CSE Private Equity continues upward path

According to the report, “Central and Eastern Europe PE Statistics 2019,” total PE and VC investment in the Central and Southeast Europe (CSE) region reached its second highest annual result to date in value terms at EUR2.95bn in 2019, funding a record 464 companies.
CSE Private Equity continues upward path

(Maria Bninska, Public domain)

The value and number of companies were up 7 per cent and 10 per cent y/y, respectively, with growth in the number of companies driven by a large increase in VC investments. Investment activity in CSE representing 3.1 per cent of the European total is similar to 3.2 per cent in 2018. “Over the last 30 years, progress has been remarkable and represents one of the few global examples of a peaceful and successful economic and political transition,” Eric de Montgolfier, CEO of Invest Europe, wrote in the report.

“The market is doing well overall,” says Leszek Muzyczyszyn, President of PSIK and Senior Partner at Innova Capital. “COVID-19 has been disruptive, but we see recovering consumer confidence. Areas such as travel, consumer leisure and some services were affected hardest. Poland still sees Western Europe as the main source of incoming investment, while the EBRD, IMF and the Polish development fund PFR—one of the few domestic players—played a big part in recently completed fundraising,” he told FO.

Fundraising Total fundraising in CSE reached EUR1.4bn in 2019, close to the previous five-year average, but with a 47 per cent decrease from the strong 2018 result. Fundraising across Europe as a whole increased 6 per cent to EUR109bn, resulting in CSE’s share decreasing from 2.6 per cent in 2018 to 1.3 per cent in 2019. Government agencies were the largest source of capital for CSE in 2019, accounting for 38 per cent of all funds raised, similar to 2018. This was followed by corporate investors (20 per cent of the total), private individuals (12 per cent) and banks (10 per cent).

CSE-based investors were the leading geographic source of funds in 2019 and accounted for a high 73 per cent of the total capital raised. Non-CSE European investors comprised 22 per cent of total fundraising, while non-European investors comprised only 4 per cent of the total funds raised in 2019, according to the report. CSE VCs raised the most funding in 2019 with EUR631m, comprising 45 per cent of the total capital raised, the second highest value ever for VC fundraising in CSE. The majority of this (84 per cent) went to VC fund managers based in Hungary and Poland. CSE buyout funds raised EUR570m in 2019, just a third of the 2018 level, accounting for 40 per cent of the total capital raised.

As in previous years, CSE investment activity in 2019 was concentrated in a few countries. Estonia was the leading destination with 23 per cent of the region’s total, followed by Poland (20 per cent), Romania (19 per cent), Serbia (14 per cent) and Lithuania (11 per cent). Hungary again saw the largest number of companies receiving PE investment at 198, or 43 per cent of the CSE total.

Divestment activity

Private equity exits across CSE in 2019 totaled EUR946m, measured at historical investment cost, about 20 per cent below 2018. A total of 104 companies were divested in CSE in 2019, representing a 29 per cent decrease y/y, mainly driven by a drop in the number of venture-backed companies and buyouts exited. By comparison, divestment values declined in Europe as a whole by 16 per cent in 2019 to EUR31bn at cost. CSE divestments comprised 3.0 per cent of total exit value in Europe in 2019, similar to 3.2 per cent in 2018.

ICT leads in terms of sectors and received EUR1.3bn of investment into 206 companies, the 44 per cent of total value and number of companies in 2019. This was driven by two large investments that accounted for 52 per cent of the sector total by value.

The financial and insurance sector ranked the second with EUR661m, 22 per cent of the total CSE investment value, invested into 23 companies. Consumer goods and services, traditionally important in the region, ranked the third with EUR452m, or 15 per cent of the CSE total, invested into 83 companies.

Exit strategies

Sale was the most common CSE exit route in 2019 with EUR391m at investment cost, or 41 per cent of the regional total. At the same time, sale was the most utilized exit route by number of companies at 35, comprising 34 per cent of the total. Sale to another private equity house was the second with EUR323m at cost, or 34 per cent of total divestment value. Divestment by public offering ranked the third with EUR80m at cost, or 8 per cent of the regional total. Write–offs remained at a low level, which is typical for the CSE region, accounting for 4 per cent of the total CSE exit value at cost and comprising seven companies. Serbia accounted for the largest value of exits among the CSE countries in 2019 with EUR357m of divestments at cost – 38 per cent of the CSE total, driven mainly by hosting the CSE region’s two largest exits that year. Poland was close behind, comprising 37 per cent of the regional total value with EUR349m.

CSE buyouts amounted to EUR2bn in 2019, similar to their 2018 level. Buyout funds raised EUR570m, accounting for 40 per cent of the total capital raised for the region in 2019. This amount is far below the 2018 result due to many CSE buyout funds having recorded their fund raisings in 2018. Growth capital fund raising almost doubled in 2019 to EUR215m and comprised 15 per cent of total CSE fundraising.

PE exits across CSE in 2019 reached EUR946m, measured at historical investment cost, about 20 per cent below the 2018 level. By comparison, divestment values declined in Europe as a whole by 16 per cent in 2019 to EUR31bn at cost. CSE divestments comprised 3.0 per cent of the total exit value in Europe in 2019, similar to 3.2 per cent in 2018. A total of 104 companies divested in CSE in 2019, representing a 29 per cent decrease y/y, mainly driven by a drop in the number of venture- backed companies and buyouts exited.

(Maria Bninska, Public domain)

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