Polish & CEE Private Equity Conference
23rd March 2017
InterContinental Hotel, Warsaw
Written by Rebecca Ford
The distinguished speakers on the Opening Panel of the 4th annual edition of the Polish & CEE Private Equity Conference were guided by moderator Tim Wright of DLA Piper through a discussion covering subjects including macroeconomic challenges, GP sector specialisation, changing styles of competition, secondaries, and more. Here are five of the key takeaway insights from the panel.
1. Macroeconomic uncertainty could be a help, not a hindrance
Tim Wright, partner at DLA Piper, noted that average deal sizes in CEE increased during 2016, compared to the rest of Europe, and Robert Manz, managing partner at Enterprise Investors, added that Poland’s economy grew by nearly 3%, while Romania was the fastest-growing economy in Europe at 5%. Pawel Padusinski, partner at Mid Europa Partners, said that he sees “a future in bright colours” despite the political and macroeconomic challenges present in the wider world. Ralph Guenther, partner at Pantheon, added that “uncertainty has always been good for private equity because it’s a good environment to make deals”.
“We are not so much about financial engineering, capital structures; we are about the growth.” – Pawel Padusinski
2. CEE is not one large, homogenous market
Ralph Guenther was the first to note that CEE is not one singular homogenous market, but like the other oft-misrepresented macromarket ‘Asia’, is rather made up of many smaller markets, which each are at different stages of development and have very unique characteristics. Marco Natoli agreed with this point, adding that the idiosyncrasies of operating and investing within a region as varied as CEE can make it difficult for those based elsewhere to understand and access the markets.
3. Management advisers are not designed to create friction
Andrew Cox, director of Jamieson Corporate Finance, was happy to defend his position after Tim Wright asked whether GPs and LPs should be worried about his services arriving in the region. Pawel Padusinski also offered his support, noting that during two previous deals, he had found that the management advisors had played an important role in private equity. Robert Manz echoed this when he suggested that they contribute to helping management teams understand what is required of them and voice their limitations in terms of what they are willing to do. Andrew Cox summarised in saying that “the key is that the role sits within the process, it’s part of the process, so it doesn’t hinder or affect negatively the process”.
“We always try to find investment opportunities with the appropriate expected return profile compared to the risk.” – Marco Natoli
4. The challenge of fundraising is balancing the local with the global
Pawel Padusinski expressed concern for smaller local funds in the CEE region, as lack of available capital and lack of access to global capital funds could suffocate them. Ralph Guenther suggested that this may be partly down to the fact that the largest global pools are in pension funds, which in themselves are relatively new in CEE. Attracting foreign capital as a local fund can be extremely challenging without a proven track record, and despite efforts from PSIK (the Polish Private Equity & VC Association) to develop local funds, Robert Manz predicted that local money simply won’t be a major source in the near future. However, with global funds entering into the market, Pawel Padusinski said it was “a positive sign that this region is on the map globally”, and Ralph Guenther said “seeing the big guys come to Poland is a very promising thing”. Tim Wright suggested that “it reflects a validation of the whole region”.
5. The key to returns is appropriate expectations
Marco Natoli emphasised the difference between returns in Western Europe and those in CEE, noting that although the gap widened considerably during the financial crisis, the environment picked up again and returns in CEE are approaching Western Europe’s levels. As Robert Manz noted, “the return question has been a big part of the discussion since the financial crisis”, and Pawel Padusinski was once again optimistic, indicating the relative stability of returns in CEE over the past ten years, and adding that Mid Europa Partners continues to target IRRs of 20% and 2.5x money multiples. Finally, Ralph Guenther highlighted that expectations of returns must depend on where in CEE the fund is based – in the case of a large Polish fund, for example, it is not right to ask for emerging market premiums because the Polish private equity market is more aligned with Western Europe, whereas a first-time local fund in a country like Romania can have different expectations.
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