• TIME

    FOR

    ANOTHER

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    CENTRAL

    & EASTERN

    EUROPE

    PRIVATE

    EQUITY

    Published in association with

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    designed by Podpunkt / code by MyWorks

  • [ 2 | TIME FOR ANOTHER LOOK]

    AN OVERLOOKED
    REGION?

    CEE is currently one of the most
    overlooked regions for private equity
    investment. Having emerged from its
    communist past during the 1990s,
    grown and developed in the 2000s,
    and weathered the recent financial
    crisis rather well, the region is now an
    integrated part ofthe European and
    global economies. CEE also boasts an
    increasingly sophisticated private equity
    deal market led by experienced general
    partners specialising in the region and
    investing in all segments of the economy.



    For the purposes of this paper CEE generally
    refers to the 10 EU member countries and two
    candidate countries from Central and Eastern
    Europe. It does not include Russia, the CIS,
    Ukraine and Turkey. See statistical footnotes and
    “The Region” for further details.

    Despite the region’s successful ongoing
    transformation to a €1 trillion plus economy
    with more than 20 years of private equity activity
    experience behind it, CEE seems to have dropped
    out of the private equity headlines and off some
    limited partners’ radar screens.
    We think it is time to have another look. Today, the
    region’s funds represent an important component
    of European private equity exposure. They provide
    access to a region that continues to demonstrate
    compelling private equity fundamentals and
    attractive returns as well as a clear and evidenced
    macro convergence story that will continue to
    drive superior growth for the foreseeable future.
    Thanks to successful EU integration, CEE offers
    investors developing market opportunities but with
    developed market risk.

    The following pages set out 10 of the many
    reasons we believe CEE deserves renewed
    consideration.

  • [ 3 | TIME FOR ANOTHER LOOK]

    LOCATION,
    LOCATION,
    LOCATION

    The CEE region is at the heart of Europe,
    with over 28% of the EU’s land mass¹,
    23% of its population¹ and a GDP
    nearly equal to that of the Nordic region.

    113 MILLION

    PEOPLE ¹

    €1 TRILLION

    OF GDP ¹

    1.2 MILLION

    SQ.KM ¹

    Following successive waves of EU accession, nearly
    all of CEE is politically integrated into the EU.
    The region boasts a developed legal, regulatory
    and judicial system that reduces risk and today
    provides the certainty of developed markets,
    something no other emerging region in the world
    can offer or looks likely to be able to offer in the
    foreseeable future.

    In addition, CEE has developed into a key trading
    partner, manufacturing base and service supplier
    for the main markets of the EU, taking advantage
    of generally borderless access, attractive cost
    structures and overall lower corporate tax rates.

    High levels of education and a long tradition of
    technical and engineering training combined
    with flexible labour markets complete the open
    and welcoming investment environment. As CEE
    deepens its economic integration, these advantages
    will continue.

    Historically characterised as an emerging market, it
    is clear that CEE is now an integral part of Europe’s
    economy. Yet it continues to offer investors some of
    the growth and development opportunities seen in
    the emerging world. Emerged and still emerging,
    CEE is located at the heart of Europe’s future.

  • [ 4 | TIME FOR ANOTHER LOOK]

    ESTABLISHED
    PRIVATE
    EQUITY
    MARKETS

    €13 BN RAISED AND
    INVESTED BETWEEN 2003
    AND 2011 ¹

    1,450 CEE COMPANIES BENEFITING FROM
    PE OWNERSHIP BETWEEN
    2003 AND 2011 ¹

    100 GP MEMBERS OF THE
    REGION'S PE ASSOCIATIONS

    Private equity is not new to CEE. Since the
    first funds were raised in the early 1990s,
    the region has put in place the full eco-
    system necessary to support the private
    equity investment lifecycle.

    Twenty years on, this system includes not only
    experienced banks willing to lend and professional
    advisers (legal, financial and operational) able to
    implement, but the laws and tax structures that
    have led to a convergence of CEE private equity
    deal making to that of developed markets.

    Exit infrastructure is also robust, with strong
    and persistent FDI flows to the region, a growing
    M&A appetite from local corporate buyers, and
    active public markets for debt and equity in many
    countries. For example, Poland, home to the
    region’s largest stock exchange, had the largest
    number of IPOs among European stock exchanges
    every year between 2009 and 2012¹.

    Importantly, at the same time that private equity
    has matured in CEE, so have the management
    teams delivering results for private equity-
    backed investments. The region is well known
    for its entrepreneurial talent. This is coupled
    with a growing cadre of highly experienced and
    accomplished professional managers, schooled by
    multinational corporations and showing a high
    degree of interest in working with private equity.
    The managers and entrepreneurs of the region
    have weathered not only the initial transition but

    multiple crises imported from developed markets
    over the past two decades, making them well
    equipped to add value in the coming years.

    Today's CEE private equity market includes a wide
    variety of funds and fund managers, offering
    investors exposure to buyout, expansion and
    venture capital as well as distressed and turnaround
    strategies. Fund managers employ a range
    of regional, sub-regional and national investment
    strategies. Mezzanine funds are active and provide
    additional financing capacity. The experience of
    these managers is significant: a recent independent
    survey of CEE GPs showed an average tenure at the
    partner level of over 13 years, comparable to many
    established western European buy-out houses.

    At the same time, the national private equity
    associations, some established over a decade
    ago, work closely with the EVCA, and ensure
    a professional and responsible approach
    to investment. The strong involvement of
    the European Bank for Reconstruction and
    Development (EBRD) and the European Investment
    Fund (EIF) in the region’s funds also ensures
    a tradition of investor friendly fund structures,
    Economic, Social and Governance (ESG) reporting
    and a high degree of conformity to international
    norms and standards. Finally, the positive role
    of private equity in the region’s transition has
    been appreciated by governments as well as the
    press, creating a positive environment in which
    to operate.

  • [ 5 | TIME FOR ANOTHER LOOK]

    AN UNDERFUNDED
    MARKET

    While fundraising for CEE private equity was robust for a short
    period immediately prior to 2008, these amounts still remained
    low compared to the GDP of the region and the sizeable
    fundraisings seen in other markets. Fundraising for CEE private
    equity between 2008 and 2011 was on average 0.098% of GDP,
    while for all of Europe it was 0.303%¹ and 0.239% for Asia¹.

    3 ×  LOWER FUNDRAISING/GDP
    VS.EUROPE 2008-2011 ¹

    1.9 ×  LOWER INVESTMENT/GDP
    VS.EUROPE 2008-2011 ¹

    65% MORE MONEY INVESTED
    THAN RAISED 2008-2011 ¹

    FUNDRAISING AS % OF GDP

    INVESTMENT AS % OF GDP

    Since 2009, LPs’ capital has continued to flow into other emerging markets,
    while new funding directed to CEE lagged, subsiding to levels seen in the
    early phase of the region’s development. With this decline, the level of
    investment during the period 2008–2011 well exceeded new funds raised:
    investment was €7.4bn in CEE vs. €4.5bn of fundraising.¹ It is clear that as
    investment periods of the funds raised prior to 2008 expire, the level of
    available private equity funding for the region has reached a cyclical low.

  • [ 6 | TIME FOR ANOTHER LOOK]

    EXPERIENCED,
    INSTITUTIONAL
    QUALITY GPs

    13 YEARS
    AVERAGE PARTNERS TENURE

    14.5 PROFESSIONALS
    ON AVERAGE PER GP TEAM

    3 FUNDS ON AVERAGE RAISED
    PER GP FIRM

    In late 2012, an independent survey¹ of 18 leading
    CEE-dedicated GPs revealed a landscape of mature GPs with
    sizeable teams and broad LP relationships within their funds.
    On average, these teams have already raised three funds with
    an average of 29 LP relationships per fund.

    Today’s CEE GPs have grown up in the region, logging a substantial number
    of deals, accumulating truly local insight and gaining experience in
    navigating the specificities of the region’s markets. Similar to the region’s
    entrepreneurs CEE’s PE fund managers have weathered the local impact of
    multiple global crises and are well positioned to use the insights gained in
    difficult periods in selecting future investments.

    From an LP perspective of manager and market selection, the mature
    CEE landscape contrasts with hot emerging markets where a plethora of
    new funds and team configurations often confront the investor. CEE GPs
    have already largely matured and identified their market approaches and
    specialisations, providing investors with a clear choice.

  • [ 7 | TIME FOR ANOTHER LOOK]

    FROM EMERGING TO EMERGED

    GLOBAL

    CEE

    CEE PRIVATE EQUITY

    1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

    2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

    Berlin Wall falls

    Maastrict Treaty
    signed

    Asian financial
    crisis

    Euro introduced

    NASDAQ peaks
    – 10 March

    Democratic
    elections take
    place across CEE

    EBRD begins
    operations

    Velvet Divorce in
    Czech Republic
    and Slovakia

    Dayton Accords
    signed

    Impact of the
    Russian crisis
    felt in CEE

    First 3 CEE
    countries
    (Poland, Czech
    Rep., Hungary)
    join NATO; 8
    more join later

    First PE fund
    raised for CEE

    Hungarian
    Venture Capital
    Association
    founded

    First PE-backed
    IPO on the
    Warsaw Stock
    Exchange

    Wave of country focused
    PE funds
    raised

    New fund
    managers
    established in
    the region

    First high-yield
    bond offered for
    a CEE PE-backed
    company

    First “third
    generation” fundraised by a CEE GP

    First CEE PE-backed
    IPO on
    Nasdaq

    Wave of
    regional-focused
    CEE funds raised

    Dotcom bubble
    bursts

    9/11 triggers
    War on Terror

    Skype, originally
    an Estonian
    product, releases
    first version

    First wave of EU
    accession – 8
    CEE countries

    CEE countries
    join Schengen
    borderless travel
    zone

    Slovenia joins
    the euro area

    Lehman
    Bankruptcy
    sets off global
    financial crisis

    Poland the only
    EU country to
    register positive
    growth

    Greek crisis
    dominates
    European news

    Estonia joins the
    euro area

    First mezzanine
    fund dedicated
    to CEE

    First leveraged
    buyout in CEE

    Next wave of
    fundraising
    begins

    First ever CEE
    fund over EUR
    1bn raised

    First > EUR 1bn
    deal

    CEE investment
    pace exceeds
    EUR 2bn

    Establishment
    of EU-supported
    venture capital
    funding
    programs across
    CEE

    40th PE-backed
    company goes
    public on
    Warsaw Stock
    Exchange

    First listing of
    a PE-backed
    company from
    CEE on the
    New York Stock
    Exchange

  • [ 8 | TIME FOR ANOTHER LOOK]

    CEE PRIVATE
    EQUITY
    HAS PERFORMED

    The CEE private equity market has outperformed other private
    equity markets and comparable public market indices over the
    long-term time horizon of 10 years.

    15.66% (IN $), 9.95% (IN €)
    IN 10-YEAR NET RETURNS ¹

    2.04 ×  ON FULLY REALISED
    PORTFOLIO, GROSS ¹

    2.29 ×  ON PARTIALLY REALISED
    PORTFOLIO, GROSS ¹

    The return data presented here is quantified by a special analysis for this
    paper conducted by the CEE region’s largest private equity investor, the
    European Bank for Reconstruction and Development (EBRD)¹. The data set
    includes more than 800 underlying investments, over 70% of which are
    exited. This is the most representative sample of returns for the CEE region.
    It shows CEE private equity returning 4% more than Thomson Reuters’
    European private equity returns in euros over the same period.

    EBRD also points out that this analysis provides a conservative view of the
    returns for several reasons. First, there is no survivor bias. EBRD has included
    all funds from its own portfolio, successful or not, raising further money
    or not. In most other sets of available return data for private equity, failed
    managers simply stop reporting and their weaker performance is excluded.
    Second, the dataset includes non-institutional quality funds (supported by
    EBRD as part of its development mandate), that would be unlikely to attract
    institutional investors. EBRD estimates that nearly 20% of its CEE portfolio by
    capital is invested in such funds.

    At the end of 2011, the EBRD analysis shows a 2.09x gross return in euros
    from CEE investments (both realised and partially realised, since inception).
    This represents €3.4 bn of cost from more than half of all investments in
    the sample analysis and by all means a statistically significant sample. The
    unrealised portfolio is held slightly above cost, indicating that the financial
    crisis has not endangered the remaining portfolio, while the partially realised
    portion shows a 2.29x (gross) return in euros, indicating there may be more
    good news to come in future exits.

  • [ 9 | TIME FOR ANOTHER LOOK]

    GPs and LPs active in CEE confirm that the region’s
    comparative advantages mean CEE can continue to
    deliver attractive returns: economic growth through
    continued convergence, maturing entrepreneurs
    willing to sell their companies, seasoned general
    partners with strong in-region local experience,

    relatively low reliance on debt for return
    generation, and currently cyclically low levels of
    private equity funding. The present point in the
    fundraising and investing cycle is an opportune
    time for investors to once again consider the future
    potential of the CEE region.

    These returns show that the region has
    outperformed most emerging markets, where
    many LPs are now focusing resources as well as
    developed markets, where the bulk of LP portfolios
    are concentrated.

    Comparison of horizon returns to 31.12.2011

    10-year horizon net PE returns, 31.12.2011

    EBRD analysis of CEE PE gross returns since inception

    ¹
  • [ 10 | TIME FOR ANOTHER LOOK]

    UNIQUE
    DEAL FLOW

    The pool of investment opportunities in CEE today
    is unique: it is largely composed of businesses still
    in their first generation of ownership but with up to
    20 years of development already behind them.

    58% OF DEALS
    SOURCED FROM COMPANY FOUNDERS ¹

    93% OF DEALS  ARE PRIMARIES

    2 ×   HIGHER RATE
    OF COMPANY FORMATION THAN IN EU

    After years of hard work and success, ageing first generation
    business owners are often looking to realise on their efforts.
    Be it for health or lifestyle issues, because of a realisation
    that the business must consolidate to grow, diverging
    interests of the founding team or the pressures of increased
    management complication as companies grow, an increasing
    wave of owner/managers are looking for liquidity. With
    a clear lack of a “keep it in the family” culture and mind
    set across the CEE region, these successful businesses are
    increasingly available for private equity investment.

    Private equity firms are taking advantage of this unique
    landscape. Over 58% of their deals are purchases from
    the original business founders, according to a recent
    independent GP survey. The same survey found 93% of deals
    completed by the surveyed GPs were primary transactions,
    buying directly from business owners rather than other
    financial sellers. Sales between private equity firms in
    CEE were limited to only 7% of the total deals done. The
    implications are clear: investors in CEE private equity funds
    are able to access new and developing opportunities that
    are ripe for first time private equity ownership.

  • ¹

    [ 11 | TIME FOR ANOTHER LOOK]

    CEE demonstrates another difference to European
    markets: the substantial growth in the pool of
    investee companies. Statistics show that well
    after the initial unleashing of capitalism, midmarket
    businesses are providing a growing pool of
    companies ripe for private equity funds investing in
    the region. With continuous rapid company formation
    and new generations of company founders building
    their businesses, deal potential continues to expand.
    This growth also indicates the strong potential for
    consolidation and buy-and-build, long proven private
    equity strategies.

    The rapid transformation from communism has
    solidified CEE’s strong entrepreneurial roots and
    enhanced a culture that admires initiative and
    promotes new business formation. Combined with its
    strong engineering and technical traditions, a strong
    pipeline of venture and early stage opportunities
    complements the well-established middle market.

    DEAL SOURCES

    DEVELOPMENT OF NUMBER OF ENTERPRISES IN CEE AND EU

  • [ 12 | TIME FOR ANOTHER LOOK]

    CONVERGENCE:
    A GLOBALLY
    UNIQUE STORY

    24 YEARS
    SINCE THE BERLIN WALL FELL

    9 YEARS IN THE EU

    42% GAP IN GPD PER CAPITA
    BETWEEN CEE AND EURO AREA¹

    No other emerging market region has become so
    integrated so fast into the developed world. Or, to be
    more precise, re-integrated. CEE is the only emerging
    market that had already been industrialised and
    integrated into the developed world with a social,
    cultural and economic orientation matching those of
    Europe. With sometimes only a few kilometres separating
    developed and emerging, the “re” in “re-integration”
    provides investors a high level of certainty about the
    direction in which these markets will evolve.

    Unashamedly copying western laws, standards and lifestyles as they
    sought to rebuild economies and re-join their western neighbours,
    CEE is today operating by the same rules and models used in the
    European and US markets. Politicians are constrained by the imperative
    of maintaining western integration, a stabilising force absent in other
    emerging regions.

    These same factors are also those fuelling the strong aspirational
    drive behind the economic success in CEE over the past two decades,
    and are giving rise to a consumer society with material and growing
    levels of disposable income.

  • ¹

    [ 13 | TIME FOR ANOTHER LOOK]

    The increasing wealth has created significant
    new opportunities for private equity owned
    businesses to address the increasingly diverse and
    sophisticated needs and aspirations of the region’s
    populace and to address their growing purchasing
    power. Consumer goods, retail, healthcare, financial
    and leisure sector investments are increasingly
    the focus of the region’s private equity funds and
    a likely source of continued deal generation.


    The convergence story is set to continue for at least
    the next two decades, as there remains significant
    scope for further growth and catch-up. The 50%
    gap in per capita GDP to the EU’s wealthiest
    members illustrates the further potential of the
    convergence dynamic. The under-representation of
    services in the economy compared to other markets
    shows that additional growth and development
    is to come. All of this will create a growing
    opportunity for private equity.

    GDP PER CAPITA AT PPP

    EMPLOYMENT IN SERVICES

  • [ 14 | TIME FOR ANOTHER LOOK]

    GROWTH

    6.7% CUMULATIVE GDP GROWTH IN CEE
    VS. −1.1% IN THE EURO AREA ¹

    2 ×   FASTER GDP GROWTH PROJECTED IN CEE
    THAN THE EURO AREA ¹

    10% REAL GROWTH IN CEE CONSUMPTION
    EXPENDITURE VS. 5% IN THE EURO AREA ¹

    The CEE region overall is set to outpace the average
    economic growth in the rest of the EU as well as that of other
    developed markets.

    Poland, with a GDP of €381bn in 2012,¹ is the largest country in the region
    and the leader of the EU growth tables since 2008. It is the only European
    country not to have experienced a recession over the past 20 years.

    REAL GDP GROWTH

  • [ 15 | TIME FOR ANOTHER LOOK]

    Poland’s real GDP growth through the recent crisis
    totalled 18%¹ in the period 2008–2012, at a time
    when the GDP of the euro area shrank by 1%. Even
    Europe’s “tiger”, Turkey, recorded just 17% growth in
    the same period. But CEE is not just about Poland:
    many CEE markets are also recording strong
    fundamental growth and offer attractive macro
    stories.

    Poland’s performance, and that of the region
    generally, has been driven by the continued
    momentum of its industry, strong consumer
    demand, prudent debt and deficit levels and stable
    financial and political systems.

    At the same time, CEE has generally avoided the
    excesses of the pre-crisis boom period. In smaller
    countries where overheating did develop pre-
    2008, such as the Baltic States, governments have
    quickly undertaken the tough adjustment processes
    needed to return to dynamic growth. Few other
    markets have tackled their problems as resolutely
    and successfully. Consumers, businesses and even
    most governments now boast strong balance
    sheets compared to their peers in other countries.

    GOVERNMENT DEBT

    DOMESTIC CREDIT TO THE PRIVATE SECTOR

  • [ 16 | TIME FOR ANOTHER LOOK]

    CAPITAL FLOWS
    DRIVE
    GROWTH AND
    OPPORTUNITY

    $414 BN OF FDI IN 2004–2011 ¹

    €200 BN OF EU BUDGET INFLOWS
    EXPECTED IN 2014-2020 ¹

    40% HIGHER WAGE ADJUSTED LABOUR
    PRODUCTIVITY IN POLAND THAN GERMANY ¹

    The region has attracted substantial amounts of
    FDI over the years and is an increasingly popular
    investment destination. Combined with the
    substantial and continued inflow of EU cohesion
    funds, confirmed in the latest EU budget, these
    investments have catalysed the development of CEE’s
    modern and networked infrastructure and cemented
    its links into the European and world economy.

    HOURLY LABOUR COST

  • [ 17 | TIME FOR ANOTHER LOOK]

    CEE offers hourly labour costs below European
    levels, high levels of education, strong language
    and organisational skills and attractive wage-
    adjusted productivity comparisons to other
    markets. Near-shoring and re-shoring into CEE’s
    skilled labour pool and attractive fiscal regimes
    is providing strong support for the region’s
    production and service sectors. The strong growth
    in shared service and R&D centres in the region,

    as well as the growing outsourcing of business
    processes and IT, have created nearly 250,000 jobs
    across the region, 50% more than at the start of
    the global financial crisis in 2008.¹ Capgemini,
    General Electric, IBM, Hewlett Packard, Accenture,
    Infosys and many others have already established
    major service operations in the region.
    For private equity, these flows have supported
    a vibrant market for investment. From investing

    in businesses that provide services to the
    multinationals to developing retail chains
    where the employees spend their earnings, the
    region’s private equity firms have diversified their
    investment activities and today show a similar
    sectorial diversity as in other developed markets. In
    addition, both foreign and local corporate investors’
    continued demand for CEE market share supports
    strong exit markets for private equity divestments.

    FDI INWARD STOCK IN CEE, 2000 AND 2011

    WAGE ADJUSTED LABOUR PRODUCTIVITY, 2010

  • [ 18 | TIME FOR ANOTHER LOOK]

    ACTIVE LOAN
    MARKETS; MODERATE
    LEVERAGE

    Globally today, private equity has to rely less on leverage
    as a source of returns. But CEE has never been reliant
    on leverage for its deal making and returns.

    3.1  ×   DEBT-TO-EBITDA
    AVERAGE ON CURRENT DEALS

    57% EQUITY IN CAPITAL STRUCTURES
    VS. 47% IN EUROPE

    10 YEARS SINCE FIRST CEE
    PRIVATE EQUITY LBO

    Buyout leverage in the CEE region was almost non-existent until 2003 and
    then limited until around 2006, when both local and international lenders,
    following global trends, increasingly provided debt for acquisition financing.
    Despite that uptick in borrowing, the leverage market in CEE never reached
    the same stage of overheating as in other developed markets, and the more
    aggressive pre-crisis financing structures never made it to CEE’s mainstream.
    Covenant light, bullet-only and deep subordination were all features
    noticeable by their absence from CEE deals.

    The independent survey of CEE GPs conducted for this paper¹revealed that
    the average leverage level of respondents’ portfolios was only 3.1x debt to
    EBITDA at the end of 2011, compared to 4.7x as reported by S&P LCD for all
    of Europe.¹The same sources showed CEE deals done by the surveyed GPs
    in 2011 had an average of 57% of equity in the capital structure against an
    average of 47% for Europe in the same period.

    Despite the downturn in global lending to buy-outs, lenders inside and
    outside the region remain ready to support CEE private equity-backed
    transactions with moderate leverage packages. The region’s GPs and lenders
    confirm that leveraged private equity deals continue to get done.

    DEBT TO EBITDA IN EUROPE AND CEE, 2011

  • [ 19 | TIME FOR ANOTHER LOOK:APPENDIX]

    THE REGION

    Central and Eastern Europe as presented in this paper is composed of
    12 European countries that prior to 1990 were under communist rule.
    All countries have established, democratically elected governments
    and have (or are in the process of) adopting the EU’s legal and political
    framework. The region today includes 10 members of the EU, as well as two
    candidate countries engaged in the process of accession to EU membership.
    CEE-focused private equity firms also frequently invest in the markets of
    Turkey and Ukraine, both of which are not considered within the scope of
    this report.

    Among the EU member countries, all but Romania and Bulgaria are also
    members of the Schengen borderless travel zone, creating a customsfree
    union with most of the EU. This borderless travel area has helped
    create a level of economic integration that has allowed CEE to become
    a manufacturing engine within the EU, evidenced by the strong share of
    exports in the GDP of the region. Romania and Bulgaria are currently in
    negotiations to also join this zone.

    Although the global crisis has reduced growth throughout the region
    from prior levels, largely through the decline in exports as the European
    and global economy has slowed, other indicators of stability are positive.
    Government debt and deficit levels remain below other European countries.
    These levels have been achieved while maintaining competitive levels
    of taxation.

    CEE COUNTRIES, 2011

    CEE COUNTRIES, CONTINUED

  • ¹
    ¹

    [ 20 | TIME FOR ANOTHER LOOK:APPENDIX]

    PRIVATE EQUITY
    IN CEE

    Private equity in CEE began almost as soon as the Berlin Wall fell. The first
    funds were established and started activities across the region in 1990 and
    the region witnessed successive waves of fundraisings in the mid-1990s,
    early 2000s and late 2000s. Investment activity in CEE over the years has
    been dominated by funds established specifically for the CEE region.

    It has become generally clear to GPs that to be successful in CEE, an on-the-
    ground presence is required, and the most active fund managers are those
    with teams established in the countries of CEE. Today one can find a wide
    range of fund managers with wide ranging experiences that are experts in
    the countries of CEE.

    The EVCA has been tracking CEE as a specific region since 2003. The annual
    EVCA CEE Statistics¹ publications provide a detailed analysis of private equity
    activity in the region. Key features are shown opposite.

    CEE ANNUAL FUNDRAISING,
    INVESTMENTS AND EXITS 2003–2011

    AGGREGATE SECTORIAL AMOUNTS INVESTED

  • [ 21 | TIME FOR ANOTHER LOOK]

    DATA SOURCES

    Location, location, location
    Area / Population / GDP

    Established private equity markets
    Data on PE / VC market in CEE / Number of IPOs

    An underfunded market
    Data on PE / VC market in Europe and CEE / Data on PE / VC market in Asia / GDP for Emerging Asia

    Experienced, institutional quality GPs
    All data in this chapter come from an independent
    survey of CEE GPs conducted in 4Q 2012.

    CEE private equity has performed
    Returns for CEE – EBRD, compilation for this report
    Returns for Europe / Returns for Emerging Markets

    Unique deal flow
    All data in this chapter come from an independent
    survey of CEE GPs conducted in 4Q 2012.
    Development of number of enterprises

    Convergence: a globally unique story
    GDP based on PPP per capita / Employment in services

    Growth
    Real GDP growth
    Final consumption expenditure of households Domestic credit to the private sector as percentage of GDP / Government debt as percentage of GDP

    Capital flows drive growth and opportunity
    Foreign direct investments: stock and inflow / EU
    budget allocation to CEE
    / Data on job creation by
    shared service and R&D centres
    / PAIiIZ / Wage adjusted
    labour productivity
    / Hourly labour cost

    Active loan markets; moderate leverage
    Debt to EBITDA in Europe and CEE /
    An independent survey of CEE GPs conducted in 4Q 2012.

    The region
    Population, GDP at current prices / GDP based
    on PPP per capita
    / Percentage of economy for
    exports
    / Current Account
    Balance as a percentage of GDP
    / Government gross debt as a percentage of GDP / Government deficit as a percentage of GDP / Corporate tax rates 2012 / Government Debt Rating (1/3/2013)

    Private equity in CEE
    All the data on PE/VC market in Europe and CEE come from EVCA

  • [ 22 | TIME FOR ANOTHER LOOK]

    FOR ADDITIONAL
    INFORMATION

    PSIK –Polish Private Equity and Venture Capital Association
    www.psik.org.pl

    HVCA – Hungarian Private Equity and Venture Capital Association
    www.hvca.hu

    CVCA – Czech Private Equity and Venture Capital Association
    www.cvca.cz

    SLOVCA – Slovak Venture Capital and Private Equity Association
    www.slovca.sk

    SEEPEA – South Eastern Europe's Private Equity Association
    www.seepea.org

    CVCA – Croatian Private Equity and Venture Capital Association
    www.cvca.hr

    LTVCA – Lithuanian Venture Capital Association
    www.vca.lt

    EstVCA – Estonian Venture Capital Association
    www.cvca.hr

    LVCA – Latvian Private Equity and Venture Capital Association
    www.lvca.lv

  • [ 23 | TIME FOR ANOTHER LOOK]

    PARTNERS'
    INFORMATION

    Alvarez & Marsal
    Leading global professional services firm, Alvarez
    & Marsal (A&M), works with companies and
    investors to drive business performance and solve
    complex business challenges. Whether serving as
    trusted advisors or as interim leaders, A&M delivers
    specialist operational, consulting and industry
    expertise to overcome hurdles and maximize value
    across the enterprise and investment lifecycles.
    From more than 40 locations, including offices
    in Warsaw, Prague and Moscow, A&M works with
    private equity firms to “buy right, manage right and
    sell right.”
    When action and results matter most,
    visit www.alvarezandmarsal.com or contact Tom
    Kolaja, Managing Director, at +48 22 397 82 00
    or e-mail: tkolaja@alvarezandmarsal.com.

    Deloitte
    Deloitte Central Europe serves organizations with
    world class Audit, Tax, Consulting and Financial
    Advisory. Through the network of independent
    legal entities it operates seamlessly across
    the 17 countries of Central Europe. The regional
    Financial Advisory practice combines a powerful
    mix of highly experienced local and international
    experts in the areas of Corporate Finance Advisory,
    M&A Transaction Services, Valuation Services
    and Reorganisation Services. Since 1990, Deloitte
    Central Europe has advised on hundreds of
    transactions, and has built a number of market
    leading service lines and an excellent client base.
    Contact: Garret Byrne, Private Equity Leader, e-mail:
    gbyrne@deloittece.com, tel.+420 246 042 339.

    White & Case
    White & Case’s Private Equity practice in Central
    and Eastern Europe and Turkey (CET) has a
    formidable track record on complex, cross-border
    private equity deals, offering an integrated team
    of English, US and locally qualified private equity
    lawyers and tax advisors. We have offices in 7
    jurisdictions in CET: Ankara, Bratislava, Bucharest,
    Budapest, Istanbul, Prague and Warsaw. Across the
    CET region, we have over 120 private equity and
    M&A lawyers, with strong supporting leveraged
    finance and tax structuring. White & Case’s Private
    Equity team in CET has served as international
    transaction counsel on ground-breaking
    transactions throughout CET.

  • [ 24 | TIME FOR ANOTHER LOOK]

    SPECIAL THANKS

    This paper was inspired by the CEE general
    partner community’s desire to set out the basic
    facts about the attractions of a region often lost
    in the characterizations of developed Europe and
    overshadowed by the focus on trendy emerging
    markets.

    Special thanks to William Watson (Value4Capital),
    Robert Manz (Enterprise Investors), and Barbara
    Nowakowska (PSIK - Polish Private Equity and
    Venture Capital Association) for their leadership
    in the development of this paper. Kimberly
    Romaine (private researcher) is also recognized
    for her research, in particular co-ordinating the GP
    survey of late 2012 to ensure its independence.
    In addition, Henry Potter (Alpha Associates), Chris
    Mruck (Advent International), and Craig Butcher

    (Mid Europa Partners) contributed greatly to the
    development and editing of the paper.Thanks also
    to the European Private Equity and Venture Capital
    Association (EVCA) for their support on CEE statistical
    data. And last but not least, thanks to the European
    Bank for Reconstruction and Development (EBRD)
    for compiling and sharing their return data,
    the most comprehensive in the CEE region.


    Disclaimer
    The information contained in this report has been compiled
    by PSIK based on the sources noted throughout this paper.
    While the authors have taken suitable steps to ensure the
    reliability of the information included in this report, neither
    they, the supporting private equity associations nor the Partners
    can guarantee the accuracy of the information collected and
    presented herein. Therefore, no responsibility for any decision
    made or action taken based upon this report or the information
    provided herein can be accepted by the authors, any of the
    supporting private equity associations nor the Partners .

    © Copyright PSIK April 2013