CE Financial Observer asked a handful of influential PE funds and capital market watchers in Poland whether the financial crisis has affected the Polish and CEE capital markets and how in turn this has affected private equity (PE) activity in Poland and CEE.
“There is no lack of cash looking for a home in Poland, and PE funds are now very thick on the ground, affording a quick and still mainly profitable entrance into the Polish market,” Piotr Gębala, a VC and startup consultant based in Warsaw, says. “There is no problem raising money, as most of them are global outfits, but there are perhaps too many on the market now,” Gębala continues. “However, the Polish market is still a little under-developed for it to sustain itself after public support dries up, that is after 2020 when the EU cash ends,” Gębala believes. “The track record of many funds in Poland leaves something to be desired, and cash may not see its way into these fund after the stabilizer that is, for example, EU infrastructure cash, ends.”
Nonetheless, some will make hay while the sun shines. “If you are considering investing in CEE, Poland is a must,” Piotr Samojlik of Warsaw-based M&A advisor, Vienna Capital Partners, says. “Based on our on-going dialogue with several PE firms, the activity of PEs in Poland is not at any risk. Poland is the most attractive country in the CEE. We do not see any repercussions that could result in investment limits and/or slowdown of PE firms’ activity. You must remember there is a large amount of dry powder in numerous PE firms that are looking for premium assets to invest in,” he adds. There have been some office closures of PE firms in Poland, he admits, noting the exits of EQT and Advent and a scaling down of business activity, for example Riverside. “But on the other hand, CVC has just opened an office in Poland, directly linked to their recent acquisition of PKP Energetyka,” Samojlik notes. “Apart from global or Pan-European PEs, there are a decent number of CEE-focused PE players based in Warsaw. All in all, it illustrates the trend that we believe we will continue observing in the longer run – larger deals will be carried out by PE firms from their offices in Western Europe (mostly UK and Germany) while mid-sized and smaller deals will be carried out from Poland,” he continues.
“From the international perspective, the next wave of the financial crisis will obviously have a certain impact on the Polish economy. The financial sector is a good example as its attractiveness is weakened by the Swiss franc currency turmoil [at the beginning of 2015]. From the domestic perspective, there is a risk of a larger budget deficit fueled by the irresponsible promises of politicians as well as some new legislative initiatives that may negatively affect certain sectors like the financial sector or retail (banking tax / tax on financial operations, tax on large-scale stores) if they materialize,” Samojlik says.
Tomasz Czechowicz, MCI Management CEO, is upbeat also. “The Pension Fund reforms have normalized Polish IPOs, while the public equity market is similar to western European stock markets. Due to a strong economic growth and its position in the CEE, as well as issues affecting Russia/Ukraine and China and Brazil and good future prospects for Poland there is an increasing demanding coming from large PEs and large institutional investors, government funds and strategic buyers”, Czechowicz says. For example, he points to the EBRD/IFC redirection of activities from Russia/Turkey towards Poland/CEE, PanEuropean/Global PE actively investing in Poland/CEE (for example CVC buying PKP Energetyka) and KKR/Serbian Telecom. Czechowicz points to a consolidation of Polish mid-cap PE sector. “You can recognize 4-6 local active PE groups and 3-5 Pan-European PE houses operating their offices in Poland/CEE. Deals above EUR100m will be served in majority by Global/Pan-European PE houses with headquarters in London or New York. There is a space for 2-3 regional PE groups to emerge as Pan-European global power houses,” he says.
Jacek Siwicki, President of Enterprise Investors, one of the largest PE funds in Poland, says PE in CEE has (so far) been largely untouched by the global financial crisis. “Most of the funds were raised in 2006-2008 and then the next fundraising wave happened in 2012-2013 (as in the case of EI), so the PE firms always had funds available for new investments. According to industry statistics, the total value of PE investments in CEE has remained relatively stable at EUR1-1.5bn annually in the last five years (although below the boom years of 2007-2009). In addition, PE portfolios in CEE were quite conservatively leveraged, so the region did not suffer from numerous breaches of covenants and defaults on the transaction debt in the portfolio companies, like it happened in case of many of its Western European or US peers,” he says. Siwicki notes in turn that flotation on the public market have remained a valid exit route for PE players, but their level as a percentage of value of all exits remains below Western European statistics. “The changes concerning the functioning of the Polish pension funds had a negative impact on the demand for IPOs,” Sawicki says. “But PE firms were able to continue taking companies public during the last three years, although Warsaw Stock Exchange remains the only active market for PE exits in the region.”