Private equity firms show confidence

OPTIMISM continues to spread among private equity investors across central Europe, as they look to the future with greater confidence than at any time since early 2008. Deal levels remain below those of two or three years ago, however, and the deals are taking noticeably longer to conclude but private equity investors expect to continue pursuing new investment opportunities in the region. These are some conclusions from the Central Europe Private Equity Confidence Survey, which Deloitte presented in early June.

OPTIMISM continues to spread among private equity investors across central Europe, as they look to the future with greater confidence than at any time since early 2008. Deal levels remain below those of two or three years ago, however, and the deals are taking noticeably longer to conclude but private equity investors expect to continue pursuing new investment opportunities in the region. These are some conclusions from the Central Europe Private Equity Confidence Survey, which Deloitte presented in early June.

According to Garret Byrne, Deloitte partner and M&A Transaction Service Leader, 2009 was a tough year for private equity firms globally, including those operating in central Europe.

“2010 looks much more positive – the recovery in the stock markets and improved availability of debt has bolstered sentiment,” the survey cites Byrne as saying. “There is a continuing belief among economists in the convergence effect that should see economies in central Europe grow at a faster pace than in western Europe over the medium term.”

The survey asked a sample of respondents from professional private equity firms across the region 10 key questions relating to their expectations for the next six months from April 2010.

Sub: Experiences in Slovakia

“International private equity companies operating in the region of central and south-eastern Europe have invested in Slovakia only sporadically,” said Maroš Sokolovský, financial advisory director at Deloitte Slovakia. “The reason was – and I expect that this will continue – that there is a lack of big competitive opportunities here compared with other countries in this region. It is also true that Slovak investors know the local market conditions better and are better able to capitalise on opportunities.”

According to Sokolovský, general conclusions from the survey may be applied specifically to Slovakia. But in spite of the growing optimism and appetite, the ability of private equity companies operating in Slovakia to carry out new investments will be affected by the financial performance and stability of their existing investments, as well as the availability of capital and the ability of the investors to approach new investment opportunities in an innovative way.

Though Slovakia has never been a traditional destination for global private equity, investors can still find opportunities here but their realisation is more difficult that it has been in the past, according to Sokolovský.

“The so-called smart-buys, which mean that you buy cheap and sell high is pretty much a thing of the past,” he said adding that now investors need to put together these projects creatively. Some projects may involve, for example, finding a smart idea in a functioning company which lacks the cash to start up the new project.

The regions of central and eastern Europe are perceived as having bigger potential than in western Europe. But an individual approach to each project is necessary, according to Sokolovský.

With regards to expectations of acquisition opportunities in individual market segments the survey shows the biggest change was in the technologies, media and telecommunications sector, dropping from 25 percent in September 2005 to 13 percent now. Expectations in financial services decreased as well while in manufacturing they increased from 18.8 percent to 26 percent. The energy sector and the food industry are perceived as more or less resistant to such cyclical development, according to Sokolovský.

Biggest deals

Among the biggest recent deals by private equity companies in Slovakia and the Czech Republic, excluding global or international companies, Sokolovský cited the formation of an energy and industrial holding done by the J&T financial group, PPF, and Daniel Křetinský who had managed energy investments within J&T. The value of the investment was revealed only partly, when the announced investment of PPF was said to be 6 billion Czech crowns. The transaction took place in February 2009.

In December 2009 the German company SAG, owned by private equity firm EQT, obtained a majority stake in Elektrovod Holding. The company is engaged in construction, maintenance and reconstruction of power transmission systems.

In June 2008, private equity company Penta acquired windows producer Noves and incorporated it into the group Hassau along with the Polish company Okna Rabien. In May 2010 Penta also acquired the Czech electro-technical company Mezservis.

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