Central European Private Equity Confidence Survey

30 Noiembrie 2008

DELOITTE AUDIT S.R.L.

 

Overview

Central Europe Private Equity Index

After an all time high in 2007 a new stage is set - the CE PE confidence index has plummeted to unprecedented lows and hopefully will not be beaten in months to come.

Signs of distress are seen and felt in virtually all aspects of leading economies. Hopes for quick recovery are tampered by locked credits and a stagnant interbank market. Unprecedented volatility in international equity markets forced European equities to reach new lows.

Despite the completely changed M&A landscape, positioning of leading PE funds in CE is still strong with funds available to spend, however largely in a stand-by mode waiting for entry multiples and seller expectations to curtail.

Three key reasons for the current slowdown pinpointed by key PE players are uncertainty in the markets, limited funding and time needed for sellers to adjust to new multiples and expectations. Market players currently face concerns about the gap between the point when buyers are legally committed and ultimate payment of money takes place - what will happen if severe change happens in the interim and how the hit is shared?

On a brighter note – historically in downturns there are more opportunities to create value for players who have available funds and can enter the market of low valuations and forced sales where cash is king. Strong companies may face a once in a life time opportunity to secure dominant market share at reasonable pricing levels.

Corporate divestitures are expected to be a hot topic in the near future, while many large troubled groups will aim to divest non-core assets at potentially lucrative prices. The Majority of deals should fall into the mid-market deal size range.

The current PE model may have to adapt, or rather step back, to the model used in the early 2000’s - buying at comparatively low multiples, focusing on improving operations, bringing in expertise, realising synergies and selling on again, rather than relying on a leverage based model. To a large extent, this correlates with the overall shift of investor focus from new acquisitions to portfolio management, which will require more managerial and industry expert skills to survive the storm in the short run.

Once reasonable confidence in the markets is re-established, M&A track will be gained again. Deeper investigation of the potential deals with a focus on robust financial and commercial due diligence, and going back to fundamentals when valuing targets is expected.

Emerging markets are expected to continue to be one of the key focus points for many PE funds.

1

2

3

4

5

6

The tricky lag LUCIAN CROITORU Adviser to the Governor - BANCA NAŢIONALĂ A ROMÂNIEI Lucian Croitoru, Adviser on monetary policy issues to the National Bank of Romania Governor, talks about the NBR’s next moves and explains why the decrease ofthe policy rate hasn’t been reflected into lower interest rates on bank loans. mai mult... The turnaround CRISTIAN SPORIS Secretar de Stat - MINISTERUL ECONOMIEI ŞI FINANŢELOR Cristian Sporis, Secretary of State at the Ministry of Public Finance, in charge with the national treasury and public debt, explains how the state managed to borrow money at the lowest costs in the last seven years and how it turned from a clear market taker into a player with a strong position on the market. mai mult...