Equity Deals in CEE Region Plummet in 2014
That Europe is facing challenging economic times is no surprise, but Western Europe is faring significantly better than Central and Eastern European economies. The numbers don’t lie: in 2014 CEE private equity firms generated just $2 billion worth of investment, with 45 deals. That pales in comparison to $6.3 billion worth of private equity deals in 2012 and $7 billion back in 2007. The reduction in investment from 139 deals eight years ago to just 45 deals in 2014 is indeed a worrying trend that CEE fund managers are witnessing. However, investors are quick to point out that while the value of investments is declining, this may well be part of an economic cycle.
Why is the Private Equity Market in CEE Countries Declining?
It is clear that investors are reluctant to plough funds into CEE countries. Instead, all of the money earmarked for Europe is going to Western European countries which by contrast are faring better. This has however caused a great deal of uncertainty with private equity markets in the region, with firms like PineBridge Investments now feeling the heat. This company has a 2007 vintage fund which it is finding increasingly difficult to sell. The 2008/9 global financial crisis hit many Central and Eastern European private equity funds. As a case in point, there were 15 funds from Central and Eastern European countries that raised €6.6 billion in 2007, compared to just 4 funds which raised €1.6 billion in 2014. It is evident that investor sentiment towards CEE private equity funds is negative and more casualties are likely to fall.
Private Equity Funds Shun CEE for Good Reason
Fundraising for very well established companies such as Mid Europa Partners spent almost 2 years raising its fourth buyout fund for €850 million. This is almost half of what it raised previously. The company since cobbled together a €650 million co-investment initiative which has allowed it to plough €1.4 billion worth of investments into the fund. There are scores of companies that are simply not seeing value in CEE funds, one of them being Advent International. The focus on dedicated funds for Central and Eastern Europe is declining owing to the lack of investor interest and the poor performance of such funds overall. It is clear that the embattled region has many challenges to overcome. However, the establishment of the €315 billion investment fund for Europe by the EU will go some ways towards boosting momentum and driving economic prosperity across Europe. At least that’s the theory behind the argument.