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Private Equity and VC Investors Pile Into Eastern Europe

Investor interest in Eastern European countries continued in 2016, with private equity and VC investments at their highest since 2009, according to a new report.

  • Joe McGrath

Investment in Central and Eastern European companies through private equity and venture capital hit its highest rate in seven years last year, according to a new report.

Total private equity investment in the region hit €1.6 billion ($1.9 billion) last year, while total private equity fundraising reached €621 million, a 62 percent increase over the previous year, according to trade group Invest Europe. Fund of funds accounted for the highest percentage of capital raised during 2016 (27 percent), followed by pension funds (16 percent). This is a marked difference from 2015, when capital came predominantly from government agencies (31 percent) and “other asset managers” (19 percent). Academic institutions, endowments and foundations — which, the report noted, traditionally had not embraced the region — accounted for 14 percent of the total fundraising in the region in 2016.

The report notes that the value of annual investment into the Central and Eastern European region has continued an upward trajectory since 2013, when the market bottomed out. The report included Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Serbia, Slovakia, Slovenia, and Ukraine in the region.

Emerging Europe’s appeal of late is underscored by the performance of the corresponding MSCI index. The index — which is composed of companies within the Czech Republic, Greece, Hungary, Poland, Russia and Turkey — returned 25.5 percent in 2016, compared with a 7.86 percent for the MSCI All Companies World Index.

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Robert Manz, managing partner at Warsaw, Poland-based private equity firm Enterprise Investors, said institutional investors were showing “renewed appetite for the region,” adding, “Private equity activity in Central and Eastern Europe was strong in all key areas last year — investments, divestments and fundraising — demonstrating a vibrant market with robust interest.”

Total private equity investment in the region last year was marginally up from the €1.582 billion invested in 2015 but considerably more than the €847 million invested in 2013. The last time this figure was exceeded was in 2009, when investors deployed €2.44 billion in capital.

Geographically, Poland was the most popular investment destination by value, attracting €725 million in 2016, ahead of the Czech Republic (€168 million) and Lithuania (€156 million). Serbia, which had enjoyed considerable interest over the past two years, attracted €329 million in 2014 and €229 million in 2015, but saw private equity and VC investment of just €48 million last year.

Sector-wise, consumer goods and services companies were the most popular investments during 2016, attracting investment of €511 million, ahead of companies in the energy and environment sector, which received more than €489 million in capital. Information technology (€136 million), biotechnology and healthcare (€135 million), and business products and services (€113.6 million) were the next largest sectors during the 12-month period.