Private Equity in CEE: Creating Value and Continued Growth

Private Equity in CEE: Creating Value and Continued Growth

Invest Europe, the association representing Europe’s private equity, venture capital, and infrastructure sectors, as well as their investors, published ‘Private Equity in CEE: Creating Value and Continued Growth’, an in-depth study of private equity’s role in innovation and economic development across Central and Eastern Europe. The report investigates the ongoing convergence of CEE countries with other EU regions and the investment trends that have enabled private equity to be a positive force in the region’s progress. It also highlights the industry’s role in innovation and raising ESG standards. These themes are brought to life through detailed case studies of companies backed and fully exited by private equity investors during 2015-2019. Central and Eastern Europe (CEE) now boasts over 30 years of growth and development since its ‘restart’ in the early 1990s, and private equity has been a part of the story since the beginning. As CEE and Europe as a whole have continued to develop, investment themes and strategies have evolved, and the region has responded with new and exciting opportunities.

The publication features 22 of the region’s successful private equity and venture capital investments fully exited between 2015 and 2019, to show the investment and value creation strategies that private equity is employing today in CEE. While by no means an exhaustive list of the region’s successes, these case studies provide insight into how private equity managers are leveraging the fundamental attractiveness of the CEE region into high returns for investors and value creation for citizens.

CEE has changed dramatically since the first private equity investors targeted the region at the beginning of the 1990s. Today, with a fourfold increase in GDP from 1995 to 2019, the region plays a significant role within the overall European political and economic landscape. Indeed, Central and Eastern Europe include 11 of the 27 European Union member states, and the region’s trade and industrial capabilities have made it an integral part of Europe’s production and service economy. Between 2003 and 2019 the industry invested nearly EUR 29 billion of capital in 4,300 CEE companies. These PE-backed enterprises have played an important role in bringing skills, knowledge, and know-how, especially to mid-market and growth businesses, throughout CEE. Invest Europe’s recent study on private equity’s economic impact found that CEE led all other regions in terms of the percentage of jobs created. CEE’s private equity-backed companies grew their employment to over 316,000 workers in 2018, which represents a growth rate of 10.7% year to year, compared to the 0.7% growth of the overall employment market in the same period.

It should be said that CEE has a long story of building ESG into its investment processes. For example, CEE managers had to deal with extensive environmental challenges and constraints in the 1990s, and since then have consistently integrated these issues into their post-investment activities as key sources of value creation.

CEE is also increasingly home to venture, technological investment, and innovation. The region’s traditionally strong technical education and skills, available human resources in areas such as programming and development, dynamic local environments with limited legacy infrastructure, and government support programs that recognize the importance of developing innovative businesses have changed the investment landscape. The growth trend is expected to continues going forward due to the record level of VC fundraising over the last three years – a record of EUR 338 million has been invested in CEE VC in 2019.

The listing of Allegro, Poland’s leading e-commerce marketplace, became one of the most sizeable and successful European-grown IPOs of the year when Mid Europa Partners, Permira, and Cinven floated the business on the Warsaw Stock Exchange. The full exit of Danwood, a Polish manufacturer of pre-fabricated houses, earned Enterprise Investors a reported 9x return after a six-year-old. Auto24, Estonia’s leading automotive classified advertising platform, was sold by BaltCap for some 4x money invested after a three-year hold. Baltik Vairas, a Lithuania-based bicycle manufacturer exporting over 270,000 bikes to some 14 countries, earned LitCapital wide media coverage for its successful turnaround. Innova Capital’s exit from Polskie ePłatnosci, a Polish payment provider, highlighted the region’s digitalization potential. ARX Equity Partners’ exit from Diagnosticni Center Bled, a Slovenian private healthcare services company, returned 3.6x and demonstrated the continued appetite shown by strategic investors for private equity-owned companies.

Two unicorns – Estonia’s sales CRM developer Pipedrive and Croatia’s full-stack communications platform provider Infobip – were born when mid- 2020 financing rounds pushed their valuations to over EUR 1 billion.

22 companies financed by private equity funds in CEE were analyzed in detail, including Anwis, AZ Klima, Bambi, Bitdefender, Deutek, Dino, Dotcard, Eutecus, Fitek,, Knjaz Miloš, KVK Holding, Magnetic MRO, MSV Metal Studénka, Novago, PBKM (Famicord Group), Profi Rom Food, Rankomat, Swell, Urgent Cargus, Velvet Care and Wirtualna Polska. These companies went through the entire investment cycle with private equity funds, from investment to exit, in the period 2015-2019.

Individual company profiles show the history and reasons for the investment as well as the transaction structure. They outline the contribution of funds to building the value of companies, to their growth and development, to supporting innovation and activities in the field of ESG (environmental, social, governance).

You can download Invest Europe report here.

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