Page 17 - bneMag Dec22

bne December 2022 Companies & Markets I 17
Europe. GDP is currently at €1.3 trillion, making the market comparable in size to the Nordics or South Korea.
“The region combines its attractive growth profile with developed economy-like stability, differentiating it from other emerging economies ... with nearly a quarter of global investors saying the region provides the best emerging market opportunities,” says the report.
When it comes to the catch-up potential, GDP per capita is just €14,000 in CEE compared to €43,000 in Western Europe, “offering significant headroom for convergence”, says the report.
“The headline is this is a stable, sizeable and fast-growing region,” said Pawel Szreder, associate partner at Bain & Company.
He forecast that the opportunities in near-shoring of manufacturing and services, which is already growing strongly, will become even stronger given the de-globalisation trend.
Investors see many of the global trends in CEE, but, says Szreder, "in CEE many of these trends seem to be moving faster”.
Along with near-shoring the report identifies other major trends, namely the green transition and digitalisation. At
the same time, there is an ongoing consolidation of the fragmented, founder-owned business landscape. Another broad trend in the region that has been around for a long time is the growth in disposable income, which “enables the rapid growth of new consumer goods and services sectors”.
Maturing sector
Despite strong growth over the last two decades, private equity investment in CEE as a share of GDP remains well below that in Western Europe. Thus, says the report, “There
is substantial room for further growth in investment, with private equity investment in CEE averaging just 0.2% as a proportion of GDP, compared with 0.8% in [Western Europe].”
“CEE economies are growing fast as they continue catching up to the West, fueled by a highly qualified labor force, and investments in near-shoring, infrastructure and the green economy,” said Jacek Poświata, managing partner at Bain & Company Poland/CEE.
“After developing over the past two decades, PE funds now have all the pieces in place to capitalise on that trend. VC [venture capital] is already booming and we expect this to continue, with investment doubling or tripling over the next four years, based on the trajectories we’ve seen in Western European economies.”
“We now have a mature ecosystem in place, with many players on the market for over 20 years,” said Bobrowska of Resource Partners. “Deal flow is robust enough to feed both the
international GPs [general partners] coming over for the largest transactions as well as to feed the deal flows of the existing local GPs, which mainly focus on the SME end of the market.”
Local GPs are able to generate satisfactory returns for investors, according to Bobrowska. While holding periods were previously longer than in Western Europe, this is no longer the case.
She added that the region “is still not attracting equal investment as the Western part of the European market, and there is a much slower fundraising pace.” However, the report forecasts that GPs will see an improving fundraising outlook due to better current and future returns on investment.
Barbara Nowakowska, managing director of the Polish Private Equity and Venture Capital Association (PSIK) also noted
the "maturity of the system created in 20 years, with a broad talent pool available”. It has become clear that “over the last decade the performance in the region is in line with the expectations of the investors”.
Fund managers surveyed for the report identified three
main obstacles hindering the performance of private equity investments, namely the experience of managers of portfolio companies, the experience of fund managers and regulatory uncertainty.
However, the overall business climate in the region has improved significantly and it is now close to Western Europe on the World Bank’s annual Ease of Doing Business ranking.
“Many obstacles previously observed are being addressed now,” said Bobrowska.
Venture capital ‘inflexion point’
The picture is even more positive for venture capital. Countries across the CEE region have strong technology sectors, with the report noting a "vast influx” of multinational tech companies that have picked CEE as the location for their R&D centres and hubs. Currently, CEE is home to around 6,300 multinational R&D facilities, many times higher than the 1,700 in 2010.
Szreder talked of the “vibrant early startup ecosystem in CEE”, while Tomasz Swieboda, partner at Inovo Venture Partners, listed a variety of signs of the maturing venture capital ecosystem that indicate the sector will continue to be successful, among them the high quality of tech talent, entrepreneurial people and the availability of capital.
“The venture capital market in CEE is booming,” said Ćwikiewicz. “It’s at inflection point and this is very important — there is a moment in time when things are speeding up. We clearly see this in the amounts of investment; fundraising reached historical levels. We believe the fundamentals are very strong ... compared to Western Europe there is still some space to grow but the potential is there.”
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