Clearly, optimism is continuing to spread among private equity practitioners across Central Europe. However, deal levels are still below those of two or three years ago, and deals are taking noticeably longer than before to conclude with more thorough due diligence being carried out by Private Equity funds and by banks.

“2009 was a tough year for Private Equity globally, including Central Europe. 2010 is looking much more positive – the recovery in stock markets and improved availability of debt has bolstered sentiment. 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,” said Garret Byrne, Deloitte Partner and M&A Transaction Service Leader.

The main challenge over the next six to 12 months will be to convert this growing optimism into completed deals that deliver value and further fuel economic recovery across the region. However, one may never know what the future brings. The survey was carried out before the Greek crisis and the subsequent bailout, so the full impact of these latest challenges are yet to be measures or fully understood as to who pays and when.

“It is therefore not surprising, given the increased economic uncertainty that private equity interest remains firmly focused on the more defensive sectors such as food & beverage and healthcare, as evidenced by recent private equity transactions in Romania: the Profi Rom Food deal, acquired by Enterprise Investors; Centrul Medical Unirea sold to Advent International, and the MedLife deal, with SGAM Eastern Europe acquiring a minority stake in the company”, said Hein van Dam (photo), Partner in Charge, Financial Advisory Services Deloitte Romania.

Survey highlights:

  • More than 96% of respondents expect the regional economy to improve or remain stable, recovering steadily but not returning to the growth levels of 2006-2007;
  • 87% expect to see deal sizes increase or stay the same;
  • Nearly three quarters (74%) of the respondents expect to spend most of their time focused on pursuing new investment opportunities, a strong contrast with October 2007 when 55% claimed to be concentrating on portfolio management;
  • A six-and-a-half-year record percentage of 65% predict an increase in the M&A market activity level;
  • The proportion expecting improvement in the performance of their portfolio companies has grown significantly since October 2008, from 5% then to 35% today;
  • 96% expect the efficiency of their financial investment to improve or remain the same;
  • New investments continue to be the primary focus for PE practitioners;
  • Sale to strategic buyers remains the most widely expected means of exit.