Central Europe’s private equity (PE) markets may be slowing down, according to the latest Deloitte Central Europe Private Equity Confidence Survey, as nearly half of respondents (46%) expect the economy to worsen over the coming months. Despite this concerning outlook, most CE economies are growing 2-3 times faster than those in Western Europe, with Poland expected to grow at 3.5%, and Romania, at 3.1% for 2020, against 1% for the eurozone.
Confidence among professionals in CE private equity houses has been declining gradually for two years and reached a seven-year low. Market activity, already slow in 2019, may reduce further, with over a quarter (27%) of respondents expecting activity to decrease.
The proportion of deal-doers expecting to focus their efforts on new investments in the coming months has been decreasing over the last four years, from 73% in 2016, to 52%. As for the deal sizes, the vast majority of respondents (69%) expect them to remain the same.
The cautious economic outlook combined with high pricing stimulates the appetite for selling, with a quarter of respondents (25%) planning to focus on this in the coming months.
“As we speak, Romania seems to be a seller’s market, however, vendor price expectations may be at an inflection point as these might fall further, with an unprecedented 48% of our respondents expecting pricing to further decline this year. However, we still notice a significant appetite for private equity funds to transact in Romania, with most of the local players being actively involved in certain deals, especially on the buy side,” said Radu Dumitrescu, Partner Transaction Support, Deloitte Romania.
Market leaders are again considered the most sought-after assets, with 62% of respondents expecting these businesses to be the most competitive. It is notable that a tenth of respondents expect that the most sought-after assets will be start-ups, a part of the market which started to blip on investors’ radars in 2015.
“Most of the 2019 transactions involving PE firms in Romania were acquisitions and I am happy to notice that, besides the deals concluded by players which have been focusing on Romania for some time (Mezzanine Management’s investment in PetStar, Abris Capital’s acquisitions of Global Technical Group and Dentotal Protect, Innova’s acquisition of Optiplaza and Optical Network and MEP’s top-up acquisitions in Regina Maria), there were also new funds that have made their first acquisitions locally: Highlander Partners’ investment in Ares, Greenbridge Partners’ investment in Rus Savitar, CEE PE’s investments in Flash Lighting Services, Brise Group and Farmavet-Pasteur. In this last category, it is worth mentioning the first acquisition made by a local Private Equity firm, Morphosis Capital’s investment in DocProcess. Considering Blackstone Group’s minority investment of EUR 175 million in Superbet, I am also confident that Romania can become a playground for larger PE firms in the near future,” added Radu Dumitrescu.
“In Romania, private equity buyout activity continued to expand reaching a total of 22 deals in 2019, versus 11 in 2018, and an estimated value of almost EUR 2 billion. We expect private equity firms to remain active this year, however a decrease in value might be experienced, following a specific set of circumstances in 2019, namely two large transactions,” said Ioana Filipescu Stamboli, Corporate Finance Partner, Deloitte Romania.
Deloitte Central Europe Private Equity Confidence Survey has mirrored the private equity market evolution since 2003, twice per year. The latest edition is available here.
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Deloitte Romania is one of the leading professional services organizations in the country providing, in cooperation with Reff & Associates, services in audit, tax, legal, consulting, financial advisory, risk advisory, business processes and technology services and other related services with more than 1,700 professionals.
