The European Private Equity and Venture Capital Association (EVCA) released its report on the investment, divestment and fundraising activity in the Central and Eastern European (CEE) region last year at the end of last week. The report shows that 2014 was a robust year for the region, while some differences in private equity and venture capital investment remained in the region.
Investment in the Region
The Central and Eastern Europe Statistics 2014 report found that capital investment by funds increased in the region by 66%. Total investment from funds in the region stood at €1.3 billion in 2014. This is a good achievement, especially in the light of the whole of Europe, which only managed to grow investments by 14%.
Furthermore, CEE was able to increase its share of investment. While the region received 2.2% of the total European private equity investment in 2013, last year the region attracted 3.2% of total investment. This was mainly influenced by two very large CEE buyout transactions. Together these two deals accounted for nearly 40%, or €520 million, of the total investment value in the region.
The specific regions that attracted the most private equity investments were Serbia and the Czech Republic. Serbia accounted for nearly 25% of total investment value, while the Czech Republic received around 23% of the regional total. These two countries were closely followed by Poland and Hungary, with the four countries accounting for 80% of all private equity investment in the region.
The region’s buyout investments saw a decline in the deal numbers, with just 30 deals concluded in 2014. Nevertheless, the buyout investment value made considerable gains reaching €935 million. This is a 120% increase in value from 2013. Furthermore, growth investments declined by both deal value and deal numbers. The region attracted just €232 million in growth investments in a total of 45 deals.
While private equity investments increased, it was venture investments, which significantly grew in both value and the number of deals. Investment value went up by 38%, reaching a total value of €98 million. 2013 saw a record number of 154 venture investments made, but last year broke the record with 210 investments.
Hungary was the leading destination for venture investments. The country’s companies received €32 million worth of venture investments last year.
Strong Fundraising Figures
The report also found fundraising activity in the region managed to improve. Private equity fundraising dropped in Europe as a whole last year, but CEE was able to attract the highest fundraising levels since 2008. The region fundraised €1.47 billion in 2014.
Buyout funds raised the most equity and in the end, accounted to nearly 80% of the total regional fundraising. Venture capital funds were also attracting a lot more capital, growing the total amount from €62 million raised in 2013 to €176 million raised in 2014.
Interestingly, fundraising from non-European investors amounted to nearly 55% of the total capital raised for the region. Non-European investors provided €813 million last year, while the amount stood at just €62million the previous year. US-based investors were especially interested in the region.
The largest source of funds was still different government agencies. They committed nearly €617 million or around 42% of the total capital raised by funds in 2014. A Chinese public investment in these funds was especially notable.
The strength of raising funds from government agencies separates the CEE from rest of the Europe. While government agencies have played a key role in CEE in the last few years, pension funds continue to be the major contributor to many funds in rest of the continent. In CEE, pension funds accounted for just 10.9% of capital raised.
Robert Manz, chairman of the EVCA CEE Task Force, said in the official press release, “Higher GDP growth rates, low inflation and falling unemployment in many CEE countries created an attractive backdrop for private equity firms and international investors to focus on region”.
Furthermore, sovereign wealth funds have been largely absent from the CEE fundraising scene since 2007, but made a comeback last year. In fact, sovereign wealth funds were the second biggest investor in the region, raising €241 million. This is nearly 16% of the total capital raised. The dedicated mezzanine providers in the region continued their silence, with no new funds being marketed in 2014.
Overall, the regions fundraising total is the fourth highest ever and the best since the financial crash. Investors are clearly becoming increasingly interested in the sector once more, although companies still have plenty to do to ensure strong fundraising activity doesn’t result into bad returns.
Focus on a Few Strong Sectors
In terms of sectors, two sectors seemed to have attracted the most attention. Communications received €492 million worth of investments in 2014, accounting for nearly 38% of the total CEE investment.
Computer and consumer electronics followed closely. The sector attracted around 19% of total investment with €246 million invested in the sector’s companies. The other big deal in the region took place in this sector.
This highlights that CEE continues to have a very narrow sectoral concentration, with a few large deals dominating the investment market.
The chief executive of ECVA, Dörte Höppner, commented the region’s investment deals by saying in the official press release, ”Larger investments also prospered as demonstrated by the sharp rise in buyout activity and the first €1bn enterprise value investment in CEE since 2009”.
While investment and fundraising activity is strengthening in the region, it still remains behind the golden years of the pre-financial crash era. For example, in 2007, CEE-focused funds were able to raise around €6.6 billion. Many investors and analysts remain cautious about the growth prospects of the region. One anonymous investor told the Wall Street Journal earlier in August that, “CEE has had a difficult time since the global financial crisis, compared to Western Europe. Returns have been incredibly disappointing…the bulk of the managers have had issues.”
It remains to be seen whether the region can continue to build on this strength this year. In the meantime, you can find deals in the region through the DealMarket platform.