Page 16 - bneMag Dec22

16 I Companies & Markets bne December 2022
bne:Funds
Private equity poised for growth surge in CEE despite macro and geopolitical crises
Clare Nuttall in Glasgow
The private equity and venture capital industry is poised for a growth surge in Central and Eastern Europe (CEE), despite the war in Ukraine and current economic crisis, said fund managers surveyed by Bain & Company.
The management consultancy's report highlights the robust macroeconomic fundamentals of the 11 EU member states in the region that have put it on a “path of sustained, fast growth”, which combined with its catch-up potential and
its emergence as a near-shoring hub make it an attractive location for private equity investment.
Short-lived turbulence
Russia’s invasion of Ukraine in February brought Europe’s first major land war in decades right to the border of the European Union, and according to the report, geopolitical and macroeconomic turbulence is already affecting CEE economies. However, this is not specific to the region; the magnitude of impact will likely not differ substantially from that in Western Europe.
“There’s no denying that the war in neighbouring Ukraine is taking its toll on PE [private equity], particularly in fundraising and exit options,” said Maciej Ćwikiewicz, president of the board of Poland’s PFR Ventures, in a statement on the release of the report.
“But there’s reason to believe this will be relatively short-lived: 86% of the people we surveyed expect the effect to fade away within one to two years. And once the war ends, they also foresee benefits for companies in the region doing business with Ukraine, particularly in the construction, industrials and business services sectors.”
Delving into more detail during a webinar to present
the report on November 15, Edgar Kolesnik, partner at Abris Capital, commented: “The report takes a long-term perspective. We do not expect the current turbulence,
be it political or macroeconomic, to affect the region’s attractiveness in the long term.
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“In the shorter term, we are seeing the impact of the geopolitical situation and macro situation on deal flow activity, but at the same time we see very similar effects across Europe. We see deceased deal flow, deceased activity across all European countries so this is not CEE specific,” he added.
Małgorzata Bobrowska, co-founder and managing partner of Resource Partners, agreed the war "certainly affected the exits in the first half of the year and other transaction activity”.
However, she added, “on a positive note, the understanding is that this situation will impact more in the short- than long- term. In the long-term we expect increased economic activity to create additional opportunity for growth.”
Moreover, the report forecasts that as a result of the conflict in Ukraine, “CEE economies are likely to benefit in the medium term from vast opportunities to assist with reconstruction and development programmes, while the direct impact of the conflict on investment funds’ existing operations has been limited.”
Compared to private equity, Kolesnik considers that the effect on venture capital is “much more limited”. “Venture capital investors focus more on companies with global potential — this is the same anywhere.
“We have two portfolio companies in Ukraine. They continue operating and both have 95% of revenues globally, outside
of Ukraine. If the founders go to the US, London or Western Europe, they are very well received. It’s easy to arrange meetings as people are very open to meet and cooperate with Ukrainian companies ... once the war is over, there will be a lot of capital flow to Ukraine, on the venture capital side definitely.”
Strong economic fundamentals
Among the incentives for investing in the CEE region are its population of over 100mn, the fast growing and stable economies that typically out-perform mature markets, the high-quality talent and the close links to Western