Peak of confidence among Central European private equity firms fuelled by optimistic economic expectations: Deloitte

Central Europe private equity (PE) firms’ confidence continues its impressive climb fuelled by optimistic economic expectations, as 70 percent of them see the economy improving and none expect it to worsen, which is a premiere since 2007, according to the latest Deloitte CE Private Equity Confidence Survey. The survey shows a confidence index growth from 62, in the summer of 2020, to 149, near to the peaks in 2007 and 2011. No less than 98 percent of respondents expect market activity to increase or stay the same over the coming months.

As pricing, which is already high, is expected to continue its climb, four in ten deal-doers (41 percent) say they are adopting a more cautious approach to buying. In parallel, high prices also create a good momentum for harvesting, as mentioned by nearly 20 percent of PE firms, which intend to focus on selling in the coming months. Private equity houses with assets in well performing fields such as healthcare, tech, fintech and direct-to-consumer retail spaces have enjoyed heightened interest from prospective bidders and so they may be interested in divesting in such a high-pricing environment.

“Despite the setback after the pandemic outbreak, when the entire market froze, the PE industry has performed well over the last 18 months and has high expectations for the future, backed by experience, proven growth strategies and recovering economies. It is worth mentioning that over half of respondents confirm having implemented investment policies which specifically include ESG (environmental, social, governance) factors. In Romania, we have seen several private equity players such as Oresa, Abris Capital, Sarmis Capital, Black Sea Fund, Morphosis Capital etc. being active during this year in industries such as food, technology, services, healthcare and we expect that private equity driven transactions will continue to increase in the following period,“ said Radu Dumitrescu, Financial Advisory Partner-in-Charge, Deloitte Romania.

The survey also shows that financial efficiency of investments is expected to improve by two-thirds of deal-doers, the highest level since 2004 and 2005, when the market was in its golden age of growth.

When it comes to deals sizes, almost 60 percent of respondents expect an increase, as sponsors have ample dry capital to deploy and lenders continue to offer attractive terms. This is the highest share of respondents expecting increase since 2006, before the global financial crisis. While Central Europe remains mostly a mid-market opportunity, an increasing number of large deals are reported.

Market leaders continue to be most in-demand over the coming months, according to 54 percent of PE firms. Middle-size growing companies are seen as more in-demand now than at the end of 2020, with 37 percent of respondents expecting them to face the highest competition from investors. This may be the result of high pricing, which discourages some investors from acquiring leaders and leads them to focus on companies which can benefit from private equity’s growth strategies and therefore be acquired at lower multiples.