Private equity traditionally takes a measured, risk-averse approach to M&A investment, seeking long-term returns on the investment.
Our recent ‘Investing in CEE: Inbound M&A Report 2019/2020’ found that – in their hunt for more sustainable investments – private equity players across the CEE region are investing more often but at a lower total value.
Buyouts, deals and expansion
There were 69 buyouts in 2019, two more than 2018. However, the total value of private equity buyout deals with disclosed transaction values dipped to €2.9 billion, some 68% lower than the transaction value disclosed in the previous year.
The volume of private equity exit volume – the last critical step of the investment process – also dropped, from 61 in 2018 to 59 in 2019. Despite the fall, total disclosed transaction values of private equity exits grew significantly to €6.5 billion – driven by a number of large-ticket sales, including Vostok New Ventures’ exit from its stake in Avito, which it sold to OLX Group for over €1 billion.
It is important to note that total private equity figures do not include buy-and-build transactions – the strategy of buying an established company with a specific niche, and then making acquisitions of similar but smaller companies to build it out further – such as the €1.2 billion sale of Bulgarian telco Vivacom to United Group, a Netherlands-based company owned by UK-based private equity firm BC Partners. United Group is expanding aggressively in the region, having also acquired the Croatian assets of Sweden’s Tele2 for €220 million in 2019.
Romania saw the region’s second largest private equity deal in CEE in 2019: Blackstone’s €175 million investment in online gambling company Superbet. US-based Blackstone took the minority stake through its ‘tactical opportunities’ business, which eyes up international expansion opportunities.
Succession and consolidation
Other than the appetite of private equity funds to achieve impressive yields in new spaces, another significant driver of M&A activity is succession planning as owners look to exit companies that have grown to a suitable size, and as older founders plan their retirement. But PE funds are also hunting for businesses that have reached a scalable size, and are looking to participate in sectors undergoing consolidation.
“Private equity funds have gained an appetite for playing an active role in consolidation,” says Jan Fido, Director of Financial Advisory Services at Mazars in Poland. “Fund managers are under pressure to deploy the funds that they have raised, and this is a good destination.”
One question for the coming years is how the regional private equity industry will respond to the EU reducing Joint European Resources for Micro to Medium Enterprises (JEREMIE) funding, which has supported private equity and venture capital in the region for some years.
For more on private equity and its impact on M&A activity across CEE in 2019 and beyond, you can download the full 'Investing in CEE: Inbound M&A Report 2019/2020'.