalling the level recorded in 2015. Private equity exits across the region reached €1bn in 2016, measured at historical investment cost.

All-time high

The total number of companies divested in CEE increased to an all-time high of 112 in 2016. Agreeing a sale to another private equity firm was the region's most popular exit route. This secondary market made up 46% of the region’s total divestment value at historical cost.

It took over the leading role from trade sale. Trade sale, the region’s most prominent exit route for the previous six years, accounted for 31% of total divestment value in 2016. Trade sale remained the most popular route in terms of the number of companies divested at 37.

Fundraising up 62%

Total private equity fundraising in the region reached €621m in 2016, a 62% year-on-year increase. The CEE share of total European fundraising was virtually unchanged in any meaningful way. It inched ahead from 0.7% in 2015 to 0.8% in 2016.

Funds of funds were the largest source of capital. They accounted for 27% of the region’s capital raised in 2016, followed by pension funds with 16%. Government agencies were the leading source of capital in CEE from 2009-2015. They comprised 15% of the total in 2016.

Non-CEE European investors were the leading source of funds in 2016. They accounted for 58% of total capital newly committed. Funding from CEE domestic sources returned to an historically low level. It made up just 5% of total fundraising in 2016.

VC fundraising dip

CEE buyout funds raised €445m in 2016, compared with just €94m in 2015. However, the region’s venture capital fundraising dipped to €102m, lower than the previous two relatively strong years.